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Rupert Emson

Vero Screening

Chief Executive

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Redundancies and how to reduce the risk of insider fraud


Last week, UBS announced plans to cut 10,000 jobs.

This week, companies as diverse as Ericsson, ING and steel group, Kloeckner, have also announced big job losses.
But managing large-scale redundancies clearly presents a number of challenges for HR, not least the increased likelihood of staff fraud taking place. In fact, the latest figures from CIFAS, the UK’s fraud prevention service, revealed a 52% increase in employee fraud during the first half of 2012 compared with the previous year.
Moreover, according to KPMG’s Fraud Barometer, company managers comprised the fastest growing group of fraudsters, up 30% in value terms (to £441m) on last year.
So why does the threat of insider fraud rise in a redundancy situation? Evidence suggests that, in the face of increasing pressure and concern over job security, employees have a greater propensity, in general terms, to commit fraud against their employer.
US criminologist, Donald Cressey, found that, a strong increase in pressure – whether due to fear of dismissal, redundancy or feeling ‘hard done by’– led to fraud becoming easier to rationalise and, therefore, more likely to happen. 
Another key trigger is simply having the opportunity. A blame culture as well as a lack of reporting structure and internal controls – areas that can easily become compromised during a redundancy process – can all help create the opportunity for fraud to occur more easily.
Add to this the emotional angst experienced by a disgruntled employee who is under threat of redundancy and/or has been treated poorly by their employer and the situation doesn’t look good.
The fraud itself, meanwhile, could take the form of anything from a minor stock fraud through to more serious threats to the organisation’s financial and reputational position such as individuals embezzling company funds for personal gain.
At the most extreme end, it is also possible to see criminal gangs coercing current or past employees to defraud the firm on their behalf.
So what steps can employers take to mitigate these risks?
1. Ensure that the redundancy consultation process is handled positively
The first step is to prevent employees from becoming aggrieved and unhappy in the first place.
According to Heather Matheson, managing director at HR Insight, our HR and employment law partner: “Even if you’ve had a great employee up to the point of redundancy, if it’s not managed well and if they believe it to be personal, the risk of them becoming disgruntled increases as does the danger of insider fraud.”
If the redundancy process is managed in a positive, transparent and genuine manner, however, both the employees being made redundant and those remaining are more likely to feel at least some goodwill towards their employer.
“After all, it’s not the people being made redundant, it’s the jobs, so communicating that effectively is vitally important,” says Matheson.
But it is also important to understand that, even if a given staff member is not part of the redundancy process, they are likely to have friends or colleagues who are. If they feel that the behaviour towards them has been poor, however, it can lead to the individual becoming disengaged and a potential risk to the business.
“Employers can really score points with the employees who stay as well as those that go if they get the redundancy consultation process right,” Matheson explains. “It’s about helping people to feel that they are a genuine loss to the business and finding ways to help them move forward into a new role.”
2. Develop an ongoing staff monitoring policy
In the current climate, screening staff exclusively at the point of hire is no longer sufficient. The risk profile of an employee can change dramatically over time, as was demonstrated by the recent high profile case of UBS trader, Kweku Adoboli, who is accused of gambling away £1.4 billion on unauthorised deals.
To mitigate such risks, employers could put in place a formal ongoing screening policy. This policy should be included in the employee handbook and personnel should be made aware at the point of hire that it exists.
When introducing such a screening system, meanwhile, it is vital to consult with existing employees so that they understand why it is being implemented. Open and positive communications are crucial as putting forward clear organisational objectives can really help to avoid negativity and minimise staff concerns.
But it is just as important to ensure that the level of re-screening, and the specific checks carried out, are proportionate to the threat and confined to the requirements of the job.
As a result, such criteria should be defined using a risk based model. So, for example, because people in more senior roles generally present a greater risk, they should be subject to more stringent screening. The ongoing monitoring process can take the form of either annual checks or random sampling.
3. Train line managers to become aware of the warning signs
It is incumbent on HR and line managers to keep an eye on their staff in order to identify any changing or suspicious behavioural patterns that might indicate potentially fraudulent activity.
These might include employees showing:
  • Signs of disaffection such as appearing unhappy and demotivated or demonstrating a lack of interest in promotion
  • The effects of drug-taking
  • Support for extremist views
  • A sudden change of religious practice
  • Major, unexplained changes in lifestyle
  • Sudden changes in expenditure
  • Sudden loss of interest in work
  • Excessively emotional behaviour that may be confrontational or intimidating to colleagues
  • Changes in working patterns
  • Unusual interest in security measures
  • Frequent, unexplained absences
  • A repeated failure to follow security procedures.
4. Cover yourself legally
From a legal standpoint, employers should ensure that well-drafted, restrictive covenants are included in employees’ employment contracts. In order to help protect the business further down the line, however, these covenants will need to be drafted correctly and signed.
Employers should also ensure that they have an IT policy in place that enables them to monitor randomly or specifically how and when staff use the internet inside the workplace in order to ensure that internal security controls aren’t being compromised in any way. 
“Having the facility to shut off people’s access to systems and confidential company information, and a policy that ensures that actually happens, is vitally important,” Matheson explains.
What to do if you suspect an employee of fraudulent activity?
  1. Seek appropriate legal advice and support.
  2. Gather as much information and evidence as you can as quickly as possible, cross-question the employee concerned and ensure that real reasonable doubt exists before taking the decision to suspend and investigate them.
  3. Enforce your IT and security policy immediately and confiscate all IT equipment such as company laptops and mobile phones.
  4. Restrict access to organisational systems and other employees during your investigation.

Rupert Emson is chief executive of screening services provider, Vero Screening.

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Rupert Emson

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