Workplace fraud: unmasking the inner threat

How companies can mitigate the rising problem of workplace fraud

The cost of workplace fraud in the UK is at a 15-year high. Your office procedures and culture can make all the difference.

Incidents of workplace fraud would seem to be increasing in frequency and severity in the UK and elsewhere.

The value of UK fraud hit a 15-year high of £2.11bn in 2017, according to a new study. The total number of fraud cases worth more than £50,000 rose to 577 in 2017, compared with 212 in 2003, according to accountancy firm BDO.

The average amount stolen in each incident rose to £3.66m, up from £1.5m in 2003.

Employee fraud rose 570% between 2016 and 2017.

The three most common types of UK fraud in 2017 were:

1. Employee fraud (up 570% on 2016 to almost £500m),

2. Tax fraud (largely flat if you exclude a 2016 £1bn VAT case), and

3. Money laundering (approximately double 2016 at over £300m).

The biggest rise was in the financial services industry, where the total value of fraud rose to approximately £900m last year, compared with £215m in 2016. One hundred cases were reported, compared with 58 in 2016. The worst types of fraud were corruption and money laundering.

Fraud cases are also on the rise in the retail sector, found BDO’s report. The number of cases rose from 16 in 2016 to 29 in 2017, with the majority being management fraud.

Online fraud totalled over £460m in 2017, with phishing scams and ransomware particular concerns.

Prevention and detection
It is unclear the extent to which this increase is the result of a real-term increase in fraud, or more reflective of an increase in companies’ detection of this problem.

Online fraud totalled over £460m in 2017.

At Lockton, however, we are seeing an unprecedented increase in crime insurance claims, particularly in the area of employee fraud.

According to the PWC Global Economic Crime Survey 2016, seven out of 10 organisations believe that ‘opportunity’ is the biggest driver of internal economic crime.

While business owners can do little about a fraudster’s personal drivers, they can introduce systems and processes, and create a work environment, that helps them to reduce the risk of employee fraud and increase the chance of early detection.

1. Create a positive work environment
This will encourage employees to follow policies and procedures, and act in the company’s best interests. Senior management should also lead by example by adhering to the policies and procedures and being held accountable for their actions.

2. Have a policy manual
Ensure that every employee is trained in and understands workplace procedures. Make regular reports to senior management on the implementation of procedures. If possible, make adherence to the procedures part of the conditions of employment.

Tip-offs are by far the most common method of fraud detection.

3. Create a code of conduct
This should make clear that there will be zero tolerance of any fraudulent activity on any level of the business and that any fraud will be reported to the police. This code should also clarify what constitutes employee fraud, something that can be an area of confusion for employees.

4. Separate duties
Try to ensure that no single person is responsible for a complete transaction from start to finish. For small businesses, where this is not practical, employees handling finance should be subject to close supervision.

5. Implement a whistleblowing policy
Tip-offs are by far the most common method of fraud detection. A whistleblower policy should outline the steps employees should take if they suspect someone of fraud. Employees should be assured that there will be no negative consequences when using this resource. Management must demonstrate that they actively follow up on all issues raised via the whistleblowing mechanism.

6. Clearly define roles
Define the roles and responsibilities of all employees. And implement policies that clearly articulate who is authorised to conduct transactions on behalf of the business and who is responsible for each step of a transaction (including who can authorise a payment over a certain amount or enter into a contract).

 As fraudsters’ methods evolve, so must a company’s defences.

7. Monitor employee behaviour
Certain employee behaviours may indicate a heightened probability that an employee is committing fraud, including:
• the employee regularly working outside of business hours or rarely taking leave. Although they may just be very hard-working, they may have other motives for being in the workplace unsupervised.
• the employee appears to be spending or living beyond their means.
• tax returns and other compliance forms are lodged late.

8. Investigate every incident
Collate the facts you need to conduct a thorough and prompt investigation of policy and procedure violations, allegations of fraud or warning signs of fraud. Learn the lessons from any previous incidents so that your fraud risk management can become a process of constant improvement. And be mindful that as fraudsters’ methods evolve, so must a company’s defences.

In addition to robust systems and processes that all companies should introduce, crime insurance can be purchased to protect a company’s balance sheet from losses caused by both internal and external fraud. Insurers can also assist in promoting awareness around fraud by sharing clams scenarios, and can provide forensic investigation of any suspected fraud, including pursuit of recoveries.

Lockton’s crime insurance policy provides broad ‘all risk’ coverage for theft by employees and third parties, including payment diversion losses caused by impersonation using so-called ‘social engineering’ techniques. 


For more information, please contact Michael Lea on: