What can Finance Directors do to guard against fraud?

February 22nd 2023 | Posted by Mark Masson

Fraud is a major concern for UK businesses.

As an example of this, the BDO Fraud Survey that monitored fraud trends in 500 mid-sized organisations throughout 2021 found that 84% experienced some type of fraud.

One-third of the reported frauds were the result of external forces, 38% involved internal and external forces, and 29% were committed by employees.

Sources such as the Metropolitan Police provide advice about protecting businesses against fraud. The best finance directors understand the value of such advice and know the role they play in guarding against fraud in the organisation. There are several steps they take to meet the demands of this role.

Implement procedures to prevent fraud during financial transactions

Top finance directors recognise their role in ensuring the security of business transactions. They make sure that the finance function has checks and processes in place. These processes and checks include:

  • Having a system of checks and balances in place, ensuring no one person has responsibility for every part of a financial transaction.
  • Assigning a designated person to authorise purchases and payroll.
  • Separating handling and record-keeping responsibilities.
  • Requiring timesheets to be authorised by managers.

Ensure regular reconciliation of the organisation’s bank accounts

Reconciliation is essential to fraud prevention in a business. While finance directors are not directly involved with the reconciliation process, the most dedicated professionals recognise their responsibility for ensuring the process takes place each month with certain steps required:

  • Acquire business bank statements.
  • Acquire access to the business ledger in physical form or using accounting software.
  • Check deposits against income entered and check any non-income related deposits for their origin.
  • Check all bank withdrawals including checking expenses against them.

Monitor business spending

Efficient finance directors play a central role in ensuring business spending is monitored to protect the organisation against fraud. Doing this involves the implementation of a series of measures including:

  • Restricting the use of business debit and credit cards to business-related spending only.
  • Restricting the use of business debit and credit cards to certain personnel.
  • Setting account limits for spending.
  • Implementing appropriate spending policies and ensuring they are communicated to employees.
  • Requiring employees to submit itemised receipts for every purchase.

Provide oversight at the Board level

The prevention of fraud in an organisation requires oversight at board level. Experienced finance directors ensure that Board meeting minutes reflect the approval of all financial procedures and policies.  They also ensure independent auditors are in place to explain the annual financial statements of the business to the Board.

Ensure the appropriate use of the organisation’s assets

The best finance directors know that protecting a business against fraud is not just about preventing financial exposure to fraud. They understand how vital it is to ensure the organisation’s assets are used appropriately. This role involves putting processes and procedures in place to ensure:

  • Assets such as vehicles, equipment, and mobile devices are only use for business purposes.
  • Expense reports are regularly checked for accuracy and any discrepancies are identified.
  • Vehicle logs are maintained.
  • An equipment inventory is produced and maintained.

Fraud is expensive for businesses. Taking the measures outlined in this article allows finance directors to reduce this cost by guarding against exposure to fraud.

If you are a Finance Director or CFO looking for a new role, register with us. If you are an employer looking to hire an FD or CFO into your leadership team, contact us.