The next step

Internal fraud

[Policy]

Whistleblowing

[Policy]

Protecting your business from insider fraud

Embezzlement

Peter Murrell is also the husband of the former First Minister of Scotland Nicola Sturgeon, making his alleged embezzlement of SNP funds particularly newsworthy. However, his alleged crime isn’t unusual. According to the KPMG Fraud Barometer 2023, embezzlement (by managers or employees) was the most common type of fraud in 2023.

“Red flag” behaviour

Insider fraud can take many forms, including knowingly generating or paying false claims, payroll or invoices, falsifying timesheets and forging documents. Employee behaviours to watch out for that may indicate insider fraud include:

• working excessive hours, or at unusual times of the day when the office is empty - fraudsters need to be in control and so they’ll take necessary steps to ensure they’re not caught out
• not taking annual leave - they won’t want other employees covering their work in their absence
• introducing overly complicated working practices, such as for invoicing, authorising expenses, etc. where simple, transparent processes could be used instead - complicated processes increase the opportunity for employees to commit fraud
• hiding what they’re doing from other staff
• living beyond their means - for example, having an expensive car or enjoying a lavish lifestyle that doesn’t correlate with what they earn
• personality changes, such as being more secretive, anxious or withdrawn
• having a gambling addiction.

Minimising the risk

To minimise the opportunity for fraud, put in place sufficiently rigorous procedures and controls, such as: (1) proper authorisation procedures for transactions; (2) adequate separation of duties, i.e. with more than one employee being involved in key financial tasks; (3) independent monitoring and checking of data and documents; and (4)  robust auditing processes - conduct regular audits.

Tip. Also have an internal fraud policy which sets out your zero-tolerance approach (see The next step ) and have internal channels in place so that staff can easily report suspected fraud - this can be under the reporting procedure in your whistleblowing policy (see The next step ). Consider also whether to carry out specialist fraud prevention training for staff.

If you suspect fraudulent activity by an employee, act swiftly to investigate the matter in a methodical way, taking care to preserve any evidence and being alive to the possibility that other third parties may be involved. Then, deal with it as you would any potential gross misconduct at work, i.e. by invoking your disciplinary procedure. Also, report suspected fraud to the police. Your disciplinary procedure can run alongside any police investigation if that’s fair in the circumstances; you don’t necessarily need to await the outcome of that before taking disciplinary action, as the two processes are separate. Even if the employee says “no comment” at the disciplinary hearing, this doesn’t prevent you dismissing them for gross misconduct based on the evidence you do have available. The important thing is that you’ve given them a fair opportunity to state their case.

For an internal fraud policy and a whistleblowing policy, visit https://www.tips-and-advice.co.uk , Download Zone, year 26, issue 11.