Fraud in the workplace, otherwise known as fidelity, insider or internal fraud, is a growing problem threatening UK businesses and causing annual losses estimated at £1.75 billion. Large organisations dismiss in the region of 100 to 150 members of staff every year for fraudulent activity and some organisations have seen a 30% increase in the number of staff fraud referrals in the last year. 

According to CIFAS there are three main reasons for the increase in workplace fraud: 

1. Changes in business and organisational structures;

2. Changes in type of staff employed to service these new structures; and

3. Increased targeting of business by organised criminal networks.

Data collected by CIFAS in 2012 showed a 52% overall increase in workplace fraud. In addition, the prevailing precarious economic and employment conditions have inevitably led to a 24% increase in dishonest actions by staff to gain a benefit, with fraudulent attempts to gain employment more than doubling. 

So what is meant by ‘workplace fraud’? Essentially, it can be defined as an activity undertaken by an employee – or anyone who has a contractual arrangement with an organisation to provide personal services – with the intention of causing a loss or obtaining a benefit to which he or she is not entitled. It includes making a false representation, wrongfully failing to disclose information and abusing a position of trust. 

There are many different forms of workplace fraud, which can be broadly categorised as follows:

1. Employment application fraud e.g. falsifying educational or employment history to obtain employment.

2. Misappropriation of assets e.g. theft of IP, data or tangible assets.

3. Procurement fraud e.g. bid rigging. 

4. False accounting fraud e.g. falsifying the financial performance of an organisation.

5. Bribery and corruption e.g. accepting kick-backs to secure business.

The impact and consequences of workplace fraud will, understandably, differ. Certainly, the financial loss to an organisation is usually the most apparent but there can also be a loss of board or shareholder confidence, regulatory implications, reputational damage and internal impact on the workforce.

Whilst the damage and disruption of workplace fraud cannot be underestimated, the good news is that the majority of employees are honest and trustworthy and there are policies and procedures that can be put in place to reduce the risk of this happening. 

The starting point is a clear and coherent fraud policy which should be communicated to all staff and linked to HR policies e.g. there should be consequences for failure to follow the policy and clear lines between suspected fraud investigations and the corresponding disciplinary procedures. Whilst prevention of workplace fraud is key, it is also critical that the methods of resolution are clearly set out in the policy so that the entire organisation is aware of the sanctions if fraud is detected. 

The policy should also identify who has responsibility for fraud within the organisation – a ‘Fraud Champion’ at board or senior management level – and it should set out the requirement for risk assessments that should be periodically reviewed and updated. 

The key to an effective policy is to ensure that the organisation’s interests are safeguarded against workplace fraud but that the measures don’t stifle output or productivity. This can be difficult to achieve, but a working group drawn from across the organisation could help to devise a workable policy. 

There is also no substitute for vigilance. Organisations are encouraged to ensure they know their staff, customers and suppliers so that unexplained changes in behaviour, lifestyle and habits are not dismissed out of hand. You should never ignore gut instincts!

If workplace fraud is suspected, usually the first stage of the process is to undertake a series of fact finding interviews. These can be held with an employee under investigation and any others who may have evidence to contribute to the process. The purpose of these interviews is to elicit information that, in collaboration with internal investigation, will validate or dismiss any fraud concerns. If the concerns are validated, it is recommended – in cases of suspected employee fraud – that a formal investigative interview be undertaken. This process should be independent of disciplinary procedures but there should always be close liaison with HR once any concerns are validated. 

It may also be necessary to involve the police depending on the nature and scale of the fraud, and certainly this must always be considered in the event of suspected fraud perpetrated by an outsider against an organisation. 

Civil remedies, such as freezing orders and injunctions, may be warranted and expert legal advice must be secured at the earliest opportunity to minimise dissipation of assets by a third party. In addition, the referral of a suspected fraud to the police or the mounting of a private prosecution to penalise a fraudster and send a deterrent to others, may be attractive options.

In the current economic climate, it’s likely that workplace fraud will continue to rise and perpetrators will find more and sophisticated ways to commit these acts. It is therefore more important than ever that organisations have an effective fraud policy in place with prevention at the heart and a clear resolution strategy.

For more detailed information about workplace fraud or if you are interested in discussing this topic further, please don’t hesitate to contact Kate Archer, Sue Pawar-Price or myself at Mills & Reeve.