Posts Tagged ‘fraud policy’

Employee Fraud – the need for firmer action?

Wednesday, November 18th, 2009

If an employee steals from the organisation he or she is working for there are a number of ways in which this can be dealt with. The decision will no doubt be based on the organisation’s fraud policy and what it wants to achieve. Does it want its money back, to sack the fraudster or to make a public example of the issue? The alternatives include:

  • Reporting the employee to the police – the police may or may not be interested. If they are – they may investigate. If they do, this can be disruptive to the business. Often however, given the shortage of police fraud investigation resources the response to a fraud report may well be a request to provide comprehensive details of the occurrence i.e. effectively to go and investigate the fraud yourselves!
  • Commencing some form of disciplinary action in order to safely remove the fraudster from the business. This has to be done with care because inappropriate treatment of staff can lead to claims for unfair dismissal or constructive dismissal – even by the guilty fraudster!
  • To investigate the fraud using internal or external resources with the view to instigating some form of civil litigation for recovery of the losses due to fraud.

Very often, however, an organisation will do none of the above! They will let the perpetrator go with a reference on the understanding that this is the end of the matter. Incredible though it seems, this is exactly what some major financial institutions or publicly listed companies will do. Not wanting any publicity to impact share prices perhaps, they prefer to hush the matter up!

I am aware of one major building society turned bank that caught one of its employees recently having fraudulently obtained substantial loans and conducted a preliminary investigation. Then they simply asked the person to leave. Around a month later it emerged that the person was working nearby, in one of the UK’s largest credit card insurance providers!

The fraudster was able to obtain another sensitive position, obviously with the assistance of a reference from its former employer. This is irresponsible action by the bank, as it sends out a strong message to would-be fraudsters that it is possible to get away with it. It flies in the face of all fraud prevention efforts being preached by the regulators, various fraud fora and even by fraud experts like myself. How can we combat fraud, if we do not deal with it fully when discovered?

The recent news that a number of T Mobile employees were selling customers details to competitors shows how lenient penalties can encourage fraud and theft. In this case we have the Information Commissioner complaining that the maximum fine of £5,000 from the Magistrates Court is unlikely to be reached, and that harsher penalties should be available to deter this activity. Why do we not simply prosecute – it is theft after all!

Tags: , , , , , , , , ,
Posted in Employee fraud, Fraud Prevention | No Comments »

Fraud Prevention in Companies

Monday, November 16th, 2009
Fraud prevention measures are intended to reduce the risk of fraud. By anticipating what a fraudster might be able to do, and installing a number of cost effective controls, it is possible to protect a company from the fraudster’s attention. However, it is not possible to protect it 100%. This is because the fraudster is working 24 hours a day, 7 days a week to discover gaps in the fraud prevention system. This is why one of the main controls against the fraudster is for any organsisation to be always aware that there remains a risk i.e. to never become complacent and think they are fully protected. A proper fraud prevention policy will reduce the risk of fraud to a very small level, but must be continually monitored and complacency not allowed to creep in.
All fraud specialists that I know have said that they find fraud defence a very difficult idea to sell to successful businesses. I agree – there are two very closely linked subject areas of work within my business: these are providing asset tracing in cases where some form of asset recovery is being sought and providing fraud prevention advice to companies looking to protect themselves from the risk of fraud. The latter service is usually a follow on job from the first, where the victim wants to make sure an attack by the fraudster does not happen again!
By investing on installing a fraud policy and reviewing fraud prevention measures the company is reducing the risk of suffering a major fraud by a huge amount. The trouble is that sometimes attending to fraud prevention after the act, while necessary in most cases, may be too late for some. Any fraud can have a serious financial impact and in many cases can cause a company to fail. A large part of my business activities are on behalf of the insolvency practitioner called in to invetsigate the workings of a failed business. Sometimes this is because the business itself was fraudulent, sometimes simply because the scam against it caused it to lose the resources it needed to survive.
A little time spent on reviewing fraud defences is good insurance against the worst case of a fraudster causing a business to fail. The activities of an external fraud specialist going about his business, talking to staff, reviewing business activities and policies, sends out a clear and fresh message to everbody in or attached to an organisation that there are no easy pickings likely here!
 
The revenue that I would receive from providing fraud advice to even a larger organisation on how to establish appropriate fraud policies, defence plans and preventative controls is modest when compared to the cost of dealing with a relatively minor fraud. In addition, if a fraud does occur, in addition to forensic accounting and tracing activities,  dealing with the loss would also require the services of legal advisors.  Costly court action or employment tribunals would ensue. It would also take up a lot of the organisation’s own resources and would be highly disruptive to the day to day business. This is even more likely to be the case if the law enforcement or fraud regulatory authorities become involved in a criminal investigation! 
 
By investing a little on installing a fraud policy and reviewing fraud prevention measures the company is reducing the risk of suffering a major fraud by a huge amount. Any fraud will have a serious financial impact and often can cause a company to fail. Many of my investigations are on behalf of the insolvency practitioner called in to investigate the workings of a failed business.
 
The old adage of “…it will never happen to me…” rings true. We are are guilty of it and unfortunately will continue to be so, not only in our business affairs but also in our day to day life. We do not exercise enough, eat the wrong foods (or too much of it) and drink too much alcohol. Then when we are ill or unhealthy in our old age we say ‘…if only…’
There is a lot that a business or organisation can do to prevent fraud happening, from quickly installing a fraud policy to reviewing its controls on a regular basis. The directors or managers have a duty to protect a company’s assets. It costs less to prevent a fraud than to deal with it after the fact. For no-obligation free advice on how to increase your defences - quickly, efficiently and for far less than the cost of even a small fraud - please give Fraud Advisory Services a call.

Tags: , , , , ,
Posted in Fraud Prevention | No Comments »

  • Categories