Know how to deal with employee fraud

Staff fraud is on the rise. KPMG’s ‘Fraud Barometer’ reveals that, in the first half of 2009, a third of the 160 serious fraud cases to go before the UK courts (each with a value of more than £100,000) were staff frauds.

Of those, 32 related to managers, who cost their employers a total of £150m, and a further 31 cases were against non-management level employees who cost their employers £24m.


Staff fraud can be devastating, and not only financially. Reputational loss can be severe, and the impact on customer loyalty, where personal data is stolen and used in identity fraud, can be ruinous. So what can be done to prevent it?


Accept that it could happen


Organisations first have to acknowledge that thinking “it couldn’t happen to us” is not an option. Even the most respectable organisations have found they are not exempt from risk. Dale and Sally Foster were jailed for six years after being found guilty of stealing around £575,000 from a Carmarthenshire Citizens’ Advice Bureau, for example, and Colleen McCabe, head teacher of St John Rigby College in Wigan, spent £500,000 from the school’s budget on a lavish lifestyle for herself.







Expert’s view: Peter Hurst, chief executive, CIFAS, The UK’s Fraud Prevention Service


What are the biggest challenges?


The biggest challenge is introducing an effective policy in the first place, given that staff can be sensitive about the idea of scrutiny, so this needs careful and sensitive handling.


Another challenge is finding a balance of proportionality without being seen as intrusive or overbearing when implementing fraud prevention measures – for instance, e-mail monitoring.


What should you avoid doing?


Although a fraud prevention policy needs the endorsement of the board and senior management, do not introduce it without consultation with staff and trades unions. This will not achieve ‘buy-in’, and can be counter-productive.


What are your three top tips?




  • Before introducing any new measures, provide the opportunity for staff to discuss any financial problems, and then help to manage them out of those difficulties – if necessary, by putting them in touch with a Citizens Advice Bureau money adviser or a charity specialising in financial advice such as the Consumer Credit Counselling Service


  • Communicate the existence of your staff fraud policy within your recruitment pack. This will act as an excellent deterrent to would-be fraudsters.


  • If the worst happens, and a fraudster is dismissed, make the serious consequences known throughout the company. But be aware that such occurrences can be hugely upsetting to former colleagues, so be sensitive to the fall-out, and offer support where necessary.
Why does it happen?


Before the problem of fraud can be addressed, it is important to consider the reasons behind it. Studies show that the three main drivers behind such frauds are:




  • Opportunity (and the belief the fraud will go undetected)


  • Pressure on the individual


  • The ability of the individual to justify the action to himself/herself.

How to prevent it


Many organisations will already have a policy or rigorous procedures in place. Those that don’t should undertake a thorough analysis of the potential risks to their business, consider where processes might make them vulnerable, and implement procedures to eliminate those risks. This should lead to fraud prevention becoming part of the organisational culture, with everyone taking responsibility, and should include:




  • Thorough fraud screening at recruitment stage


  • Fraud prevention training at induction


  • Regular monitoring


  • Training in how to deal with instances of fraud


  • Clear reporting processes


  • Involvement of law enforcement, where necessary


  • Ensuring that staff fraudsters cannot move unchallenged to a new employer to commit further fraud.

The key to success doesn’t lie in just one or two of these factors, but in a combination of them all. It also depends, of course, on continued adherence to agreed processes – cutting corners is where problems start.


Who can help?


Some organisations already employ specialists to oversee this area. In addition, many of the larger consultancies are well-practised in advising organisations on fraud prevention processes, supplemented where necessary by advice from solicitors with employment law backgrounds. For pre-employment and continued fraud screening, and ensuring that staff fraudsters cannot move unchallenged to a new employer, use a reputable staff fraud database.


If you only do 5 things


1. Involve all staff in putting processes in place to prevent employee fraud. They are best placed to know of any loopholes


2. Include staff fraud training at induction to make fraud prevention part of your culture


3. Have a thorough fraud prevention policy


4. Have well-publicised and completely confidential whistleblowing procedures


5. Feed back to staff the detail of any dismissals for fraud to reinforce the message.


Further information




  • Employee Fraud Schemes – and How to Stop Them!
    Author: Lori J. Perry
    Xlibris Corporation, £14
    ISBN:1441507434



  • Anti-fraud Risk and Control Workbook
    Author: Peter Goldmann and Hilton Kaufman
    John Wiley & Sons, £33.99
    ISBN:0470496533


by Kate Beddington-Brown, head of communications, CIFAS – The UK’s Fraud Prevention Service


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