Employee fraud - could you be a victim?

21st August 2014 by Fiona Hotston Moore

Can you afford to ignore what might be going on under your nose?

Employee fraud is far more common than any other fraud. 

It is estimated that 85% of all reported fraud is by employees and the sums involved are increasing.

In the US, employee fraud was estimated to cost businesses $50bn in 2012 and a staggering one third of business bankruptcies are attributed to employee fraud. 

In the retail sector, more goods are stolen by employees than by shoplifters and it’s estimated that one in three employees will take from their employer if the opportunity arises. This can include inflated expense claims, helping themselves from the stationery cupboard, fictitious employees or fraudulent banking transactions.

Unfortunately in my 25 year professional career I am aware of three incidences of employee fraud within organisations that I worked for and each time it was by one of our most trusted employees. Similarly, when I have been involved in external fraud investigations it is often a shock to the management that a trusted or ‘star’ employee or team turns out to have their ‘hand in the till’ or to have fraudulently overstated the financial performance.

So how can a business protect themselves from fraud?

The key to deterring the would-be fraudulent employee and to uncovering a fraud is awareness and scepticism.  If something doesn't sit comfortably don't ignore it.

Typical signs that something may be wrong include:

  • An employee who is working long hours and perhaps choosing to work outside normal hours when "it’s quiet" and, coincidentally, they are unobserved.
  • An employee's behaviour changes or they become defensive or evasive.
  • An employee makes an unusual luxury purchase which doesn't seem to sit within their means.
  • A ‘cosy’ relationship between an employee and your customer or supplier.
  • Small differences in reconciliations, a reluctance to reconcile accounts or unexplained debit balances on a supplier ledger.
  • Exceptionally good performance by your business or a department within the company.  All too often a fraud is missed because management are in awe of the apparently stellar performance being achieved by an individual. Even if another brave employee raises doubts they may be brushed aside. This happens not just in large financial institutions but also in SMEs. Good performance should be subject to as much management scrutiny as poor performance.
  • Frequent visits by a member of the employee’s family or friends.
  • An increase in wastage or customer complaints.

It is essential to conduct full employee checks on all employees, including temporary ones, and it is also worth checking your business insurance adequately covers the risk of employee fraud.

Larger businesses should consider an external check on their purchase ledgers. These audits don't just uncover deliberate fraud but often uncover significant overpayments, duplicate payments and unclaimed discounts and therefore are often offered on a ‘no-win no-fee’ basis.

What if you suspect employee fraud?

It is essential to seek legal advice immediately.  This is to protect the evidence and avoid a claim in the Employment Tribunal if you inadvertently breach your employee’s rights.

As forensic accountants and expert witnesses we can work with your lawyer to quantify the potential legal claim or to verify the extent of the loss for an insurance claim.

It is, of course, a difficult balance.  And whereas it is important to trust and respect your team you should also maintain a healthy level of scepticism.

For further information on our forensic accountancy services please contact our Forensic Team


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Fiona Hotston Moore

Fiona Hotston Moore

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