Is your business able to respond effectively to insider fraud?

Embezzlement is the most common fraud type across the UK according to the latest survey published by KPMG. It serves as a salient reminder to HR to check that the correct internal structures are in places to detect insider fraud, and to respond to it when it is detected. We’ll speak to an expert about conducting a workplace fraud investigation.

This is KPMG’s Fraud Barometer for 2022 which shows there were 36 cases of embezzlement with a value of £100k or more heard in UK courts in 2022. It compares with 51 cases in 2021, so a drop in numbers, but the total value of these cases increased by 37% to nearly £40m so the problem has got worse. One case involved an employee stealing £6.7m from company accounts. As the BBC reported at the time, that was the accountant James Hall who admitted four counts of fraud from his employer after his crime was uncovered following a company audit. He was jailed for six years. Hall was part of the management team which made it easier for him to conceal his actions, and on that point the survey shows management was the second largest group of perpetrators by volume, accounting for just over a quarter of cases in 2022.

Commenting on the findings, Roy Waligora, Partner and Head of UK Investigations at KPMG, said:

“Embezzlement can be a big problem for businesses as employees and management look to exploit their positions. It is very important for businesses to have channels to report fraud and when businesses become suspicious about any fraudulent activity, that they act swiftly to uncover the facts so they can take decisive action against the individual or individuals. This is especially relevant as companies start to address the requirements of a Fraud Statement in their annual reports.” 

Andrew Herring is one of the lawyers in our litigation team, specialising in complex litigation and fraud related investigations and earlier I spoke to Andrew about the investigation which is very different to your typical misconduct case.

Andrew Herring: “The issue with any sort of fraud compared with that sort of ordinary misconduct situation will be the potential liabilities and risks that the business that the employer faces as a consequence of the fraud. Quite often the initial discovery of wrongdoing may just be the tip of the iceberg and so, for example, if you take new fairly standard action, in accordance with policies and procedures in response to that, you may not have the full picture and that can have some quite serious consequences. So if the employee has been stealing from the company there may actually be a web of other third parties involved in it, they may be giving money to third parties outside the business, there may be other employees who are acting in conspiracy with the particular individual and so it’s very important not to ‘tip off’ other people who are involved so approaching an investigation in a very cautious manner is the right thing to do in these situations. If the wrongdoing has affected customers, suppliers, then obviously, that all needs to be managed and not taking knee-jerk actions at the start can be very important from that respect. There may be regulatory risks concerned with the wrongdoing, depending on the nature and type of the business that's involved, so in order to manage that risk, and manage those potential liabilities, it's very important to approach the investigation in quite a methodical systematic way. But the response needs to be quick, so it's finding that balance because, clearly, if you're trying to stop ongoing wrongdoing then then you need to be taking swift action. So the usual investigation steps will involve pulling together an independent investigation team to manage things instructing the right expert professionals to support the investigation, ensuring that the crime scene, as we call it, is preserved, making sure that any evidence is preserved and not deleted, making sure that when and if witnesses are spoken to that it's done in a very controlled way and if it’s a witness who is not suspected of the wrongdoing, that they their rights are looked after in that situation, but not tipping off the wrongdoer until you're absolutely sure what the position is because actually, one of the strategies and an investigation may be to actually allow the person to continue what they're doing so you can get better evidence because you haven't got the full picture of the situation. So, all of these strategies need to be taken into account when setting up an investigation into some serious wrongdoing which may amount fraud within an organisation.”

Last week Andrew talked to this programme about the warning signs of employee fraud of this type, the behaviours which should alert HR to a risk. That’s ‘Management perpetrating a quarter of UK fraud cases, survey shows’ and we’ve put a link to it in the transcript of this programme.

LINKS
- Link to HRNews programme: ‘Management perpetrating a quarter of UK fraud cases, survey shows’
- Link to KPMG’s Fraud Barometer Report (published February 2023)