Employee fraud was a boom area even before the recession started and recent surveys show that instances of employee fraud are still on the increase. In addition, ‘Targeted’ frauds, often backed by organised criminals, are becoming more common. (this is where an employee (often using a stolen identity) is ‘planted’ in an organisation with the express intention of carrying out a fraud.)
The enterprising and corrupt employee has a great advantage over most criminals – a detailed knowledge of the control systems of the organisation which is being defrauded. Making sure you act to protect your business by eliminating poor security practices which make fraud easier is becoming even more important.
Prevention is better than cure - Our top tips
• Avoid leaving signed blank cheques for use when the signatory is away.
The risks inherent in this practice are clear. It is preferable to have a second signatory who is required to sign checks when another signatory is absent.
• Avoid rotating signatures.
If a number of people can sign cheques, a fraudster can ‘rotate’ the signing of cheques, which makes the exercise of effective supervision very difficult. This is particularly common in frauds involving withdrawals of cash.
• Make electronic transfers secure.
The absence of checks at the bank’s end makes the need to have very tight security procedures over electronic transfers all the more important.
• Put controls in place where there is delegated authority.
It is essential to have controls in place where certain areas of the business are under the sole control of one person. Check that all payments for services or goods received are correctly made and constitute proper value for money. One of the easiest employee frauds to get away with for year after year is the ‘kickback’ from a complicit supplier. Make sure that purchasing decisions are subject to periodic value for money testing and if the payments made are more than the market rate, find out why.
• Ensure the number of people on the payroll equals the number employed.
With the large number of people gaining employment temporarily in the UK, it may be a simple matter to continue to pay an employee who has left, who then shares the income with the employee facilitating the fraud.
• Does buying from and selling to the same firm make good sense?
One danger is the possibility of a fraud where purchases are either fictional or delivered elsewhere. As there are entries on both sides of the account, they may go unchecked. The cheque written agrees with the total on the ledger account, but is that verified?
• Remember the smaller transactions; don’t concentrate on big items only.
The essence of the most successful long-term fraud is that it does not attract attention. It is the smallness and regularity of the transaction which establishes it as ‘part of the furniture’ and makes detection less likely. Make sure that ‘small’ transactions are reviewed, at least on a sample basis.
If you suspect fraud in your organisation then you should take immediate legal advice, sometimes prior to reporting the matter to the police. The police will focus on gathering evidence for the purposes of a criminal investigation but that same evidence may also be of vital importance to you when considering your prospects of obtaining a civil recovery.
When investigating a potential fraud you must bear in mind your legal obligations under Employment Law so as not to leave your business open to a claim by your employee in the event that the fraud investigation does not turn up any evidence. In addition, the way you gather evidence or record personal data on employees must comply with the Human Rights Act and the Data Protection Act.
Click here for warning signs of potential employee fraud
Click here for more information on the Fraud Act 2006
