Was Covid-19 the perfect cover for employee fraud? Westgate Chambers

Organisations spend tens of thousands of pounds every year to protect themselves against fraud but, with so much else for business owners to worry about, has the Covid-19 pandemic provided the perfect cover for employee fraud?

Employee fraud is of course nothing new.  It takes a wide variety of forms from false expense claims to plain financial theft.   However, fraud experts feel the combination of working from home and an increased reliance on external systems that, due to the rush to move to remote working, may not have been tested stringently enough has provided a raft of new opportunities for employees to defraud their employers.

There definitely seems to be a feeling that “out of sight, out of mind” is emboldening would be fraudsters.

But it’s not only increased opportunity that’s driven the increase in employee fraud during the pandemic.  According to a recent report published by KPMG, the general feeling of anxiety among employees caused by our current economic uncertainty is also playing a part.

The KPMG report also raised another worrying statistic.

The number of cases involving members of the victims’ management teams doubled between 2020 and 2021.  If this trend was to continue, the amounts being defrauded will almost certainly grow too as managers have greater access to funds and information and receive less supervision.

What causes fraud?

In their annual report for 2020, the Association of Certified Fraud Examiners estimated the reason 5% of all revenue generated by organisations across the world (approximately £3.5 trillion) can be summarised by the three points in their ‘fraud triangle’, namely pressure or incentive, opportunity and rationalisation (which we explained in more detail in part 1 of this series).

Covid-19 has seriously impacted all these areas. As a result, post-Covid employee fraud is increasing.

Personal financial pressure has universally increased, especially with so much uncertainty around.

The distance caused by home working only adds to this uncertainty.  As employees don’t have that physical contact with their colleagues day-to-day, it’s easy for them to feel unsupported or even unwanted.

This can lead to them looking for ways to use their company’s assets to benefit themselves rather than the business.

As we’ve already mentioned, working from home also provides greater opportunity by creating distance and allowing unusual working behaviour and anomalies to go unchecked.  When you combine these two factors, it is not a huge step to see how rationalising your actions could become easier.

The employee may feel aggrieved because of the distancing and lack of support or interest from their employer.

They could even think the money they take is simply a short-term loan to alleviate the financial pressure they are under, a loan that would have been paid back the next month.  The only thing is, as that financial pressure and the accompanying uncertainty grows, the fact their actions went undetected could well encourage them to steal more.

How can businesses minimise the risk of employee fraud after Covid?

There are of course steps employers can take minimise the risk of internal fraud.

They could put stringent anti-fraud policies in place and support these policies with a very public zero-tolerance policy.

They could split accountability for losses across everyone in the organisation to encourage greater vigilance.

They could use their appraisal process to highlight changes in character and/or performance.

They could use their management or mentoring structures to highlight potential financial difficulties.

However, these kinds of steps can easily be misconstrued as draconian.  Worse, they could lead to an increase in pressure and dissatisfaction and that would actually have the opposite effect and increase the risk of employee fraud.

Instead, we’d suggest you consider the following suggestions:

• Address any sole source of supply

Don’t allow employees to be singularly responsible for dealing directly with specific customers or suppliers.

• Review your control procedures

Don’t allow employees to circumvent internal processes. Also, highlight any employees who are unusually possessive of certain internal controls and procedures.

• Examine perfect attendance records

If an employee is refusing to take annual or sick leave, it could be because they feel their absence could leave them open to unwanted scrutiny from their employer.

• Identify higher risk employees

This will include those with higher rights of access or autonomy, those who can access the highest sums of money for various reasons and those who have historically regarded themselves as ’outside the system’ or have consistently performed poorly or repeatedly aired grievances.

While this may look like extra work at a time when you are already spread thin trying to keep your business moving in trying economic times and an ever hardening market, the level of risk associated with employee fraud is growing.  Protecting yourself will involve affirmative action. If you are going to successfully mitigate the risk of employee fraud, this action needs to be taken sooner rather than later.

If your business – or your client’s business – has been the victim of employee fraud, please get it touch with the fraud specialists in our criminal team and we will make sure the prosecution process is as straightforward and effective as possible.