Profit and Relaxed Controls

The new Managing Director of a European retailer with over 400 outlets was concerned about increasingly reduced profits and poor employee morale. It was discovered that Internal Audit and routine inventory control procedures at the company’s retail outlets had been abandoned or were ineffective, there was no Risk Management function and the Security Department had only a very marginal role in the company.

A risk analysis of company operations identified many vulnerable areas. Transactions to the value of €12 million were identified as high risk and a number of red flags were identified in Retail, Warehouse Operations and Procurement.

A Risk Management Team was created to lead Security, Internal Audit, Inventory Control and Health and Safety. Risk Management found a serious conflict of interest in procurement and launched a number of initiatives to stem losses and improve controls in key areas. As a result of these initiatives employees were dismissed, disadvantageous contracts with suppliers and customers were terminated and an additional £2.3 million profit contribution was made to the companies’ bottom line profitability in the current financial year.

• KEY POINT: If you relax controls such as Internal Audit, Security and Inventory in an environment in which employees are uncertain and are concerned about their futures, fraudsters will exploit any weaknesses in controls.

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.