We were recently involved in looking into the backgrounds of some individuals for a client of Faire Sans Dire. Their involvement in a series of frauds became increasingly obvious. However, even though we thought it would be helpful to all our clients and readers, we could not publish an article about the case for reasons of confidentiality etc.

As a result of the frauds the client eventually went to the wall and many people’s lives were wrecked or derailed. If only they had outsourced their accounting functions earlier the losses and ultimately the destruction of a sound business could have been avoided. Instead of explaining what happened (which we can’t) we thought it might be helpful to those of you who own or run businesses, particularly SMEs, to release this article which briefly comments on some aspects of outsourcing your accounts department.

The latest report on fraud issued by the Association of Certified Fraud Examiners (ACFE) in July 2012 reads in many respects like its 16 predecessors so far as SMEs are concerned. Year after year the ACFE have reported that out of all the organisations and businesses they collect data on, SMEs consistently suffer the most from internal fraud any which way you care to measure it. The ACFE reports are in line with those published by large UK and international accounting firms.

SMEs suffer more than the average fraud loss for all organisations which is estimated to be 5% or more of turnover. That is a lot of post-tax profit to chuck away; it may be all your profit. Chucking large chunks of profit away is precisely what SMEs have been consistently doing year in year out according to everyone who produces fraud statistics. Some estimate SMEs lose nearer 10% of their turnover as a result of fraud.

Perhaps the boards of SMEs mistakenly think they know what they are doing just like bankers and their regulators had done for so many years. If the board of an SME was told they could save 5% of turnover by using a different mail delivery system for sending their products to customers they would change the system as fast as they could. So why not do something about losses from frauds?

Maybe because you are a director you believe that your business is fraud free … we would simply comment that is what they all say so someone must be wrong since the statistics from so many different sources all tally.

If you read reports on fraud statistics in depth you may note that a large proportion of fraud is committed by people with direct or indirect access to the accounting systems. Rather than establish more and more controls or even create an internal audit department why not outsource your entire accounting department to a firm of accountants? For a start it should stop any shenanigans going on and prevent others planning on pillaging your business in the future.

Apart from getting greater reassurance of the veracity of your monthly accounts you will almost certainly find it less expensive than your current arrangements before eliminating irksome and costly PAYE or VAT errors; you may even save on insurance, audit and other costs too. What is more you may be able to avoid upsetting staff and avoiding redundancy costs by transferring some of your accounting team to work for whoever you choose to outsource the work to.

We and our associates have had experience of outsourcing accounting work normally done in house. We have never regretted it. You may think yelling down the corridor to talk to your accountant is a useful way to spend your time but with modern communications you can just as easily keep in touch with a firm of accountants you have outsourced the work to and if you ask a difficult question, the answer will probably be at their fingertips.

We do not provide accountancy, VAT and PAYE services but we have used firms that do at very reasonable charge out rates. If you are interested in exploring outsourcing the work your accounts department does, please feel free to contact us in confidence. We may know of a suitable firm and you can take it from there.

It may reduce your costs anyway and save you between 5% and 10% of your annual turnover which might be equivalent to or exceed your annual post-tax profits. After all if the fraudsters are somehow directly or indirectly accounting for your frauds they are very unlikely to report them!

This article was first published on 10th November 2012.

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