Profits down? Fraud may be the culprit
Published:Friday | December 10, 2010 | 12:00 AM
Carolyn Bell, Guest Writer
In an article in The Gleaner in 2008, it was estimated that fraud was a multibillion-dollar problem in Jamaica.
According to the latest Global Economic Crime Survey prepared by PricewaterhouseCoopers, not only does fraud continue to erode more than six per cent of a business' gross income, but there is a trend of increasing incidence and cost of fraud year on year.
The greatest influence contributing to these increases is the pressure associated with the general economic downturn.
In Jamaica, there are added considerations. The Jamaica Debt Exchange (JDX) resulted in the replacement of high-yielding Government of Jamaica investments with lower-yielding ones.
This had the effect of substantially decreasing investment income for many investors. Financial institutions have, in turn, reduced interest rates on deposits and other interest-bearing instruments, traditionally a source of revenue for businesses and individuals.
Further, the collapse of a number of unregistered investment schemes which preceded the JDX had the effect of eliminating a significant source of income for many Jamaicans, in some instances bringing persons to financial ruin.
BUSINESS IMPACT
Traditionally, many businesses and business owners in Jamaica relied on interest income to shore up their earnings and bottom line.
The existence of fraud was known and accepted as a normal cost of doing business; however, as revenues were being bolstered by high returns on government paper and other investments, net income was largely considered to still be acceptable by business owners and other stakeholders.
Unfortunately, in addition to reducing businesses' income, the JDX and the collapse of unregistered investment schemes have also fuelled fraud, as individuals seek ways of shoring up their reducing income.
Therefore, fraud, whether due to organised crime or the exploitation of procedural weaknesses, actively threatens the quest to maintain profits in our challenging environment.
In Jamaica, much fraud remains largely undetected or unreported. Only a few cases are brought to the public through the media or other means.
Many businesses merely react to these publicly reported cases, and only then try to identify whether similar fraud may be impacting their organisation. But this may be too little and too late!
Given the current environment, business owners and managers need to be more astute in determining the extent of fraud that may be taking place in their businesses in order to protect an already vulnerable bottom line. Businesses must be prepared to fight back! A proactive response is essential to reducing fraud. It is far better to put the mechanisms in place to prevent and detect fraud early, rather than to do damage control after an incident.
AHEAD OF THE GAME
A proactive response would mean:
● Knowing the 'fraud culture' within your business by performing high-level analyses of your business and business practices. In these analyses, you would identify the features of your 'fraud culture' which may expose you to fraud. There is a free-to-use diagnostic available at www.surveymonkey.com/s/FraudRiskAssessment. Take the test to determine where your organisation currently stands.
● Performing regular fraud-risk assessments to recognise the fraud schemes that your business is most open to. This fraud-risk assessment goes a level deeper than the analyses previously referred to, through a systematic consideration of the known fraud schemes, risk of occurrence and the controls you have in place to address them.
● Implementing robust anti-fraud controls given that good operational controls may not be enough to protect you against fraud! Anti-fraud controls are those controls which are specifically designed to address fraud schemes to which the business is vulnerable.
● Performing regular fraud audits to detect fraud before it becomes a significant problem. A fraud audit is different from other audits in that it is specifically designed to identify whether fraud schemes to which the business is susceptible have actually occurred.
● Designating an anti-fraud champion who is responsible for keeping up to date with the fraud schemes affecting the industry and ensuring that there is adequate training and awareness of the potential for fraud within the business.
Businesses should no longer be naïve to the impact of fraud. In the war to protect profits, a proactive approach to achieve sustained reductions in fraud must be a key tool in their arsenal.
Carolyn Bell-Wisdom works with PwC Jamaica.