Insider fraud investigations not ‘run-off-the-mill’

On Tuesday we highlighted how employee fraud is on the rise and how the move towards hybrid working has left some businesses with weaknesses in their internal controls – some employees are exploiting those weaknesses. 

Back in February KPMG published its biannual UK Fraud Barometer looking at major fraud cases committed in the UK, those in of £100,000. They found 298 cases of alleged fraud, up from 180 the year before. The number of frauds committed by employees rose from 44 to 66 and from 21 to 66 at management level. KPMG  say the trend is potentially linked to weaknesses in internal controls driven by the impact of Covid-19, while businesses were implementing new ways of remote working. We agree, based on what we have seen across our own client base during that time.

Andrew Herring is one of the lawyers in our litigation team, specialising in complex litigation and fraud related investigations and on Tuesday he talked to this programme about the warning signs, typically unusual behaviour such as working long hours or the flash car that appears in the car park. 

But if you do detect insider fraud, what should you do about it? I put it to Andrew that you don’t deal with it as a run-of-the-mill misconduct case.

Andrew Herring: “Yes,  think that's right, Joe. 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.”

Andrew and the team have produced a guide for clients on Insider Fraud designed to help raise awareness of the risk of insider fraud and the steps HR professionals can take to minimise the risks to the business. We have included a link to that in the transcript of this programme.

LINKS
- Link to Fraud Guide