What is the true cost of fraud?

The following, while not an exhaustive list, need to be considered:

• Of course the actual value of the fraud needs to be taken into account.
• How much does it cost to investigate the fraud? This could be the cost to bring in someone externally to conduct the investigation or the time cost of people within the organisation to investigate the fraud.
• Who will liaise with law enforcement and take the necessary time to work with them and potentially ultimately attend court to give evidence?
• Fraud comes straight off the bottom line – consider this: if your organisation runs with a 1% surplus, a $50,000 (off the bottom line) fraud means that you need to raise $5,000,000 (top line) to replace that $50,000. This is a very difficult task to do.
• Would the fraud mean your organisation would need to either need to arrange an overdraft or extend the overdraft to maintain the cashflow? The additional interest becomes a cost of the fraud for the length of time it takes to no longer need the overdraft or extended overdraft.
• It is very difficult if not impossible to determine the cost of the fraud on the reputation of the organisation. What effect would the fraud have if it made the front page of the newspaper?
• Could the organisation be at risk of losing funding such as grants?
• Losses can be offset by any insurance, but it needs to be remembered that an insurance payout is “after the fact” and cashflow can be significantly affected before the payout is received.

Does Your Board Hinder Your Fraud Prevention?

I am often asked the question of how does the person charged with fraud prevention in an organisation, get buy in from the board and in some instances from management.

There is no easy answer, but the following are some ideas that may help:

• Remind the board of their duties to the organisation – eg. duty of care;
• Have the board consider what they organisation could do with an amount that could easily be lost to fraud, say $50,000 (eg. run a specific program, provide a service to 250 clients);
• Step the board through the true cost of fraud (eg. the loss of funds to the fraud, extra interest on an increased overdraft facility, cost to investigate the fraud, legal costs);
• Explain that employees and volunteers should not be concerned with the introduction of a fraud control program – the program is important to protect those employees and volunteers that are honest and find those that are not.

How do you deal with the media?

There are a number of issues you need to deal with when fraud is discovered. One of those is how do you deal with the media. The following are suggestions on issues that need to be considered:

• The first thing you need to consider, and pre-plan for, is the potential risk to your organisation of media attention, should it become publich that it has suffered a fraud. For example, a charity is likely to be at a higher risk as funds it relies on are from public donations and it would therefore potentially make newsworthy reading.
• The organisation then needs to be prepared. Does the organisation have a media policy? If yes, part of that policy should be who has authority to speak to the media. This person should be the person authorised to speak to the media if enquiries are made about the fraud. It also needs to be determined who authorises what can be said to the media.
• The organisation needs to consider how they will address the issue if they are contacted by the media. It is the reputation of the organisation that is at risk if a report that is not favourable to the organisation is published.