Make fraud detection part of your company’s DNA

http://www.travolution.co.uk/articles/2015/02/24/11751/guest-post-make-fraud-detection-part-of-your-companys-dna.html

Posted by LAM Xin Hui, Year 4 undergrad at the School of Accountancy, Singapore Management University

February 24, 2015

By Roberto Da Re, chief executive of Dolphin Dynamics

Fraud can hit your bottom line, hammer your reputation, and scare off customers. But it is possible to minimise the risks. More control and more automation is the best place to start. This is because the complicated transactional nature of travel leaves it open to fraud. There are deposits, payments, cancellations, refunds, taxes, discounts and commissions. Control these touch points and the potential for fraud can be reduced. A fully integrated front and back office system is the cornerstone of a secure business. Integration leads to seamless processes.

Front of house selling systems feed directly into back-office accounting and fulfilment meaning any unexpected transaction or deviation from the standard process, such as unusually high or low margin levels, can be flagged up in real time.

Often there will be an acceptable explanation for any discrepancy. But when something happens outside the usual parameters, the quicker you know about it the better.

Payment processes are a significant risk. Integration through a payment gateway ensures consistency between your points of sale and your bank. A suitably designed system will highlight any discrepancies.

In 2012 an agent was jailed for stealing £140,000 from an agency in London. Police said that “older back office systems” were a contributory factor.

A fraud-aware system, set up properly, can minimise the risks from staff. Alerts can be set up to remind staff of best practice.

System-based permissions are essential for defining access to functions that are consistent with role, while an appropriate separation of duties and responsibility provides the context for checks and approvals and creates layers of accountability.

Having said that, one of the biggest frauds in the UK sector was carried out a senior level.

Last October, the former finance director at Chambers Travel was jailed for a fraud costing the business £3.3 million.

The fraud took place over four years, and was only discovered when the business appointed a chief financial officer.

This illustrates the danger of giving one person, however senior, sole access and autonomy to a business function.

And if the warning signs are there, do not ignore them – last summer an agent from Hull was jailed after stealing £13,000 over a five-year period.

Amazingly, in 2008 the agent had been caught altering colleagues’ sales sheets so she could claim the commission, but despite the evidence the boss decided not to pursue the case and kept the employee on. An expensive mistake.

Daily reconciliation of cash, banking receipts and tickets issued flags up unusual patterns and discrepancies early and thereby minimises the impact of fraudulent activities.

It isn’t a coincidence that the processes which help minimise fraud also maximise efficiency.

Automated workflows, clearly defined responsibilities and an integrated front and back office system form the basis of not only an efficient travel agency but also a fraud-resilient business.

Here are the thoughts of Jonathan Wall, Managing Director at leading travel industry auditors Elman Wall.
“Fraud is a business crime. The biggest question for organisations, especially SMEs, is determining what to classify as error and what to consider to be fraud.

“For a travel business, can you rely on your financial advisors to alert you of a fraud or should you already have systems and controls in place to do that?

“Accountants can suggest ways of preventing internal fraud such as good whistle-blowing policies, having set procedures in place, introducing checks and precautions on company transactions etc.

“They cannot however be expected to pick out fraudulent transactions in their annual review of the business.

“The main way in which the risks of fraud can be identified and mitigated are to have strong and properly thought out controls, systems and processes implemented and adhered to.

“Automated workflows build in this kind of protection and make it much more difficult for an ill-intentioned employee to defraud the company.”

In summary, secure, integrated processes send out a clear message to staff that fraud awareness is part of the company’s DNA. And the threat of discovery is the best deterrent.

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