Legal Guide: Preventing employee theft and fraud from your business

Preventing employee theft and fraud from your business

POSTED 07/02/19


It is a sad fact that the greater part of losses due to theft and fraud suffered by business in the UK are committed by employees. At some time most business will be hit by one or other of the activities described below and for many OME’s and SME’s the losses can be enough to drive them into failure so recognising the most common forms of employee crime and taking steps to prevent it could save your business.

What is theft and fraud?

Theft usually takes the form of taking cash or stock from the business or diverting funds intended for the business to the employees own use.

The most common form of employee fraud is procurement fraud. This comes in many forms, it can be and employee and supplier colluding in inflating an invoice and then sharing the proceeds; paying VAT to non VAT registered companies; raising invoices for goods and services not received. In some cases employees have built whole webs of shell companies owned by themselves or associates and then used these companies to create fictitious invoices to the business and then of course pocketing the proceeds.

Employees can also steal confidential information and either set up in competition themselves or take the information to a rival. This could be details of processes, customer lists, recipes etc. This is potentially the most damaging as it can effectively be a theft of your whole business and is the subject of another guide here.

Warning signs

  • Unusual levels of activity for one supplier especially if it is a sudden rise.
  • Large invoices being submitted by new suppliers.
  • Details on invoice don’t match with previous invoices from the same supplier.
  • Changes in supplier details, e.g bank account details, address changes particularly to a PO Box number or to a different part of the country or even another country.
  • Employees becoming suddenly devoted to work by arriving early and staying late, reluctance to take holidays etc.
  • Employees living beyond their salary levels, buying expensive cars, going on expensive holidays etc.
  • Employees with known money problems, debts or gambling problems for example.
  • Employees insisting on dealing with a particular supplier to the exclusion of other employees.

Prevention

  • Conduct due diligence on all new suppliers, are they who they say they are and do the actually carry on business from the address they are giving. Check who actually owns the company.
  • Set up a purchase order process that separates the ordering side of the operation from the payments side.
  • Regularly audit invoices against goods and services received and investigate any discrepemncies.
  • Balance cash and bank accounts on a regular basis and reconcile these agingst receipts and payments.
  • Use informal audits on an irregular basis to check compliance.
  • Limit purchasing authority and only grant it to the appropriate staff.

  • If you suspect an employee of theft make sure you have investigated the matter thoroughly before accusing a member of staff as a false accusation could result in legal action.
  • Follow your disciplinary process. Theft and fraud are usually gross misconduct which would make for dismissal but ensure the process is followed.
  • Consider getting outside guidance if the amount is significant.
  • Take steps to recover the money, it may be that there are significant assets that can be attached, whether luxury goods, property or money in bank accounts. Court action may well be necessary.

And finally..

  • It should go without saying that the majority of your employees will be diligent and honest and a proper fraud prevention strategy will protect their jobs and your business.

Please note that these guides are for informational purposes only, and do not constitute legal advice. You can contact one of our expert consultant lawyers using the form below.

Sean Curley
Dr Sean Curley

Senior Consultant Commercial and Finance Litigation Solicitor

“It should go without saying that the majority of your employees will be diligent and honest and a proper fraud prevention strategy will protect their jobs and your business.”

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