How can you prevent employee fraud? - Westgate Chambers

Employee fraud is currently one of the most costly risks businesses face but, as an employer or business owner, how can you prevent employee fraud?

If employee fraud isn’t an issue you’re currently thinking about, we’d like to share some figures.

Over 25% of companies have been the victim of fraud.

Of these cases, 50% of these frauds were committed by employees.

Fraud is estimated to cost UK businesses over £38.4 billion every year but the actual cost though is much higher as all the undetected loss aren’t included in this figure.

The truth is the actual annual cost of fraud is impossible to quantify but as it’s a growing problem, it is one we’d urge you to consider before it’s too late.

Which of your employees might commit fraud?

The common perception is that fraudsters are bad people, that they are greedy or con artists.  The truth is even good people can commit fraud so if you are to minimise the risk of your business being defrauded, you must accept anyone can commit fraud.

This means you need to dispel some stereotypes.  Most fraudsters are not career criminals.  They probably won’t start with the intention to steal from you.  Typically, they will otherwise be law-abiding.

However, those convicted of employee fraud do share common traits.

They are usually male, between 31 and 45 years old, have a degree level education, work in the accounts department and have held their post for 6+ years.

Statistics also suggest the smaller the businesses, the more likely it’ll be that fraud is committed by long-term, trusted employees.

What causes employee fraud?

The causes of employee fraud are of course very varied.  However, some of the most common causes are:

A financial need they can’t admit to

An employee may have debts they can’t pay or have found themselves facing financial hardships they either weren’t expecting or that have been brought about by their own mistakes.

Personal failings

The employees’ relationship with their employer or partner may have  failed, they may have experienced a reversal in their performance or seen their status within the company recede.

Perceived opportunity

An employee may think they can’t be caught or are so key to preventing fraud that they can operate undetected.

Rationalisation

The employee may have convinced themselves fraud isn’t a crime, that’s it’s justified because of a perceived slight or that it’s not actually within their control.

As there is such a range of possible triggers you need to be on your guard and able to continually monitor certain behaviours:

Are any employees living beyond their means?

Do any have obvious financial difficulties?

Are you seeing control issues (i.e. employees unwilling to share their duties)?

Do any employees have too close an association with suppliers or customers?

Are any recently divorced or known to have family problems?

Are any perennially irritable, suspicious or defensive?

Do any have rumoured addiction problems?

And lastly, do any refuse to take holidays?  If they are ever-present, it could be to stop you prying to closely into what they are doing.

How can you prevent employee fraud?

To minimise the risk of fraud you need to be aware of the possible points of failure.  These include:

• One employee is responsible for all aspects of an income stream
• Legacy systems outside the main accounting system are being used
• Areas in which the Finance Department don’t perform regular reconciliation or manage basic control procedures
• Rapid growth in business that is not supported by the existing controls
• Basic controls (i.e. bank reconciliations) are not carried out
• There is only one person who can sign cheques
• There is no managerial control over automated/online payments
• There is no rational explanation for exceptional profit performance
• The finance staff are weak and ineffectual
• Questionable processes go unchallenged by the CEO/CFO
• Key controls and processes haven’t been independently scrutinised
• New recruits only go through one interview before being  offered a position
• Not chasing up references for new recruits

If your business is potentially at risk from any of these factors, they must be addressed and rectified.

This might look like a mammoth task, especially for smaller businesses, but it will be made more manageable by prioritising which present the highest risk and approaching them in that order.

However, the first step in this process must be to alert everyone in the business as to the risks of employee fraud, the associated behaviours and the best means of detection.  The more visible to threat of fraud is, the more people will be looking out for possible signs and the more difficult it will be for fraudsters to operate.

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 and share more tips as to how you can prevent employee fraud in the future.