Fraud response plan - no plan is planning to fail

We conducted a FraudTrack survey that revealed 35% of businesses have no fraud response plan or are unaware if their businesses have one. This survey also revealed that 59% of businesses are (very or somewhat) concerned about the impact of Brexit, yet only 54% have performed Brexit related fraud risk assessments.

These are disturbing statistics, considering that fraud can potentially have a catastrophic impact on businesses and in some instances can lead to complete business failure. It is perhaps even more concerning that with Brexit well underway and the operational changes (and some would argue, chaos) that it brings, some organisations may be blindly stumbling unprepared into Brexit related fraud risks.

This article considers some of the key Brexit related fraud risks, explores what a fraud response plan is, why it is important and the key elements that it should have.

Examples of some key Brexit related fraud risks

• Legal and Compliance - the free movement of people ended on 1 January 2021 and since 30 June 2021 EU nationals have no right to work in the UK. This may be providing fraudsters with opportunities to create fictitious immigration documents.
• Trade - there are still parts of trade regulations that lack clarity which provide opportunities for fraud. Fraudsters will take advantage of the chaos, ambiguity or loopholes that may exist in new regulatory frameworks and trading practices.
• Supply chain – problems can occur in various ways and at any step in the supply chain from misrepresentation of goods and services to collusion between employees and suppliers to defraud a business.
• VAT – this form of taxation relies on self-reporting and a system of fragmented rules and enforcement by different EU member countries which makes it rife with opportunities to exploit the rules. This disjointed approach may create opportunities for tax evasion.
• Financial statement misrepresentations – dealing with uncertainties such as assessing the value of estimates and forecasts in a business may create opportunities for fraudsters trying to successfully navigate the EU market.

While there is no guarantee that an organisation will totally eliminate potential fraud, being prepared is an integral part of the solution. When evidence of fraud or suspicion of fraud is identified, management must be prepared to respond and address a number of issues in a timely and appropriate manner. In order to do this, management should develop and implement a fraud response plan.

We assist our clients with implementing fraud response plans that will potentially lessen the impact of the economic, legal and reputational risks that are associated with being a victim of fraud.

What is a fraud response plan?

A fraud response plan outlines steps that members of an organisation should take when fraud is suspected or identified. This plan will help manage the organisation’s response, putting them in a position to be prompt, agile and effective when the situation arises. Conversely, organisations that do not have a fraud response plan will probably not be able to response to issues in a timely and appropriate manner, increasing the risk of economic, legal and reputational harm.

To be effective, the fraud response plan should be simple to understand and administer.  It should be visible and regularly updated. It should provide an organisation with a blueprint that sets out how to consistently and comprehensively deal with issues presented.

The key elements of a fraud response plan

There are certain key elements that a fraud response plan should include, these are:

• Details of reporting protocols to ensure that the reporting lines are clear and established.
• Identification of the response team so that the key individuals or groups are known.
• Identification of organisation-specific criteria for deciding whether suspicions or allegations should be escalated to a formal investigation.
• Establish steps to be taken in respect of document retention and preservation, as documents (both hard copy and electronic) could be relied on as evidence. This is key to demonstrating the integrity and robustness of the investigation.
• Establish the principles for documenting information for each phase of the investigation so that all relevant information relied on to support the conclusions is collected in a systematic way throughout the investigation.
• Maintain a report log setting out all suspicions of fraud or incidents of fraud, the actions taken, and the conclusions reached.

Successful outcomes do not happen by accident, it takes planning. The old adage “if you fail to plan, you are planning to fail” was popularised by Benjamin Franklin - there is no doubt that at the time of making this statement he was not referring to a fraud response plan. However, its tenets apply. Maintaining a fraud response plan is a proactive approach, which creates an environment to minimize fraud risks and maximise the organisation’s potential for success when dealing with the issues associated with the suspicions or incidents of fraud.

If you would like advice on how to make effective investments in fraud prevention and detection including how to revise, develop or implement a fraud response plan, please get in touch with Karen Edwards.

To assist you in negotiating the changing fraud landscape we bring together further insights, articles and other useful resources to help combat fraud on our Fraud Hub.