The enemy from within – fraud in the workplace

Fraud in the workplace, otherwise known as fidelity, insider or internal fraud, is a growing problem threatening UK businesses and causing annual losses estimated at £1.75 billion. Large organisations dismiss in the region of 100 to 150 members of staff every year for fraudulent activity and some organisations have seen a 30 per cent increase in the number of staff fraud referrals in the last year.

Reasons for the increase

According to CIFAS there are three main reasons for the increase in workplace fraud:

1. Changes in business and organisational structures
2. Changes in type of staff employed to service these new structures
3. Increased targeting of business by organised criminal networks

Data collected by CIFAS in 2012 showed a 52 per cent overall increase in workplace fraud. In addition, the prevailing precarious economic and employment conditions have inevitably led to a 24 per cent increase in dishonest actions by staff to gain a benefit, with fraudulent attempts to gain employment more than doubling.

What is meant by “workplace fraud”?

Essentially, it can be defined as an activity undertaken by an employee or anyone who has a contractual arrangement with a organisation to provide personal services, with the intention of causing a loss or obtaining a benefit to which he/she are not entitled eg, making a false representation, wrongfully failing to disclose information or abusing a position of trust.

There are many different forms of workplace fraud which can be broadly categorised as follows:

1. Employment application fraud eg, falsifying educational or employment history to obtain employment
2. Misappropriation of assets eg, theft of IP, data or tangible assets
3. Procurement fraud eg, bid rigging
4. False accounting fraud eg, falsifying the financial performance of an organisation
5. Bribery and corruption eg accepting “kick-backs” to secure business.

Impact of workplace fraud

The impact and consequences of workplace fraud will, understandably, differ. Certainly, the financial loss to an organisation is usually the most apparent but there can also be a loss of board or shareholder confidence, regulatory implications, reputational damage caused and internal impact/disruption to the workforce.

While the damage and disruption of workplace fraud cannot be underestimated, the good news is that the majority of employees are honest and trustworthy and there are policies and procedures that should be put in place to reduce the risk of workplace fraud.

Reducing the risk

The starting point is a clear and coherent fraud policy, which should be communicated to all staff and linked to HR policies. There should be consequences for failure to follow the policy and clear lines between suspected fraud investigations and the corresponding disciplinary procedures. While prevention of workplace fraud is key, it also critical that the methods of resolution are clearly set out in the policy so that the entire organisation is aware of the sanctions if fraud is detected. The policy should also identify who has responsibility for fraud within the organisation – a “Fraud Champion” at board or senior management level and it should set out the requirement for risk assessments that should be periodically reviewed and updated.

The key to an effective fraud policy is to ensure that the organisation’s interests are safeguarded against workplace fraud. but that the measures put in place don’t stifle output or productivity. This can be difficult to achieve but a working group drawn from across an organisation could help devise a workable policy.

There is also no substitute for vigilance. Organisations are encouraged to ensure they know their staff, customers and suppliers so that unexplained changes in behaviour, lifestyle, habits etc are not dismissed out of hand - never ignore gut instincts!

Carrying out an investigation

If workplace fraud is suspected, usually the first stage of the process is to undertake a series of fact finding interviews – these can be held with an employee under investigation and any others who may have evidence to contribute to the process. The purpose of these interviews are to elicit information that, in collaboration with internal investigation, will validate or dismiss any fraud concerns. If the concerns are validated, it is recommended, in cases of suspected employee fraud, that a formal investigative interview be undertaken. This process should be independent of disciplinary procedures but there should always be close liaison with HR once any concerns are validated.

It may also be necessary to involve the police depending upon the nature and scale of the fraud, and certainly this must always be considered in the event of suspected fraud perpetrated by an outsider against an organisation

Remedies and prevention

Civil remedies, such as freezing orders, injunctions may be warranted and expert legal advice must be secured at the earliest opportunity to minimise dissipation of assets by a third party. In addition, referral of a suspected fraud to the police or the mounting of a private prosecution to penalise a fraudster and send out a deterrent to others may be attractive options.

In the current economic climate, it’s likely that workplace fraud will continue to increase and perpetrators will find more and sophisticated ways to commit fraud. It is therefore more important than ever that organisations have an effective fraud policy in place with prevention at the heart and a clear resolution strategy.

For more detailed information about workplace fraud or if you are interested in discussing this topic further with us, please don’t hesitate to contact Kate Archer, Sue Pawar-Price or Laura Noone.