We’ve all borrowed a mate’s ID, stretched the truth on our CV, or underestimated our regular outgoings when applying for a loan, haven’t we?  And that’s alright, isn’t it?  As long as we’re not doing any harm because it’s not as if we’ve stolen anything, or have we?

Actually, all of those examples are fraudulent.  And whilst they may not seem very serious, a stretch of the truth as opposed to an outright lie, this type of behaviour can lead to more serious incidents.  Being occasionally late to work, that turns into taking a day off sick unnecessarily, is clearly stealing time; fraud and theft are closely related and often, cases of fraud are also theft.  Fraud occurs when there is intentional deception which results in an unfair or unlawful gain, or in avoiding an obligation, or causing loss to a person or an organisation.  It is one of the areas organisations have to manage in terms of risk. 

I’ve written other articles about risk as it is a topic covered at each level of AAT’s qualification.  The first focuses on the difference between uncertainty and risk, and the second on risk management and the use of the TARA framework to help inform decisions about how to manage risks.  If you haven’t read them, then just follow the links:

L2 Uncertainty and risk

L3 Who’s TARA?

The TARA article concludes by explaining that organisations have to identify, evaluate and manage risks by Transferring, Accepting, Reducing or Avoiding them, depending on their likely occurrence and consequences.  This article is therefore going to review how organisations score a risk, considering whether it has a low or high likelihood of occurring and the severity of the consequences.  The assessment techniques covered can be applied to any type of risk, but I’m going to focus specifically on fraud.

Fraud is varied and commonplace

Fraud takes place in a variety of ways, and whilst we probably don’t want to admit it, in most organisations.  In fact, the Office for National Statistics (ONS) reported that there were 3.7 million fraud offences in the year ending September 2022, as estimated by the Crime Survey for England and Wales (CSEW).*

Let’s imagine a large organisation that owns and operates quarries needs to recruit some new staff, perhaps a couple of labourers and HGV drivers.  Let’s say that one of the labourer candidates exaggerates their experience on their CV but is completely truthful about their qualifications.  The likelihood of that happening is high, but the impact is probably low as long as they can do the job.  The likelihood of occurrence and impact can be both assessed as either low, medium or high:

However, whilst it’s less likely that an HGV driver would state that they have qualifications that they don’t have, or are out of date, if they did, then the impact of employing them would be much more serious.  Checks within the recruitment process, such as verifying the validity of qualifications and taking up references, should reduce the impact of both of these examples.

The fraud triangle

How about an existing employee seeing an opportunity to steal from the company and taking advantage of it?  The likelihood of that happening is low, most people are generally honest, but it is possible.  The concept of the fraud triangle states that instances of fraud increase when people are under pressure, they have opportunity, and are able to rationalise their actions by justifying the dishonesty to themselves.  Maybe a member of staff, who is struggling financially, has a fuel card for their company car, but every now and again syphons some petrol into their personal vehicle.  If their actions go undetected they are likely to do it again.  Depending on the effectiveness of the controls within the accounting system, how long the fraud goes undetected and how much is stolen, the impact could be low to medium.  Again, the likelihood of occurrence and impact can be assessed, maybe using a numerical grade which is multiplied to give an overall score:

Organisations will be able to insure against such risks but controls should also be in place, like checking mileage logs against fuel purchases and looking for anomalies across similar company vehicles.

The risk of collusion

Finally, let’s think about the risk of more organised fraud, maybe falsifying records, setting up fake suppliers, employees or shareholders in the accounting system.  This kind of fraud is likely to require collusion, in other words, more than one person will need to be involved.  And it is more likely to happen in a large organisation such as our quarry firm, simply because it is easier for false records to go undetected due to the sheer volume of transactions being processed.  This type of fraud can occur on a large scale and result in systematic theft. 

The third option for visualising risk assessments is to use a matrix that combines likelihood and impact, or consequences, and uses colour to identify the overall level of risk. This makes it easier for less well-trained staff to see the severity of risk for each type of fraud:

Summary

Identifying, evaluating and assessing risks is just the start. Responding to risks by taking appropriate action, like checking qualifications, is equally as important.  Similarly, controls in the accounting system such as undertaking reconciliations and checks, ensuring records are properly authorised when they are created, and that duties are segregated so that, for example,  suppliers’ invoices can’t be processed, authorised and paid by the same person, are all required in order to manage the risk of fraud. 

However, having processes and procedures in place is not a guarantee that risks are being managed successfully, they will need to be monitored and reviewed on a regular basis to ensure that they are being followed and are effective.

If you have been studying hard for your synoptic exam, the good news is that it is now possible to take the exams in the next month, and you could be on track to finish by the summer.

Passing your synoptic exam is a good way to enhance your career progression, move towards working for yourself, or change your job role. If you have been studying and are keen to get your qualification, then this is your opportunity to take the exams and feel a sense of achievement.

How can I stay motivated when I am studying on my own?

Nick Craggs, AAT Distance Learning Director at First Intuition, a professional education training provider, says it has been a testing time for students.

“It helps to remember why you are studying and the real-world benefits you will get from passing your exams,” he says. “That might be career progression, a change or role, or working for yourself.”

“You can use the AAT learning materials to help and when you do exams look at the model answers to see how you might have answered the question. You do not have to prepared exactly as the example answer has done – if you have a sensible point which is argued well that is just as valid.”

He suggests that you do mock exams which are timed, and perhaps ask fellow students to mark your work so that you have a more independent result than if you were to mark the paper yourself. You can also find support in the AAT forums, on Facebook, and with colleagues or other students. This will give you moral and mental support as well as technical help.

“Synoptic exams are very different from other exams because there is no right or wrong answer,” he says. “Instead, you are analysing the scenario and there are lots of possible answers. It is about not taking everything at face value. Think about why you have been given the information and look at the bigger picture. Ask yourself, how does it affect the business as a whole, and how will it affect other departments?”

It is also important to bear in mind the marking scheme and think about how you are going to structure your answers carefully.

“Students have a lot of external pressures to cope with – money worries, being furloughed, trying to fit in study with family commitments, and if progress is not as great as usual, try not to get too worried,” he says. “You are still progressing in your career and you are trying your best. If you have not achieved what you have planned over the last year try not to put undue pressure on yourself. You can only do your best.”

It can be useful to think about your goals, and the benefits of passing your exams. He also suggests you work in short bursts rather than sitting at your computer for three or four hours at a time. 

What do I need to bear in mind when studying for synoptic exams?

Sherad Dewedi, Managing Partner at Shenward Chartered Accountants and Business Advisors says that studying for your accountancy exams takes commitment, hard work, and a passion to succeed. 

“Synoptic exams require a commercial perspective,” he says “Whilst technical in nature, the aim of the exam is to get you to apply commerciality to the situation as though you were advising a business owner/client.”

So, to really excel, you need to treat it as a real-life situation. Examiners are looking to see how you would react in practice and the advice you would give to the client, so don’t get carried away with too much detail.  

“The way you communicate in the written form is key here. Remember, your advice will be given to a non-accountant, so it needs to be concise, factually correct, and understandable.”

How can I prepare for exams independently when I have no classroom time? 

Simon Bell, Careermap Director and Founder, says for accountancy students, it can feel overwhelming preparing for your exams independently without any time in the classroom, however, creating a structured home learning plan is key to succeeding. 

“Don’t leave it to the last minute to cram in all of your revision,” he says. “It can be a challenge to get into a study mindset when learning from home, try to keep to a routine as best as you can. 

“When revising on your own, it is easy to get distracted and lose concentration, which is why it’s important to create a timetable and stick to it. At the start of each revision session, write a list of everything you would like to cover and tick it off as you go along. Make sure you are realistic with your time. Schedule in breaks to avoid burnouts.”

He also advises students to schedule in time for breaks and exercise. 

“If you are struggling, speak out and ask for help. Whether you need support from your tutor, lecturer or a friend and family member to lend a listening ear, remind yourself that people want to help and support you,” he says.

How can I get into an exam mindset when there are so many distractions and outside pressures?

Murray Morrison, leading education expert and founder of online learning program Tassomai.com, says good examination preparation is about organisation.

He advises candidates to start early, map out the requirements of the exams you face, and evaluate what you need to learn for each area of required knowledge or skills.

“The more organised you can be in measuring your abilities and confidence, the more adaptive and aware you can be and the more effective you will be in your exam preparation,” he says.

While mindset is different for everyone, there are common factors which he says can be supportive of your studying and revision:

• Create a routine: Having a routine removes decision making (where should I sit today? How can I find two hours in my day?). It puts you in an unconscious ‘performance mode’. 

“It’s the reason you see athletes do things like tie their laces a particular way, or put on a special hair-band,” he says. “What may seem like superstition is actually a way of short-cutting to an ideal mental state of high-performance and focus. Find your routines: a place, a time, a music playlist or white-noise app and so forth so you replicate your perfect conditions and easily find your focus every session.”

• Think “SMART” – Specific, Measurable, Attainable, Relevant, Time-bound. Schedule your sessions in a way that will be sustainable, not cause burn-out or failure down the line.

“You should have specific plans for what you’re trying to get done in each session – plans that are relevant to your longer-term targets, but that allow you to measure your progress,” he says. 

“The ideas around growth mindset and marginal gains are key here too – aiming for perfecting any skill in a session is a fool’s errand: think about where you are at the moment, and look to improve slightly each time, witness that improvement, and think about the trajectory you’re mapping out over the longer term.”

• Anticipate and reduce disruption: Take a look at what professional sportspeople do: the ones who win matches are almost immune to disruption because they train and prepare with self-sufficient routines, relying only on those things that they can control and keeping themselves obsessively organised. 

“If passing that exam is your priority, then build for yourself a routine and an organised plan that relies only on yourself and the resources you can count on,” he says. “Then you’ll be confident of your ability to perform on the day regardless of what life might throw at you.”

How can I use my limited time most effectively when I study?

Sherad Dewedi says there are things you can do to ensure that your time as a student is an enjoyable and rewarding experience. 

“Structure your study: understand each subject and the core elements you need to remember,” he says. “Use these to make a timetable and stick to it. Don’t forget to factor in time for yourself too. Rest is an important part of absorbing knowledge.”

He suggests choosing a quiet area and keep this as your dedicated workspace to ensure familiarity with your surroundings. You could form study groups to catch up with study friends and discuss the topics that you’re each struggling with. This way, you can share tips and advice between you.

“Complete practice papers in timed conditions and send them for marking,” he says. “Results from these will inform you of the effectiveness of your revision techniques and what needs changing.”

Key points: tips for home study from Simon Bell:

• Discover your learning style – think about what works best for you and then put it into practice
• Make a plan and stick at it – prioritise your topics; think about which areas you’re a whizz at and areas you’re not as confident about
• Ask yourself ‘is this going in?’ – if you were making good progress but all of a sudden your concentration levels have dipped, take a break and come back to it with a fresh outlook 
• Set goals – for one of your study session you might want to focus on accounting systems and controls, identify your areas of weakness and strengths and use this to guide your planning
• Keep going – practice, practice, practice. You’ll get there!

Further reading:

• Why it is a good idea to take your synoptic exams now
• AAT Learning Portal: (please login to need a login to access)
• Learning Portal resources: How to add a due date

When we don’t know the outcome of something, we have uncertainty.  However, when we can substantiate what will happen, then the risk becomes more tangible, and we can make decisions about what to do. This was how I ended a previous article about uncertainty and risk, so the question now is, what can organisations do to manage risks?

Types of risks

Before we think about risk management, let’s clarify the types of risks we are talking about. Business risk can be defined as anything that has the potential to lower an organisation’s profits or make it bankrupt. Risks to businesses can arise from any number of sources, some internal and others external, and an organisation’s ability to manage them varies.  Internal risks are generally easier to do something about than external risks, which reflect uncertainty about external influences on organisations.  Business risks can also be subcategorised into strategic financial and operational risks.

Strategic risk

Strategic risks arise from the fundamental decisions made about an organisation’s objectives.  Let’s imagine I have a client, Aya, who owns a construction company.  She and another director took over the company as a management buyout ten years ago.  After the buyout, they set themselves the goal of repositioning the company in the market as a bespoke builder of properties with high environmentally friendly credentials as standard.  So, for them, strategic risks are the risks of failing to achieve this key business objective.  They have had to invest in equipment, take out bank loans to finance that and restructure the company to ensure that employees not only have the right qualifications, knowledge and experience but also that the organisation has goal congruence.  They have also had to be mindful of developments in the industry, such as improvements in insulation and advances in alternatives to traditional gas central heating.

Financial risk

Over the last few years, the company has seen significant fluctuations in demand and an increasing upward trend in the cost of raw materials. In times of high demand, Aya has been able to pass the increases in the cost of materials onto customers.  However, when business is slow, she has to balance the risk of not securing the contract, with the risk of the company not making its target profit margin.

She has also had to deal with higher repayments on the company’s loans, due to the fact that The Bank of England has put up interest rates in an attempt to slow the rate of inflation.  Whilst this is a financial risk Aya hasn’t been able to do anything about, the company has invested in some credit control software to automatically remind customers about outstanding invoices.  And that has reduced the financial risks associated with both cash flow and irrecoverable debts.

Operational risk

Both strategic and financial risks can be hard to assess and mitigate as they are often influenced by external factors.  However, operational risks, those that threaten the day-to-day running of an organisation, are easier to manage.  The Chartered Institute of Management Accountants (CIMA) states that ‘operational risk relates to activities carried out within an entity, arising from structure, systems, people, products or processes.’

Aya’s company has to ensure it complies with legislation and regulations, of which there are plenty in the construction industry, to safeguard itself against litigation risks.   The company has documented processes and systems to ensure the quality of both its properties and the service it provides to its customers.  It takes care to manage the risks associated with its employees as people make mistakes, usually by accident but some deliberately to damage organisations.  It also has to manage cyber risks and be mindful of anything that could damage its reputation, as well as unpredictable events, which could be political, economic or physical, like extreme weather.

So where does Tara come in?

Risks can be managed in a number of ways depending on the likelihood of them happening and the severity of the consequences or impact if they do.  Often organisations use the following  framework, which can be shortened to TARA to help them manage risks:

Last time we met, Aya told me about a competitor who has been in the news recently as an ex-employee had claimed that the company includes high-specification materials in its tenders but then actually uses lower-grade products in its builds.  The ex-employer had managed to access the competitor’s computer system and copied documents as proof.

Whilst the company in question has nothing to do with Aya’s company, she is aware that reputational damage to an organisation, and the industry as a whole, can be serious and lead to other risks. Potential customers can become wary, and the probability of lost sales is high.  Aya’s, therefore, looking at ways her company can show evidence to its customers of its use of sustainable and ethical products to avoid its reputation being tarnished.

Aya has also decided to undertake a review of the security controls that are in place to protect the company’s information from cyber-attacks and is considering outsourcing the company’s cybersecurity as a way of transferring the risk.

Summary

Business risk affects an organisation’s bottom line.  The impact can be due to strategic, financial or operation risks.  Therefore, organisations have to identify, evaluate and manage risks by transferring, accepting, reducing or avoiding them, depending on their likely occurrence and consequences.

When I last did my shopping, there weren’t any tomatoes or cucumbers on the shelves.  Good news for my salad averse son but not so great for his guinea pigs.  According to the news, the shortage is due to a combination of bad weather in countries from which we import fresh produce and high electricity prices for domestic growers that utilise greenhouses. 

The British Retail Consortium (BRC) has said that the shortages should only last a few weeks.*  However, this is just the latest issue that has contributed to a period of economic uncertainty that started with Brexit and has incorporated the coronavirus pandemic, the war in Ukraine and the cost of living crisis.

But what is economic uncertainty?

Simply put, it is when analysts can’t predict what will happen to an economy in the future.  Economic uncertainty can be caused by any number of incidents.  For example, the lead ups to general elections are periods of uncertainty because the results can change a country’s economic policies.  Although, as they usually occur every five years, they cause less uncertainty than something like Brexit, which was an irregular occurrence and so caused high levels of prolonged uncertainty.**

The bad weather currently affecting food production is an example of the increasing uncertainty caused by climate change.  Equally, unpredictable events, such as the pandemic, have far-reaching consequences for organisations.  The pandemic caused a massive downturn in the global economy because countries across the world responded by closing their economies, as scientists did not fully understand the virus initially. 

Market forces can cause uncertainty as well.  The cost of living crisis has seen prices soar, altering our spending patterns as concerns over how long it will last mean that we’re warier of parting with our disposable income unless it is absolutely necessary.  Technology can play a part too.  The start of the pandemic saw many of us working from home and unsure of how that would go, and we still don’t know what new technologies might appear in the future.

What impact does economic uncertainty have?

More often than not, economic uncertainty is associated with negative outcomes.  The pandemic saw lots of businesses struggling, and people became worried about their job security.  Uncertainty over levels of income can stop people from spending, which results in decreased demand for goods and services, followed by a reduction in the levels of supply and, ultimately, the size of the economy shrinking.  As a general rule, governments try to create an environment in which the economy can grow slowly but steadily.  This is because decreases in economic growth have knock-on effects, such as rising unemployment levels, due to organisations cutting back on their activities and staffing levels.

Economic uncertainty can also cause:

• Higher and more turbulent inflation
• Price increases
• Rising interest rates, which means that borrowing is more expensive
• Money markets are becoming less willing to finance government debt, leading to cuts in public spending
• Devaluation of currencies due to changes in exchange rates

How is uncertainty different from risk?

The difference between risk and uncertainty is whether the outcomes, or the possibility of them occurring, are known to the decision-maker or not.  When an outcome is known, it is a risk that can be managed.  For example, supermarkets currently risk running out of fruit and vegetables, so some have limited the amount of the scarce goods customers can buy.  But, how customers will react to these sales caps, is uncertain.

Being in business brings with it innate uncertainty and risks.  Business owners therefore, have to constantly balance them against the potential to make profit.  Business risk can be defined as anything that has the potential to lower an organisation’s profits or make it bankrupt.

Internal and external sources of business risk

Business risks can come from a wide variety of sources.  Internal risks are often to do with the people in an organisation, who are inherently at risk of making human errors.  So, this is usually managed by having processes and procedures in place to ensure systems work efficiently and that products and services are to an acceptable standard.  It is also sometimes mitigated by the use of technology, for example, using automation to save time by improving accuracy and efficiency.  Organisations have to balance the amount they spend to mitigate risks against the effect of that spending on profit.

External risks can be harder to manage as they reflect uncertainty about external influences on organisations.  Business owners have to make decisions in light of changes in the economy to deal with the consequences of, for example, price increases and fluctuations in interest and exchange rates.  They have to manage political risks, responding to normal changes in legislation and regulations made by governments but also the disruption caused by political unrest and war. Furthermore, organisations are at risk of unpredictable events, such as an outbreak of disease or weather-related instances like droughts, flooding or earthquakes.

Summary

The difference between uncertainty and risk can be understood in terms of tangibility.  When we don’t know the outcome of something, we have uncertainty.  However, when we can substantiate what will happen, then the risk becomes more tangible, and we can make decisions about what to do.