Fraud Guidance
Introduction to Employee Fraud
Whether it's taking a few reams of paper for the home printer or
siphoning off a couple of million pounds from the company's accounts, it's
fraud. A person commits a fraud when they make a false representation or deceive
another person, either by making a statement or by their conduct, with the
intention of obtaining a material advantage or causing loss to another party.
Of the £15 billion lost in the UK every year because of corporate
fraud, the majority relates to small items: fiddling expenses, padding bills,
taking stationery home, using company post for personal letters.
There seems to be a popular misconception that small acts of
fraud are acceptable - everyone adds a couple of miles onto their petrol
expenses, don't they? You may think not, but on average 20% of employees will be
claiming completely fictitious mileage. The same is true with lunch expenses,
client hospitality expenses and so forth.
The fraudster uncovered
There are three main types of fraudster.
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The first is the "Borrower". This person will usually take money
from your business with the intention of replacing it before any losses are
detected.
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The second is the "Cash Grabber". They have the opportunity to
'grab' cash on its way into the business. Cash-based businesses are, for obvious
reasons, most at risk from this sort of fraudster.
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The third is the "Accounts Fiddler". This includes expenses
fraudsters, those who take advantage of situations where funds received are not
set up or controlled in the accounts, for example recoveries on bad debts,
proceeds from the sales of scrap etc. and the employee who plays the cash and
securities of his own entirely separate company against yours.
Likely suspects
You might think desperate low-income employees are the most
likely to try and bend the rules; however it’s actually the college or
university-educated white male sitting at the desk next to you who is most
likely to defraud the business.
Men commit 75% of all frauds in the workplace, and each male is
likely to steal 4 times more than their female counterparts. Most worrying is
that people at managerial or director level have been found to steal 16 times
more than the average employee.
Warning signs
The following are considered indicators of fraud and if you can
identify a combination of two or more occurring within the business, further
investigation is necessary;
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Poor controls / organisation
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Missing documents
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Numerous alterations to records
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Low morale which leads to 'unofficial perks' becoming acceptable
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Unusual transactions / addresses
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Excessive expenses or purchases
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Strange payment arrangements
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Frequent complaints from customers or suppliers
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Overbearing managers who override internal controls
Dealing with the fraudster
Having put your trust and confidence in your workforce, you now
suspect that one of them has been defrauding you. What do you do?
First of all, don't act rashly. Doing so may well result in you
jumping to the wrong conclusion and ultimately could see you facing a costly
claim in the Employment Tribunal. Be sure to investigate before you question an
employee's integrity, even if the matter looks clear-cut to you.
Monitoring your workforce is the best way to identify instances
of fraud. Some of the ways this may be done are:
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randomly checking expense receipts to verify authenticity
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randomly checking claimed mileages on on-line calculators
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installing CCTV
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monitoring communications by email, telephone, etc
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employing private investigators.
Before instigating any of these methods you must have in place a
policy that lets your workforce know what forms of monitoring you may employ.
When it comes to enforcing a policy, ensure your reactions are in proportion to
the suspected fraud.
Suspend and Investigate
Once you have collected enough information from your monitoring
exercise to back up your suspicions, you may feel justified in dismissing the
employee on the spot. Don't! You must still carry out a reasonable investigation
in order for the dismissal to be fair, and so avoid a potentially expensive
unfair dismissal claim.
Essentially, before dismissing, you must have:
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a genuine belief of wrongdoing on the part of the employee;
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reasonable grounds for holding that belief; and
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have carried out a reasonable investigation.
Whilst there is no requirement for you to be absolutely certain
of guilt, you must believe that, on a balance of probabilities, the employee is
guilty: 51% is enough, but there are still other considerations to be taken into
account before dismissing.
Conducting investigations while the employee is in the office may
not be practical, and you don't want to give them the opportunity to cover their
tracks.
For these reasons it will probably be desirable to suspend them
on full pay. If you are thinking of suspending without pay, you will need to
have the contractual right to do so, and you would need to follow statutory
procedures (see below). Of course, this will of itself tip off the employee and
may also look as though you have pre-judged their guilt.
Witnesses
There are certain requirements that you must bear in mind when
taking statements from would-be informers. In all instances the statement should
include:-
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Date, time and place of observation
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Informer's opportunity and ability to observe clearly
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Any circumstantial evidence
In addition, you should check that there are no grudges between
the employee and informer that may lead the latter to fabricate evidence.
Remember also to try and corroborate any informer's claims and maybe investigate
their background.
One particular difficulty you may come across is the informer who
wishes to remain anonymous. The courts will permit anonymous informers, and even
deviations from the usual guidelines of statement taking, but only in
exceptional circumstances.
The Police - A Duty to Inform?
Aside from certain specific duties relating to money laundering
and terrorism, you are under no general duty to inform the police of
investigations that you undertake within the workplace, even if you suspect
criminal activity. By doing so you may be forced to delay your own
investigations whilst the police seize your evidence and commence what could be
a time-consuming and intrusive exercise. And it's not always guaranteed to get
results - a court has to be "sure" of guilt to convict, whereas you need only
believe it to be reasonably probable to dismiss.
Discipline
Once you have carried out your investigation, you must, almost
without exception, follow the three-step Statutory Dismissal and Disciplinary
Procedure (SDDP) as a minimum (i.e. write to the employee inviting them to a
meeting and giving them the documentation on which you have based your
conclusions, holding the meeting and allowing an appeal) before dismissing.
The SDDP will also apply if you want to suspend without pay, as
noted above.
A word of caution: failing to follow the SDDP will result in the
dismissal being automatically unfair and an uplift of up to 50% on any award of
compensation to the dismissed employee.
Don't forget to have regard to disciplinary records, length of
service and Company practice before deciding on any sanction. Your decision must
be "in the band of reasonable responses" to satisfy a Tribunal that it is fair,
even if you have carried out a fair procedure.
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