How do you avoid being cheated, conned or swindled by a charlatan, faker, impostor or quack? The answer lies in all of us, as we are the fraudster's unwitting accomplices. That means we must be vigilant if we are to avoid being scammed.

A fraud occurs when we are deceived with promises of goods, services, or financial benefits that do not exist, were never intended to be provided, or were misrepresented.

The US Department of Justice estimates that the cost of telemarketing and direct personal marketing fraud schemes is more than $40 billion annually. Cheque frauds add up to yearly losses in the US of at least $815 million. In this, the second in my series of risk management articles, I will provide some tips to enable you to develop an anti-fraud strategy both in your personal and in your working life.

There are two broad categories of fraud that I shall address: direct fraud and workplace fraud. In a direct fraud, you are directly and personally swindled. The swindler relies on your goodwill, interest in the supposed benefits of the scheme and your pre-disposition in order to obtain your money, information, or services. In order to avoid being devastated by such a fraud you must understand:

A con artist does not look like an untrustworthy swindler. He or she will typically act much like you, and thereby gain your confidence. He or she may be in your church, your professional organisation, or your social club.

If it sounds too good to be true - it is.

You should never risk more money than you can afford to lose.

Your system to avoid being defrauded should include:

Verification. Always check the credentials of any business or person who wants information or money from you with an accredited and independent third party. The independent third party should not be your friend or relative who vouches for the person and believes that they have just made great returns from the deal. Remember - they could be victims and just not know it yet!

Education. Learn the relevant responsible business practices or methods to enable yourself to make a sound and educated decision.

If the potential fraudster does not provide you with information or time to enable you to verify his or her story, do not invest. A genuine business will allow you the time or information to enable you to verify their credentials or business methods.

Fraud in the workplace is also common. The National Association of Fraud Examiners in the United States estimates that an average business loses more than $9 a day per employee to fraud and abuse. This type of fraud always involves a betrayal of trust by someone who is known and trusted. It can damage or destroy a business' financial health, reputation and good will. Work place fraud is typically opportunity related and motivated by need. Appropriate operational systems and safeguards should reduce the risk of this type of fraud considerably.

First, consider the type of business you have and how it can be robbed from within. Create a basic system of internal controls to guard against this vulnerability. Often the most successful workplace frauds are the most simple, with trusted employees using the existing systems and procedures to their advantage. Typical work place frauds are:

Theft of cash receipts.

Under-the-table payments for sales or performance of services.

Recording false discounts.

Theft of cheques received through the mail.

Tampering with cheques to be issued.

Creating fictitious vendors or service providers.

Creating phoney expense vouchers.

Altering billing records.

Theft of inventory.

Altering purchasing, receiving or shipment records. To fight these types of frauds, full control should never be delegated to one individual in any area. If there is a segregation of duties and responsibilities, or at least a review of the work that is performed by another person, the risk of these types of fraud diminishes.

For example, one person should never be in charge of all the cash transactions of a business e.g. cash receipts and payroll, without a system of checks and balances. Give personal incentives to managers and supervisors in high-risk areas, based on cash receivables or inventory records.

If it is practicable, cross train your employees so that one person is not responsible for one area for extended periods of time. It is a deterrent to fraudulent conduct if you know someone else will be taking over your workstation very shortly. Watch for "red flags" amongst your employees as they are often motivated to commit fraud from need and desperation rather than greed. A personal financial catastrophe, employees who live beyond their means, addictions in the form of drugs, gambling and even shopping should be noted so that you are more aware of any suspicious behaviour in the workplace. Finally, if your type of business has a high risk of fraud, consider spreading your risk by obtaining insurance. Next week, I will address what you ought to do when, in spite of your best efforts, you are a victim of fraud.

Kiernan J. Bell is an associate lawyer in the Litigation Department of Appleby Spurling & Kempe. Copies of Ms Bell's columns can be obtained on the Appleby Spurling & Kempe website at www.ask.bm. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.