Are your internal fraud measures up to standard?

As if to prove that nobody is immune to internal fraud, BrewDog CEO, James Watt, has gone public with information of a rogue employee at his firm in a bid to show it can happen to anyone and to remind companies to check their internal fraud systems.

Fraud can lead to the collapse of firms and over recent decades has seen major names disappear from the UK economy. But this latest incident with BrewDog, in which the perpetrator falsified sales orders to rob the company of beer, shows it’s not always straight forward financial fraud enacted by those managing the company accounts.

Hiding behind success

At BrewDog, it was a successful but slightly reclusive new sales executive that very nearly cost the company over 100,000 cans of its beer, which even at trade price would have equated to a six-figure fraud. The CEO tells how the new hire explained that they had a unique way of working that was extraordinarily successful and to deliver their particular brand of success, they needed a light touch approach from management. Management acquiesced and were very quickly reaping the benefits. The new exec signing major influencers, large multiple retailers that had eluded the brand thus far and then, the pièce de resistance, a major supermarket listing.

Because of the rapid success, nobody questioned the individual about how they had managed to secure such positive deals so quickly. Acting as a lone wolf, nobody else from the company had attended any of the sales meetings or bothered to check on the claims being made, or the deals done. In retrospect, it was a traditional long firm fraud M-O, starting small, gaining the trust of management and then rolling in with the big orders.

The exec had started out by securing the services of influencers – those who make a living promoting brands to their followers – typically on social media. High profile followers who were likely to convert the masses to BrewDog products, were sent branded fridges, stacked with product. They would then try the beers and tell their following about the flavours and encouraging them to buy BrewDog. But a subsequent meeting between a territory manager and one of these influencers planted the first seed of concern, then the influencer made clear that they had no record of having spoken to the exec or received the sample fridge.

Upon return to the office and the raising of red flags, internal investigations quickly proved that none of the deals were in fact legit. Emails, purchase orders, meetings, contact records had all been falsified, but such was the excitement at the scale and pace of the success, internal checks had not picked this up or been overlooked. Thankfully the blag was caught before the biggest order for 100,000 cans left the warehouse.

Robust anti-fraud checks

This case is far from unique but it is perhaps the willingness of the CEO to share his story that will act as the best reminder for companies of all sizes to not get carried away and ensure anti-fraud checks are robust and consistent – regardless or the pzazz that may surround an individual or potential deal.

Whilst the 100,000 cans would have seriously dented the brewers bottom line, the reality is they would probably have survived it. But for many smaller companies it would not require a contract opportunity of that scale to cause genuine issues. It’s not only the lost stock at cost price, but the lost revenue from those margins and the cost of replacement that would soon add up. But if you’re a growing business focussed on securing deals it’s easy to understand how the bright lights of a breakthrough sale could lead to detailed checks being overlooked, or in some cases, not carried out at all. So, what checks should you be conducting?

Anti-fraud measure for SMEs

If someone is hell bent on defrauding you, they’ll be willing to speculate to accumulate and so nothing is 100% guaranteed to stop every fraud attempt. Even the use of proforma invoices on the first deal(s) may not discourage them. In many cases experienced fraudsters will start small, be willing to pay up front to buy trust and then tell you how successful its been for them and wade in with a big deal as soon as your terms become more relaxed.

Good fraud prevention is about multiple checks, consistently conducted, on every deal, with every client, every time. Those checks include:

  • Simple background check – Companies House look up to see date of incorporation, the people behind the business, recent submissions (change of people, accounts etc)
  • Maintain terms – Set out your credit/payment terms at the outset and enforce them. If they’re asking to change them, say no or ask for a meeting to discuss
  • Email/domain/contact checks – Are the details being used actually theirs? With BrewDog, the supermarket purchase order came from a domain that looked like theirs but had an erroneous hyphen in it. On first glance it checked out, but the reality was it was subtly different
  • Invoice and delivery addresses – Are they actually their addresses – can you check?
  • Don’t be afraid to call and check – Don’t recognise a name, address, email address or something doesn’t feel right then pick up the phone and check.
  • If in doubt, don’t – If you have any concerns e.g., the products being ordered are different, the volumes are beyond previous orders or gradually ratcheting up,, then don’t accept or fulfil the order.