Employee fraud is alive and kicking

Shiva Shadi

Shiva Shadi – head of Employment at Davis Blank Furniss – on why employee fraud is alive and kicking.

Organisations are spending huge amounts of time and sums of money protecting themselves and their internal systems from external threats of cyber criminals; whether it’s phishing, ransomware or social media hacking.

While all these are necessary in the advanced technological world that we all work in, it is equally crucial for businesses not to lose sight of the more traditional threats to their business – one of which is employee fraud.

Whilst the majority the working public are people of trust and integrity, unfortunately there are some who are not.

This was highlighted only recently by the Chinese drone maker DJI which uncovered that its staff had “inflated the cost of parts and materials for certain products for personal financial gain” with an estimated $150 million loss resulting from the fraud.

Employee fraud can take many forms and we are seeing an increase in clients requesting advice on their employees’ fraudulent conduct.

Examples include:

1. Self- authorising payments
2. Creating phoney customer records and bank accounts to generate false payments
3. Claims for travel that had not been undertaken
4. False client entertainment claims
5. Forged signatures authorising payment
6. False information on timesheets
7. Receiving contractual sick pay whilst working elsewhere
8. Adjusting amounts owed by customers in return for cash rewards

Whilst some of these may not seem to carry large financial risk, when done repeatedly over a period of time it can be hugely detrimental.

We handled a case of an hourly paid team leader who added one to two hours extra on his daily timesheets and inserting the same hours for his hourly paid team.

It was only when a customer made a passing comment about the company’s ‘flexible working hours’ that it was revealed through technology installed in the firm’s vehicles that they had been parked outside their homes during the hours they had claimed they were working. The result was around £6K of unwarranted salary payments per quarter.

Another client discovered that one of its director’s had paid for private medical bills, family holidays and her children’s private school education on a company credit card for several years amounting to a six-figure sum. I could go on.

Whilst a number of employees will always come up with new and inventive ways of defrauding their employer, if you have procedures and systems in place you’ll have a much better chance at detecting and putting a stop to it.

Some of steps that a business could put in place include:

1. Set the right tone at the very start. Have an ethics policy that employees are given as part of their induction setting out the organisation’s approach to fraud.

2. Circulate reported fraud in other organisations internally to raise awareness and alert your staff to be vigilant. This will also give the perception that fraud can be detected and act as a deterrent.

3. Supervise your employees. This doesn’t mean consistently looking over their shoulder but randomly check on what they are doing, and that they are where they say they are during the working day.

4. Use purchase orders. Where possible the payment, receipt and preparation of purchase orders should be separate functions and handled by different employees.

5. Set up independent checks by co-workers or external organisations.

6. Have surprise audits. This prevents individuals from having the time to hide, destroy or alter their fraudulent conduct.

7. Scrutinise bank and credit card accounts and query payments. Just because an amount has always been paid does not mean it should be. Junior employees in accounts and finance departments are also less likely to question payments by more senior members of staff.

Once you detect or suspect fraudulent conduct has taken place you need to follow your own internal investigation and disciplinary procedures.

There will be times when you will need to either take legal advice or obtain expert advice through a forensic accountant. In some cases, you may also need to be report fraudulent conduct of your employees to the police.

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