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Annie Hayes

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Editor’s Comment: The weakest link?

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Annie Ward
Bringing about the total collapse of a bank may not be the criminal activity of your average ‘fingers in the till’ employee but rogue traders aside employee fraud is becoming a very real problem and bosses should be wary of turning a ‘Barings blind eye’ to the issues.


There are evident lessons to be learnt from the Nick Leeson story, the trader who ruined Barings bank by gambling away £1.3 billion on the stock markets. Fortunately, most employees wouldn’t have the nerve or audacity to risk it all in the Leeson manner but the blame can’t lie at the rogue trader’s door entirely.

According to the BBC website questions should be asked of the conduct of Barings: “An internal memo dated in 1993 had warned the London headquarters about allowing Leeson to be both trader and settlement officer. ‘We are in danger of setting up a system that will prove disastrous.’ Nothing was done.”

In the past two years the cost of employee fraud has doubled. Take the case of Joyti De-Laurey, the 35-year old PA convicted in 2004 of plundering millions of pounds from her City bosses. She stole £4.3 million to fund a lavish lifestyle including luxury cars, villas and jewellery.

While the Leeson and De-Laurey examples may seem extreme, the importance of checks and balances at every level is evident and with the cost of fraud climbing from £43 million in 2003 to a whopping £78 million in 2005 the problem is an issue that bosses cannot afford to ignore.

Fraud investigator Andrew Durant, a partner with BDO Stoy Hayward has given firms a wrap on the knuckles: “I am disappointed to see another rise this year. Companies clearly need to do more to reduce this serious threat to their business – failing to do so could lead to their demise. I recommend a three step plan as a minimum. Companies should firstly deal with potential “bad apples” through adequate recruitment screening.

“Then further policies and procedures should be implemented to ensure employees know what is right and what is wrong, and that wrong behaviour will not be tolerated.

“In my experience someone always knows about a fraud, but has remained silent. So the third step is to ensure that when honest employees spot something that they feel is not right to, they know whom to report it to and are assured they will be seen as corporate heroes rather than villains. ”

He added: “The Government is talking tough and wants to remove jury trials for the most serious frauds. It is ironic that at the same time, the ultimate sanction of a prison sentence, which is a very strong deterrent, is being eroded.”

But this doesn’t appear to be the whole solution.

It is a sad indication of the state of play when we look at the figures which suggest that a decline in fraud sentences is eroding trust and loyalty.

For instance, comparing the first ten months of 2005 with the same period last year and in 2003, the average sentence for fraud has declined – from three years in 2003, to 2.7 years this year. For large frauds over £5m, the average sentence has reduced from 4.2 years in 2003 to 3 years in 2005.

Overall, say BDO the total value of fraud has declined since last year, albeit 2004 was a very high year. However, the total number of frauds reported is higher so there are no grounds for feeling that this crime is being tackled effectively.

Andrew Durant adds: “There is an emerging trend for professional criminals to undertake frauds, particularly using employees and temporary staff to gain access to sensitive data, as it is always easier to commit a fraud with the aid of an insider. Given the gains can be high and the sentences are generally low, assuming they are caught and found guilty, this is becoming an increasingly attractive crime for professional criminals.”

Not wanting to get all Leeson-esk about the problem it is important to recognise that the majority of employees are trustworthy and law-abiding citizens. But you can’t help feeling that part of this problem has got to do with a society that pivots around the status of wealth as the be all and end all and a psychological contract between employees and employers that has all but eroded over the last few years or certainly metamorphosized into something unrecognisable.

Gone are the days when in return for some wage-slavery employees used to receive a job for life, a comfortable retirement fund and a carriage clock. And while this might not necessarily be a bad thing it has to be noted that the rules of engagement have changed forever. With job-hopping the norm it is understandable that loyalty, the stuff of marriages and family relations has all but eroded.

And employers need to do something to ensure that the minority of employees who might be tempted by all that glitters are prevented from doing so – not just by using the tools of surveillance and checks and balances but by boosting levels of motivation and increasing employee alignment with the business. Satisfaction for a job-well done, happiness and the contentment of working in a nice place should be the reward HR practitioners hone and focus upon in order to protect the workplace from the likes of the Leeson’s and De-Laurey’s of the world. Getting back to basics seems like the only way to circumnavigate those with a penchant for the nicer things in life without the hard graft needed to attain it in a legal manner.


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Annie Hayes

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