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Increase in employee fraud

Figures obtained by 91̽»¨ under a freedom of information request (FOI) show a 10% rise in reported fraud cases committed by employees against their employers. The data obtained from City of London Police also shows that there was a fivefold increase in total losses stolen through employee fraud, with an average loss of £256,668 per incident. The increase in both the volume and value of funds stolen by employees reminds us that robust measures are essential to protect against fraud. These types of crimes are particularly damaging to companies, as they can cause widespread reputational damage and loss of customer and employee trust, in addition to financial loss.

The Prime Minister recently announced that fraud now accounts for over 40% of crime, costing nearly £7 billion a year. Demonstrating their commitment to tackling fraud, the government have published a . Continuing this commitment, the Economic Crime and Corporate Transparency Bill is also making its way through the House of Lords, which will bring into law a new corporate criminal offence of ‘failure to prevent fraud’ which will hit businesses soon. This could see organisations held to account if they profit from the fraudulent actions of their employees. Proposed organisations covered by this are large organisations and they can avoid prosecution if they can demonstrate that there are reasonable procedures in place to prevent fraud.

Types of employee fraud

There are several types of employee fraud, which may be unique to each organisation. Some examples are below with accompanying suggestions to mitigate each of the fraud risks:

Although not strictly fraud, employees accepting payments or gifts in exchange for preferential treatment or for awarding contracts or business to specific vendors is covered by the Bribery Act 2010. This can be mitigated by implementing a clear policy and code of ethics covering declarations of interests, conducting regular training on anti-bribery and regularly reviewing contracts and transactions with vendors for any signs of impropriety.

Create an anti-fraud culture

According to a report from the Association of Certified Fraud Examiners (ACFE), 29% of fraud is due to a lack of internal fraud prevention controls, with 20% overriding existing controls and 16% due to a lack of management review. To minimise fraud risk and improve fraud detection, organisations should have the following in place:

• ensure that there are confidential and clearly defined reporting routes, supported by a sound whistleblowing policy and process, with a feedback mechanism where appropriate. Respond quickly to suspected fraud by initiating an investigation, documenting evidence and involving a counter-fraud specialist or the police. Prompt action can prevent further losses and minimise fraud impact;
• provide periodic anti-fraud training for all employees as well as bespoke training for key risk areas such as finance, procurement and HR/recruitment. Training should incorporate the publication of successful sanctions where appropriate to demonstrate the organisation’s approach;
• have in place a regularly reviewed anti-fraud policy that outlines the organisation’s approach to fraud, responsibilities, and tone from the top. The policy should be widely publicised, internally and externally, and supported by a response plan for when incidents occur. In addition, it should have an annual strategy for combating fraud; and
• formal fraud risk assessments should be conducted periodically to identify and measure areas within the organisation susceptible to fraud. These areas may require further proactive testing, training and increased controls. The fraud risk assessment should feed into the annual fraud strategy, which defines the areas of focus for that year.

Conclusion

An economic crisis for businesses, a cost-of-living crisis for individuals, geopolitical uncertainty and the rise of agile working all create the perfect storm for increased employee fraud risk. For businesses, it is now a case of when, not if, they will fall victim, so they need a clear and robust plan in place to prevent and detect fraud at the earliest opportunity.

If you have any concerns or questions about the employee fraud risk to your organisations, please contact Erin Sims.