(2/6) Understanding the Risk

It quickly became apparent that the company had never undertaken a detailed Risk Analysis to determine where and how it might be exposed. A series of workshops and meetings with senior management quickly identified several key areas which were poorly controlled and which had exposed the company to losses through accident, fraud and theft.

The four major areas of concern were:

1.Risk Management

There was no Risk Management function. Internal Audit and routine inventory control procedures at the company's retail outlets had been abandoned or were ineffective and the Security Department had only a very marginal role in the company. It reviewed physical security at the outlets, but very little else.

2.Retail Operations

The company did not measure retail performance. Important Key Performance Indicators, such as stock loss, the level of refunds and discounts etc. were ignored.

3.Warehouse Operations

When recorded purchases, inventory levels and sales were properly analysed and compared, the company discovered a black hole of £2 million.

4.Procurement

There was no transparency in the procurement function with little or no segregation of duty within the department, and concerns were raised when it was discovered that the department agreed both the purchase and sales prices of goods to the same wholesale customers.

Fraud Symptoms

In addition to the exposures in the four key areas listed above, there were other symptoms of malaise within the company. It had a long and messy history of frauds in areas such as payroll and property management and there was a high reported incidence of staff theft from the stores. This strongly suggested that urgent measures were needed throughout the company to prevent further erosion of profits.

Disclosures in the Fraud-i™ reporting module, as well as during "Understand the Risks" workshops using the Fraud-i™ tool have helped reveal a great deal of sensitive information regarding malpractice and unethical behaviour within organisations.

The results of these findings remain confidential and anonymous.