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FRAUD AND SME’S Small or medium enterprises (SME’s) are often reluctant to report fraud. Aziz Rahman examines why and suggests the best way to tackle the problem.

29 November 2016

SME’s are not reporting more than £260m of fraud each year because they believe it is not worth the trouble.

Research just published indicated that almost one in five managers whose companies were affected by fraud did not alert the authorities. Potential damage to the firm’s reputation, the fear of exposing it to further fraudulent activity and the belief that it would be too expensive to seek specialist help were among the main reasons those running fraud-hit SME’s gave for not reporting wrongdoing. 

With a third of cases involving fraud being committed by staff and 25% being perpetrated by contractors, it is worrying that SME’s will not take action to prevent any repeat offending.

Necessary Knowledge

The research showed that 57% of SME’s never carry out fraud audits, either because they believe they are adequately protected, would spot any wrongdoing without going to such lengths or would never be targeted. Almost half of those questioned admitted they lacked the necessary knowledge to tackle fraud.

If anyone who commits fraud takes the time to read this research, it will be music to their ears. SME’s are traditionally vulnerable to fraud as they tend to lack the carefully-devised and implemented procedures that bigger companies employ. The fact that those running them are reluctant to tackle the problem indicates that little will change in the near future.

Preventative Measures

Such a situation is alarming, especially as there are actions that SME’s could take which would not damage their reputation, make them vulnerable to further fraud or cost them a fortune.

At Rahman Ravelli, we are regularly asked to assess the workings of firms to determine their vulnerability to fraud and devise preventative measures to remove that vulnerability. Using relevant legal expertise to design out the possibility of fraud in a workplace does, obviously, cost the company in the short term.

But this can lead to long-term savings. This is because the chances of fraud being perpetrated against the company are now greatly reduced in terms of both the number of incidents and the amounts involved.

Internal Investigations and Private Prosecutions

Even the most publicity-conscious SME manager should also be aware that there are ways in which incidents of fraud can be acted upon without prompting unwanted attention. Corporate fraud lawyers can be used to conduct investigations on behalf of a SME. Such investigations can be carried out with the minimum of fuss and with very few people being made aware of them.

Findings from an investigation can be used to report the matter to the police. But there are other options. An SME could use the information to bring a private prosecution against the person or persons they believe carried out the fraud. Such cases can often be completed quicker than a conventional prosecution involving the police. SME managers who cited expense as a reason not to report fraud should also be aware that costs in private prosecutions can often be recovered, even if the prosecution is not successful.

Alternatively, it is possible to initiate civil proceedings against the person who has committed the fraud. In such cases, the emphasis is on recovering what has been lost rather than on punishment. Civil proceedings offer the scope for an early settlement and are another way in which the fraud can be tackled in a way that is neither costly nor damaging to the company’s reputation.

The research and the statistics don’t lie: SME’s are vulnerable to fraud and yet they are reluctant to tackle the problem. But by employing the right methods they can identify the people responsible, take appropriate action and prevent it happening again without either spending a large amount of money or suffering a damaging blow to their reputation.

Authors


Azizur Rahman
Senior Partner
aziz.rahman@rahmanravelli.co.uk
+44 (0)1422 346666



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