91̽»¨

As the Economic Crime and Corporate Transparency Bill makes its way through the House of Lords, a new corporate criminal offence of ‘failure to prevent fraud’ is likely to hit businesses soon. Leading audit, tax and consulting firm 91̽»¨ advises businesses to act now to ensure they have robust anti-fraud measures in place. 

Figures obtained by 91̽»¨ under a freedom of information request show a 10% rise in reported cases of fraud committed by employees against their employers. The data obtained from City of London Police* shows there were 885 instances of corporate employee fraud reported to Action Fraud last year, up from 806 reported incidents in 2021. This equates to a total loss of £227,151,202 in 2022, and a five-fold increase from £46,034,952 stolen through employee fraud in 2021. The mean average loss is £256,668 per incident.

Common types of employee fraud investigated by 91̽»¨ include staff diverting payments to their own accounts, procurement fraud and misappropriation of assets, bribery and corruption, and travel and subsistence fraud.

Erin Sims, associate director of fraud risk services at 91̽»¨, says: ‘The increase in both volume and value of funds stolen by employees serves as a stark reminder to employers 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 trust, in addition to the obvious financial loss. Businesses need to ensure they are adequately prepared for this potential change in the law, as measures taken to minimize the risk of fraud could also serve as a legal defence.’

The vast majority of employee fraud occurred in London, with 194 incidents reported, totaling a loss of £198,677,127 from City firms. This represents 87% of all reported funds stolen last year.

Globally, the types of companies most at risk of employee fraud include: banking and financial services, government and public administration and manufacturing, according to a report from the Association of Certified Fraud Examiners (ACFE).** The ACFE report also highlights that 29% of employee fraud is due to a lack of internal fraud prevention controls.

To minimize the risk of fraud and improve fraud detection, 91̽»¨ recommends:

• Have a clear and robust anti-fraud policy in place for all staff.
• Implement strong controls, such as separation of duties and authorisation, to prevent fraud.
• Conduct thorough background checks when hiring new staff, including criminal and credit history checks, to identify any previous fraud-related activity.
• Train all employees on how to identify and report fraudulent activity, and establish a culture of honesty and integrity in the workplace.
• Monitor employee behaviour through regular reviews of financial statements and accounting records.
• Instigate proactive reviews in focused high-risk areas to identify unusual patterns or activities that could indicate potential fraud.
• Respond quickly to suspected fraud by initiating an investigation, documenting evidence, and involving a counter fraud specialist or the police. Prompt action can help prevent further losses and minimise the impact of fraud.
• Conduct thorough background checks during the hiring process, including criminal and credit history checks, to identify any previous fraud-related activities, as well as ID checks.
• Train employees on how to identify and report fraudulent activities, and establish a culture of honesty and integrity in the workplace.
• Monitor employee behaviour through regular reviews of financial statements, accounting records and other relevant documents. Leverage technology and instigate proactive reviews in focused high-risk areas to identify unusual patterns or activities that could indicate potential fraud.
• Respond quickly to suspected fraud by initiating an investigation, documenting all evidence, and involving a counter fraud specialist or the police. Prompt action can help prevent further losses and minimise the impact of the fraud on the organisation.

Erin Sims concludes: ‘An economic crisis for businesses, a cost-of-living crisis for individuals, geopolitical uncertainty and the rise in agile working all combine to create a perfect storm for increased risk of employee fraud. 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.’

Employee fraud by volume of reported incidents

Employee fraud by total value of funds stolen

*Analysis of City of London Police Corporate Employee Fraud 2019-2022 Data
**Occupational Fraud 2022: A report to the nations (Association of Certified Fraud Examiners)