Fraudster employees with their hands in the till? Prevention is far better than cure…

Fraud costs the UK economy a whopping estimated £193 billion a year – over £500 million a day. It is a widespread problem causing significant leakage for business. An estimated one in five small businesses have fallen victim to fraud. In some cases the scale of it is so devastating it has caused the business to fail.

Fraud is often difficult to spot and indeed prevent largely as it can take so many guises. The perpetrators can be very plausible and go to great lengths to hide what they are doing and to cover their tracks.

Fraud on the part of employees is often the hardest to spot; firstly, your instinct is to trust the people who are working for you and secondly there is such a vast range of opportunities for employees to steal. Employees have the inside track – the fraud is being committed by people who know your business; they know where the process weaknesses are and exactly how to exploit them and hide it from you.  Key areas to watch out for are ‘purchase to pay’- where employees initiate POs for things they divert for their own use or an employee setting up a ‘phantom vendor’ account to process fraudulent invoices and pay themselves. 

Payroll is another big area of ‘leakage’ where ‘phantom employees’ are put on the payroll or not taken off after they leave the business or excessive overtime is claimed. Allied to this is often the misuse of company credit cards/fraudulent expense claims. Another common risk area is in the sales team where employees can collude with vendors to the business to inflate prices with the employee receiving a ‘thank you’ from the vendor or the sales team inflating prices to hike their own commission/ bonus payments. Another key area is data/business know-how theft, this can be less tangible but often still very damaging to the business.

How do you prevent it? Firstly know your employees – conduct thorough background checks on new employees and make sure references check out. When they are in post, look out for any odd or out of character behaviour or things which do not ring true, even amongst long-standing employees. Fraudsters are often are reluctant to take holiday as if they are working in the business they can better cover their tracks. Rotate duties of accounts staff. Consider the same for the sales staff.

Conduct a risk analysis – understand what the valuable assets of your business are and protect them. This obviously includes the bank account but also anything else of value such as trade secrets, customer lists and equipment/vehicles. Once you have identified your key assets consider how you protect them. What processes and controls should you put in place? Tight processes and controls are vital in the fight against fraud. Do you need dual sign off for finance transactions? Regular and random audit checks of assets and accounts? Restrict access to key assets/information to only those who need to use them or need to know the information?

Make staff aware of things to look out for and establish a confidential reporting line for concerns.

If you fall victim to an employee fraudster, act quickly to prevent further loss. Consider immediate suspension of the staff member concerned whilst you investigate. Be alive to the possibility other employees are involved too. Consider and take charge of what documents, records, employee laptops/mobile phones and other electronic data you will need to investigate to establish what and how it has happened and how much loss has occurred. 

You may well need help from your lawyer to advise on how to handle the employee and on how to conduct the investigation and how to secure and preserve relevant evidence. Electronic tools are available to quickly analyse relevant data and try to promptly get to the bottom of what has gone on. Your lawyer will also be able to help you in considering how to pursue the fraudsters for financial redress. Notify the matter to the police and Action Fraud and consider notifying your insurers if you have employee theft cover.