Theft, Fraud and Dishonest Employees – Do you really know what’s happening in your business?

Recent news reports about the theft of sensitive payroll data from supermarket chain Morrisons has brought the issue of employee theft and fraud into the spotlight.

It’s a significant issue for employers.  Estimates put the total cost of fraud to UK companies at £2bn per year, and it affects organisations of every size. Research suggests 30 per cent of all employee fraud takes place in SMEs, with companies with less than 100 employees particularly vulnerable.

It seems to be the case that businesses are not taking it as seriously as they might. Surveys show that only 32 per cent have fraud controls in place and that the majority of employee fraud goes unreported.  Even more worryingly, those who are caught, dealt with internally and dismissed seem to have little trouble moving on to other unsuspecting employers.

I joined a group of HR professionals last week for a fascinating session on this very topic, led by David Kearns of commercial investigation, tracing and process serving agency Expert Investigations.

He shared a number of real-life cases of employee wrong-doing, ranging from long-standing trusted staff siphoning off hundreds of thousands of pounds from company bank accounts  to  ‘criminal entrepreneurs’ who were raking in the cash by stealing company goods and setting up sophisticated operations to sell them over the Internet.

It quickly became clear that we were talking about much more than a few dodgy employees taking products out of the back door and loading them onto a van destined for the nearest car boot sale.

Employee fraud extends from the obvious stealing of goods to theft of time (you’d be amazed how many employees are running their own businesses in company time) and theft of Intellectual Property.  Then there’s breach of contract (employees leaving to set up rival companies taking your customers with them) – and false sickness absence (graphically illustrated by some film footage of an employee who was on long term sick leave, allegedly unable to leave the house without assistance, changing his tyre on the side of the dual carriageway).

So for those who by now may be nervously looking around the office wondering what their employees might be up to ….here are some of the key facts and tips to come out of an illuminating presentation which left the audience astonished at what people are able to get away with:

How is fraud discovered?

You might think your water-tight security systems will uncover any dubious goings-on, but in fact the majority of fraud (40 per cent) is discovered thanks to tip-offs from other employees, from customers or from ‘anonymous’ sources.  15 per cent comes to light as a result of some kind of management review, while 14 per cent of wrong-doing is revealed in the course of an internal audit.  11 per cent is discovered by accident and only 2.6 per cent by the surveillance and monitoring systems a company may have in place.  The problem with the latter, of course, is that your employees generally know where the CCTV is and can work out how to get around other security measures with relative ease.

Why do people do it?

It’s useful to understand the psychology behind employee fraud, which has been neatly documented in a model known as the theft/fraud triangle.  Three key factors are at play.  The first is opportunity – people know it’s possible, they have access to the assets or information they need in the course of their daily job and they are aware of any poor management practices or weak controls that will give them a good chance of getting away with it.  Next is motivation.  Generally, employees who commit fraud are driven by real financial need (they are in debt or have big medical bills to pay) or because they have a strong desire to acquire material goods (cars, handbags, holidays) but don’t have the means to pay for them.  The final bit of the triangle is rationalisation – where people convince themselves that the fraud is ‘OK’ and come up with ‘excuses’ for their behaviour.  They may convince themselves they are making up for being underpaid or are replacing a bonus which was deserved but not given.  They may tell themselves the company doesn’t ‘need’ the money or deserves to have it stolen because of the way it treats its employees.

Red Flags to look out for

Of course the vast majority of employees are upstanding, honest citizens.  But if you are concerned that there may be some rogues in the pack, there are some ‘red flags’ to look out for.  Warning signs include people who appear to be living beyond their means (flash cars, big houses, five star holidays) – although there can of course be rational explanations for this, such as a family inheritance or win on the lottery!   Other signs to look out for are people who are always first and last in the office, rarely take holiday and are overly protective of their workload.  An unhealthy closeness with customers, suppliers or competitors is another sign that something may be amiss.  None of these mean that anything untoward is definitely taking place – but they are signs that can indicate you ought to be taking a closer look at what’s happening.

What preventative measures can you put in place?

There are a number of actions you can take to create an environment where people are less likely to be dishonest – and less likely to get away with it.

  • Set the tone from the top.  Boards need to create a climate of honesty and there should be clear fraud, bribery and corruption policies in place which are reviewed regularly and widely advertised to staff.
  • Have a ‘whistleblowing’ hotline where staff can report their suspicions.  Make sure it’s regularly advertised and the information is easily accessible for people when they need it.
  • Provide fraud training to ensure staff are aware of the different types of fraud, the company stance and the reporting procedures they need to follow.
  • Do thorough background checks on new staff, especially those in risky roles such as finance, procurement or who have access to customer data.
  • Rotate staff who are in ‘risky’ roles so they are not able to commit fraud over any length of time without it being picked up by others.
  • Have a fraud action plan which sets out a structured response in the event of the worst happening.  This should include who will be involved at what stage of the investigation, what the HR policy is and what reporting procedures (internal and external) should be followed.
  • Subcontract your internal audit out and change auditors regularly to make it more likely any fraud will be identified.
  • Finally, be aware that all staff have the potential to commit fraud, from those in lower paid roles all the way up to the senior management team.  Often those in senior roles can get away with frauds for a longer period of time as they have more responsibility and less supervision.

Information for this blog courtesy of Expert Investigations, www.expert-investigations.co.uk

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