Tackling workplace fraud: Know who you're dealing with

Fraud now accounts for over 33 per cent of crime in the United Kingdom, an alarming figure which is growing substantially year on year. It has become the single biggest risk to our economic recovery from Covid 19, with the government-backed Covid 19 Loan Scheme set to see tens of billions of pounds lost through fraud and default.

Companies are now more at risk from fraud than at any time in history. In fact, research from accountancy firm BDO has revealed around 60per cent of mid-sized UK firms were hit by fraud in 2021, with an average loss per firm of £245,000.

Whilst half the frauds reported came from external parties, a staggering 34 per cent of businesses surveyed said their fraud had “involved collusion” between employees and defrauders, and 21 per cent said their own employees were directly behind the fraud perpetrated.

Invariably, fraud can go on for a long time before being detected by a colleague or, more often, through an audit. There are, however, measures firms can take to protect themselves from the outset – not just at recruitment stage, but also before an employee is promoted.

Screening and evaluating candidates

Senior roles, sensitive positions and jobs with contextual vulnerabilities require not only an assessment of experience and technical ability, but also of qualitative attributes and potential financial and reputational risk.

Employee screening should always be an important part of a firm’s recruitment process. Simply put, by hiring or promoting workers who are unlikely to commit an offence in the first place, firms will better safeguard against risk.

Firms that do not perform complete background checks on potential employees run the risk of hiring someone with a history of relocations, regular job moves, civil litigation, or criminal prosecution, that could be warning signs of past misappropriations or frauds.

Advanced screening not only verifies candidate disclosures, but also provides information that might fall below the voluntary disclosure requirement, so that a balanced, fully informed commercial decision can be made.

As we come through the worst of Covid 19 and return to some sense of normality, protection of assets and income stream become ever more essential. The first line of protection is to know the people you are dealing with, especially those in trusted positions, by undertaking a thorough review – above and beyond the individual’s voluntary disclosures – which will uncover any potential threats to the business.

Sometimes called ‘background screening,’ employee screening verifies a candidate’s information and history. Firms tend to use screening to determine if a candidate is suited to handle sensitive or confidential information, as well as to assess skills that are relevant to the position. Employee screening can also be useful for an organisation’s pre-trading.

While the process may be conducted prior to appointment, it can also be undertaken during employment, before a promotion, or where there is an element of concern or suspicion.

A high-level review typically includes credit and identity checks, criminal history checks, public records screening, verifications and credentials screening, and company/director partnership checks. Professional social media checks are also important in helping to reduce risk to brand, reputation, confidentiality breaches and data security.

Here are some tips for firms to safeguard against employee fraud:

1. Do not permit partners to override established procedures.
2. Ensure proper authorisation of transactions.
3. Put accountable supervision of employee procedures in place.
4. Install computer security measures.
5. Use purchase orders and verify orders.
6. Screen employees:  pre-employment, promotion and secondment.
7. Conduct ledger reviews or reconciliation of charges.
8. Confidential hotline for employees to report suspected theft or fraud by co-workers.
9. Be wary of employees not taking full holiday entitlement.
10. If in doubt, appoint an external investigator to check.

It is also important that firms be alert to key indicators of potential fraud, such as lifestyles well above salary levels, strong objections to changes to financial processes or reporting procedures, evidence of compulsive gambling, drugs or alcohol abuse, spikes in invoice volumes, inventory shrinkage, or any known strong political affiliations.

Where fraud is suspected, it is essential that businesses conduct a professional investigation to determine validity, the extent and length of the fraud, and the methods used. Be extremely careful about making accusations before determining the facts, as this could result in a lawsuit against the firm.

My strong advice as step one would be to ensure that all those you deal with are professionally screened, ideally pre-employment or trading, but also consider it post-employment. It is a simple, low cost, logical insurance that may just avert a financial or reputational disaster.

Ken Dulieu is Chairman and Founding Partner of Capcon Limited, including Capcon Argen and Capcon Reality: capcon.co.uk