What Do You Do About Your Employees Committing Fraud?

Fraud can be committed in a variety of ways, from falsely obtaining monies via procurement, supplier, customer, ghost workers, expenses and a large range of other fraud activities, including identity fraud. Both the tangible or intangible removal of finances and assets from an organisation are considered fraud. Can you be sure that your employees aren’t acting fraudulently?

Here are some of the facts on fraud that we have found to be true:

• The average fraud is £108,000,00

• The longer a fraud goes undiscovered the more damage is caused. The average fraud lasts 18 months

• In 94.5% of cases, the employee tried to cover up the fraud, usually by creating or falsifying documents

• The average loss was the same for those companies employing under 100 people as those substantially larger organisations

• Most employees were first time offenders. Only 5.2% had committed a previous fraud

• In 40% of cases the employees were not referred to the police

• Where anti-fraud controls were in place, losses were between 15-54% lower

• Where anti-fraud controls were in place, frauds were detected between 34-50% swifter

• 30% frauds cite lack of internal controls as a reason for the fraud

What are these facts telling us?

That fraud is easy to commit, the employee is unlikely to be caught and even unlikelier to face prosecution and most important of all, that something needs to be done.

What Does Fraud in the Workplace Look Like?

Our findings indicate that a typical fraudster is:

• Between the ages of 36 and 55 (69% of fraudsters investigated)

• Predominantly male (79%)

• A threat from within (65% are employed by the company)

• An executive or director level position (35%)

• Employed in the organization for at least six years (38%)

• Described as autocratic (18%) and are three times as likely to be regarded as friendly as not

• Esteemed, describing themselves as well-respected in their organization

• Likely to have colluded with others (62% of frauds, down just slightly from 70% in the 2013 survey)

• Motivated by personal gain (60%), greed (36%) and the sense of ‘because I can’ (27%)

The ACFE (Association of Certified Fraud Examiners) shows that the most prominent red flag warning indicators of employee dishonesty are:

Living beyond financial means                                                                      43.8%

Financial difficulty                                                                                         33%

Unusually close relationship with vendors/suppliers                                 21.8%

Wheeler dealer attitude                                                                                  18.4%

Divorce & family problems                                                                           16.8%

But once you’ve recognised these red flags, what can organisations do to prevent this?

It’s Time to Act

A dishonest employee looking to commit fraud can work undetected for an infinite period of time. Often these frauds are only found when the employee has left the business. And if you are vulnerable, then you may have multiple fraudsters acting in your company, all working independently with no knowledge of each other’s criminal behaviour.

A company can end up with a culture of dishonesty, with initial frauds being isolated and minor and escalating in value and frequency, so that the employee sees what they do as routine, a way of their employment life and a dependency on the financial gain as their life is built around the stolen revenue.

We have put together a few do’s and don’ts when considering fraud, but please be aware that this list is not exhaustive:

DO

• Develop and implement a zero-tolerance culture, incorporating an anti-fraud policy and fraud response plan. Clearly communicate it to all employees and review regularly, preferably annually.
• Conduct pre-employment screening before employees start working for you. Consider periodic checks on existing employees in high risk areas.
• Securely destroy all confidential and sensitive business information and wipe all computers and mobile devices before disposal.
• Store confidential or sensitive information in a secure place. Limit access to essential staff.
• Check your companies registered details at Companies House on a regular basis. Register for Web filing, PROOF and Monitor services.
• Review your credit reports for discrepancies on a regular basis.
• Educate staff about fraud prevention and detection as part of their induction and ongoing training.
• Conduct business checks on new and existing business partners, customers, suppliers and third-party service providers, and be alert to changes of ownership or unusual trading patterns of those that you deal with.
• Arrange for your mail to be redirected (for at least a year) if you move premises and notify customers, vendors and other partners of your change of address.
• If you don’t receive any mail check with Royal Mail to ensure a redirection has not been set up in your company’s name without your knowledge.
• Implement a clear desk policy.
• Establish a credible mechanism for staff to report suspicions of fraud.
• Encourage a ‘no blame’ culture where issues can be discussed without repercussions.
• Ensure your IT security policy covers mobile devices, laptop computers, the internet, email and access. Review it on a regular basis.
• Keep computer security software and firewalls up to date.

DON’T

• Assume the information provided by prospective employees is accurate and independently verify it.
• Give employees unlimited access to sensitive information where it is not required.
• Rely solely on information obtained from Companies House when checking a new supplier or customer’s credit history. Use other credible sources.
• Put business bank account details and Directorships into the Public domain (e.g. on your website). It is important to note that signatures will be available on public records if you paper file with Companies House.
• Allow employees to keep written records of business passwords.