UBS fraud case highlights urgent need for SMEs to adopt stringent accounting controls

The arrest of a UBS equities trader in London who defrauded the Swiss bank of nearly $US2 billion is a stark reminder that businesses must protect their accounting and ensure financial details are under lockdown, the industry has warned.

The arrest of Kweku Adoboli in London has thrown the financial services industry into a tailspin after it was revealed he is now being investigated for a number of deals on shares and currency rates that led to him losing billions. Police are investigating to determine whether he benefited personally from any of the spending.

Police were actually tipped off to Adoboli after he wrote a message on his Facebook page saying, “need a miracle”.

CPA Australia business policy advisor Gavan Ord says the incident highlights how businesses of all sizes can be subject to fraud, and reminds businesses they ought to be watching employees closely to ensure it doesn’t happen to them.

“This is a failure of their internal controls, their risk management. One lone trader has been able to circumvent internal controls and there is a failure there.”

“We have four or five steps we give to our members, and that includes stopping the fraud once they find out about it, whether it’s shutting down a computer system, or so on. And then starting an internal review process.”

Ord also says the business needs to report any fraud to the police, as many SMEs don’t and this can often lead to the person who perpetuated the fraud continuing to do so.

“A big step for businesses is that they need to investigate what happened, and where they can improve. There are a number of places where they can improve, computer systems, and so on. Making sure everything is locked down.”

Ord says businesses often forget that most fraud occurs within the business itself, and very rarely are SMEs attacked by outside forces. This means business systems need to be impeccable – many accounting experts recommend limiting the number of people who have access to certain accounts, and providing dual passwords.

Some also recommend introducing a system whereby alerts are sent every time an employee accesses a certain account.

“You need to do police checks on all new employees, even doing credit checks will show up things like gambling debts.”

“If your business is a victim of fraud, you also need to talk to the employees after it happened and discuss it all. It needs to stop immediately, because good employees don’t want to work for a firm where fraud is widespread.”

Adoboli is now being investigated by City of London Police, although it appears his trades suffered due to recent market volatility. Reports indicate his activities were affected by the recent turmoil in sharemarkets, and the decision by the Swiss Central Bank last week to devalue its currency.

In a statement to employees, UBS chief executive Oswald Gruebel said the incident was distressing but is being investigated.

“The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of $US2 billion. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected.”

The alleged fraud comes just a few years after a Societe Generale employee lost the company around $US6.6 billion through similar circumstances.