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Keeping fraud off the workplace menu

Nicola Sharp, of award-winning business crime solicitors Rahman Ravelli, outlines why the Patisserie Valerie case is a reminder of the need for businesses to prevent fraud.

The cake and café chain Patisserie Valerie’s major financial problems continue to make headlines. But many in business need to be aware that such a distasteful outcome is always a possibility unless a company takes serious steps to prevent fraud.

It was last October when Patisserie Valerie announced that there appeared to be a £40m black hole in its accounts. The company went into administration last month. It is now reported that six people face arrest in the wake of a report by the accountancy firm PricewaterhouseCoopers (PwC) that refers to fraudulent cheques being signed and emails being sent that discuss made-up invoices.

Admittedly, not many of us run a chain of popular cake shops. But the Patisserie Valerie saga must be viewed as a reminder of the importance of ensuring that a company takes steps to ensure it is protected against fraud – and that the steps taken are the right ones.

The owner of Patisserie Valerie has said recently that the accounting scandal is worse than first thought, with extensive misstatement of its accounts and what the company has called "very significant manipulation of the balance sheet and profit and loss accounts"; including thousands of false entries in its ledgers.

At this stage, nobody can say with 100% certainty exactly what happened. But what is indisputable is that companies can take preventative measures to reduce their vulnerability to fraud.

As well as being financially harmful, fraud causes disruption, can lower staff morale and damages a firm’s reputation and relationships with those it does business with. That is the case whether you are selling cakes or offering any kind of product or service. There may be some reading this who believe fraud will not happen to them – and yet it may even be happening while they are reading this. Some may be aware that it is happening to them and not know what to do.

Prevention

The key to tackling fraud is prevention. This involves senior staff researching and detecting the potential for problems and then devising and introducing procedures that allow wrongdoing to be identified and prevented. Any company that does not do this will be vulnerable to fraud – or other wrongdoing – regardless of its size or the nature of its work.

That is why each and every company has to examine all aspects of the work it does and the roles and responsibilities of those working for or with it. Most fraud involves more than one person. How records are kept, payment procedures, management and monitoring structures and working relationships all need to be assessed to determine if there are any weaknesses that could make fraud a possibility.

If a company believes its senior staff are too busy or lack the skills to carry out such an exercise, it is a task that can be entrusted to business crime lawyers; who will have the relevant expertise and experience required to examine a company’s workings, identify areas of vulnerability and then recommend ways that such vulnerabilities can be “designed out’’.

Such procedures will be complemented by a whistleblowing procedure that enables staff to report suspicions of wrongdoing and know that they will be investigated. Such a procedure can help promote an anti-fraud culture in the workplace, which can both deter those thinking of committing it and make others more alert to the possibility of it.

Investigation

It will often be the case that a company may not know which way to turn if, for whatever reason, it comes to suspect that fraud has been committed against it. This is neither unusual nor surprising: those who go into business rarely do so to prevent or prosecute crime. But they do need to be aware that an internal investigation is a vital first step in responding to any suggestion of fraud.

A well-planned and carefully conducted internal investigation will help the company determine whether fraud has been committed and, if so, the extent of it. As with devising anti-fraud measures, external help can and should be sought if the company’s senior figures are not sure how to carry out such an investigation. An investigation is the only way for a company to assess the scale of the problem and then make an informed decision about the most appropriate course of action.

If an investigation does uncover fraud, the company has the option of reporting it to the police or other agency, bringing a private prosecution against those it believes are responsible or bringing civil proceedings against them to recover the amount they believe has been taken.

But fraud prevention procedures that are fit for purpose can go a long way to ensuring such choices do not have to be made.

Ashleigh Smith
Article by Ashleigh Smith
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