Covid-19 The Increased Risk of Employee Fraud

As many employers grapple with putting measures in place to keep their employees’ jobs and incomes secure, the risk of employee fraud is highly likely to increase.

The following article looks at why this may happen, how businesses can act to protect themselves and how they should react if any instance of employee fraud is detected.

Tenet’s Liane Atcheson explains, in two short videos why the risk of insider fraud is increasing and how businesses can act to protect themselves if they identify it.

Why do we expect employee fraud to rise?

Employee fraud typically occurs when two factors are present – need and opportunity.

Financial distress – in one form or another – is an almost inevitable consequence for many households. This is likely to continue beyond the immediate weeks of lockdown and furlough as the economy idles into an expected slow recovery. In the current situation, employees may be facing a number of challenges, including:

  • Reduced hours.
  • Reduced income.
  • Partners may not be eligible for furlough, putting increased pressure on their earnings.
  • Difficulty in accessing the various financial relief measures put in place by both the government and various financial institutions.

As a result, ‘need’ can arise. In this financially vulnerable state, employees who have the opportunity to access to their employer’s cash and financial systems, are far more likely to give in to temptation. This is where need and opportunity come together.

Experience shows that the majority of employees who commit fraud against their employer are in some way directly connected to all, or part of, the financial processing of the business. Usually, they are trusted explicitly by their employer and, sadly, some of these employees will have held their roles without any abuse of position for years prior.

The fraud is likely to be simple; paying fake invoices to themselves, over claiming of expenses or taking ‘back handers’ from contractors and suppliers who may also be anxious to retain your business.

How can you protect your business?

If you tackle the root causes of employee fraud, you have a greater chance of preventing it. This is likely to be a significant challenge for many employers, particularly during the current crisis, when so many factors which will influence need and opportunity are outside of their control.

Reducing need

  • Know your employees – this can help identify those who may have a desire or need to commit fraud. Keep open lines of communication and try to understand how the current crisis is affecting their household. Understand what challenges they face and seek to learn if there is anything you might be able to do as a business to help them overcome these.
  • Maintain open lines of communication – this plays a vital role in empowering your employees to talk about their worries and personal stresses.
  • Empower your team’s voice – make sure every member of your team is able to talk to their line managers, or you as business owners, if they have concerns about fellow employees’ financial or mental well-being. If your employees feel like you will listen and try to help, they will be more inclined speak up.
  • Keep your team updated – as much as you can, share information with your employees about how the business is navigating through these tough times. If your team understand you have identified the issues you will face and that you have a plan in place for resolving them, then those employees who might otherwise be feeling hopeless, might be able to see the light at the end of the tunnel. If they believe things will get better, then the need and desire to procure money through fraud will be reduced. Put simply, your employees need to know things will be okay.

Reducing opportunity

  • Payments – make payments via BACS to known bank accounts for suppliers to avoid the risk of fake invoices to illegitimate accounts and reduce the needs for expenses claims.
  • Put checks and measures in place, even for trusted and long-standing employees – use peer reviews and audits to check the integrity of transactions. Undertake some analysis from time to time to check for an increase in number of suppliers, a rise in expenses claims or any unusual patterns, such as sudden escalation in the use or costs of a particular supplier.
  • Know your suppliers – undertake due diligence before engaging with suppliers to check the business credentials and see if there are any undeclared connections to employees. It is also important to be familiar with their invoices and pricing structure and to double check invoices in support of expenses directly with suppliers to ensure the correct name and payment details appear. Spot check the amount claimed on an invoice directly with the supplier from time to time.

What should you do if you discover employee fraud?

  1. Investigation – at an early stage you will need to decide whether to investigate without tipping off the employee or to isolate the employee, which may mean suspending them. Try to avoid dismissing them immediately as if they remain an employee you will be able to maintain control of a process of interviews and meetings.
  2. Preserve evidence – ensure you preserve any evidence, especially computer hardware and email evidence by taking an image of the employee’s computer or laptop.
  3. Use professionals as soon as possible – consult external accountants and auditors, IT experts and/or lawyers. If you have fidelity insurance, your insurers may appoint an insurance panel solicitor to help you. Confidentiality is important in terms of your communications in relation to the investigation. Solicitors can bring privilege to your communications.
  4. Take legal advice on both HR and recovery strategies – getting early decisions wrong can be costly.
  5. Gather details of all known or suspected bank accounts used by the employee – this might help with tracing.
  6. Consider which third parties may have been involved, if any.
  7. Consider instructing a tracing agent (via solicitors or accountants) to obtain an asset report – whether the employee has any assets will help drive the recovery strategy.
  8. Decide your priorities – recovery or punishment – this helps set a strategy of whether you make a complaint to the police or seek recovery via the civil court (or a combination of the two). You should also consider how the event coming into the public domain could affect your business.
  9. Check whether you have any insurance policies which might cover the losses. These may include Fidelity Insurance or Director’s in Office Insurance. If you have broker be sure to speak to them. There can be very short time limits to inform insurers of a potential claim.

If you have a suspicion or discover fraud has occurred and you would like to have a confidential discussion, please contact Liane Atcheson or one of the team at Tenet on 0121 796 4020.


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