The disastrous impact of fraud allegations made headlines earlier this year when one business owner lost his two businesses in a single week.

Administrators were called in to Ipswich-based broker, Ignition Select, and lead generation company, Call Connection, when they both hit financial difficulties that led to a fraud investigation. Ignition Select was a motor insurance specialist for many of the UK’s insurance providers, including Admiral, the AA and Swinton.

While separate entities, the two companies shared the same registered office, and it's believed that the actions of owner and major shareholder, Graeme Kalbraier, led to both foreclosures, which cost more than 200 people their jobs. 

A former senior employee at Call Connection said: "In my eyes, it was just poorly managed financing on his [Kalbraier’s] part, with other directors not being strong enough to confront him about it or when they did, it was too far gone."

It begs the question: Could anything have been done to prevent the unfortunate outcome from occurring?

Finding a New Way to Fight Fraud, Before It Happens

Fraud can creep in as a result of gaps in compliance within account reconciliations. Rather than any one, major event, it’s more usual for loopholes to be exploited by individuals gradually creating a web of mistakes that are not discovered until damage is too complex and far-reaching to undo.

Reconciliation may seem like a straightforward process; one person completes the work, while another certifies it. But what happens when reconciliation has been completed and verified, and then an individual back-posts a transaction by a month or two? Will anyone notice? Are sufficient warning systems in place that reliably pick up occurrences like this?

There is technology available that offers a solution to the problem. Blackline mitigates opportunities for fraudulent activities by providing ironclad reconciliation and certification protocols and rules that once in place, act as early warning systems for anomalous activities, red-flagging them and notifying the appropriate individuals.

5 Ways to Prevent Fraudulent Activities

1. Checking Balances Through Daily Feeds from General Ledger Systems

One way of ensuring things stay above board is to take a daily feed from a company's general ledger system of all balances, before the reconciled P&L and balance sheet statements are produced. Once done, then check if the balances for all the accounts are certified, who has done the certifying and who checked them, along with how the segregation of responsibility was assigned.

2. Developing Built-in Rules that Act as Early Warnings

Specific solutions allow for the inclusion and creation of rules that account for unexpected fluctuations and variations in account balances. For example, perhaps staff expenses or utilities need to be monitored. A rule can be created that allows for a fluctuation of, say 15% increase or decrease, in the balance of a specified account from month to month, but should that amount be more than 15%; a warning will be issued if the account suddenly displays an irregular amount. A relevant party is notified, and the variation is reportable across the system.

3. Selecting a Solution that Can Identify and Decertify Back-posted Amounts

In many cases of fraud, amount back-posting is used as a way of hiding fraudulent activity. By choosing a solution that automatically decertifies back-posted amounts, you can note the back-posting to whichever month the amount was posted, and subsequently, alert the relevant individual responsible for investigating the incident.

4. Focusing on Heightened Security and Accountability for Certifying Individuals

Often spreadsheets are used to manage reconciliations and tasks related to the financial close – where these are shared documents, located across multiple geographic zones, it easy for discrepancies to creep in. Ordinarily, you might find a box to be ticked by a checking individual to indicate they have checked the account, likewise with the individual certifying the account balance – but where is the audit trail?

Some solutions can take security a step further by creating questionnaires that each needs to answer when checking and certifying an account. These surveys end in a requirement for the individual to sign to verify the authenticity of their check or certification. This creates a greater sense of accountability.

5. Choosing a Reconciliation Solution with Heightened Functionality

Look for a solution that can offer you the opportunity to add documents, comments and policies to your reconciliations, or to link to your internal intranet. Make sure it’s possible to retrieve comprehensive audit trails for all aspects of account reconciliations on request. Another useful feature to look out for is the ability to allow auditors to login in and gain access to your system, where they can find everything they need to conduct seamless audits providing access to all the information they need in a centralised location.

Talking BlackLine

BlackLine can meet your needs, and those mentioned above, with its comprehensive suite of financial close solutions. If you'd like to know more about what BlackLine could do for you, please feel free to set up a meeting with us. We'd love to talk to you about how BlackLine, integrating into your GL system can benefit your business. Just click below to get in touch with us.

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