What is employee fraud?

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Employee fraud involves an employee, or person working within or for a company committing fraud against that company. There are numerous forms that this can take, and businesses are vulnerable to employee fraud in a number of ways.

A company’s employees can be their greatest asset but can also be their greatest risk and open them up to fraudulent behaviour that can cause significant and long term damage to the reputation, health and survival of the business. Harmful impact of employee fraud can extend to other employees, customers, other businesses within the company’s network and the industry as a whole that the business operates within.

Employee fraud can vary in its nature and aim from being for financial gain, to further independent goals and ventures of an individual or group to a desire for revenge for a disagreement or action taken against an individual or to tarnish the company in some way and therefore its future reputation and success.

There are many ways an employee or person with inside access to a company may perpetrate fraud against it:

An employee may submit a false or inaccurate claim for sickness pay during absence from work; it may be that their illness was genuine at the start of this claim, and they have since recovered. However, they do not want to return to work as have enjoyed or benefitted from not having this responsibility so continue to claim sick pay for longer than required or are reporting false ongoing symptoms to their GP to prolong being signed off. It may be that the illness was never present in the first place, but they have again reported false symptoms to their GP to be signed off yet guaranteeing sick pay in their absence; they may well be using this time to work elsewhere or for themselves and claim a second income whilst still receiving a salary from the job they are not attending.

An employee can also make a false or exaggerated claim about an incident or injury that occurred within the workplace in order to gain compensation; this may be an accident that happened on work premises but that the employee is being dishonest about the extent of their injury and the impact this has on their quality of life and capacity. It may be that the employee is falsely alleging discrimination, harassment or bullying to gain compensation, or unfair dismissal. Much of these actions will be to achieve financial gain in some way or another, to the detriment of the business.

Payment fraud can be committed by any employee or person working within or for the business who has access, or has gained access, to accounts and payroll. It may be that the perpetrator simply makes direct payments to themselves or other accounts/persons connected to them from company accounts; it could be that they alter payments so that more is paid to themselves or others than is due; they might falsify invoices to inflate payments beyond work done or price agreed; an employee or other individual such as an accountant might create false accounts so that payments can be made into these for fake expenses or purchases and transactions not linked to the perpetrator if discovered.

Someone with insider knowledge and access to financial information and identification documents such as an employee may attempt identity theft, using the status, history and assets of the business to obtain credit for their own purposes and placing the business in debt as a result. 

Another form of employee fraud occurs through theft; this could be of physical property, assets, intellectual property or company information. Employees or persons working within a company have access to stock and supplies, even office equipment, that may be stolen for their own use or financial gain; in certain businesses employees have access to information about products or services in development or business plans as well as customer information that they may use for their own business or moonlighting purposes; some businesses hold assets or have use of assets such as property or vehicles that the employee may illegitimately make use of for their own gain or convenience.

The misuse of information poses a major risk to businesses and can result in significant financial penalty and legal action; employees can, depending on their job role, have access to personal employee and customer data as well as knowledge of planned developments or current financial and trading status. They can sell this information to outside agencies or businesses for financial gain for themselves or to obtain leverage in some other way that benefits them, placing the business in a very precarious and vulnerable position. 

An employee may abuse company time and this is categorised as a form of employee fraud; it may be that an employee logs hours or work they have not undertaken or that has not taken as long as the time they have reported; it could be that the employee does not comply with flexible working facilities and is repeatedly not meeting their stated hours or is clocking in through false means; it might be that an employee is not using company time to complete work or to carry out the role they are paid to do such as misusing company computers or software for their own purposes or carrying out other activities when they are meant to be working.

An employee may have been fraudulent from the very start of their contact with the business, stating false experience and/or qualifications to obtain a job role or salary that is above their competency level. This places the company at risk of negligence and can harm the company itself, other employees and customers. If the role is high profile or has serious consequences if not undertaken properly this can be extremely detrimental and dangerous.

These are a few examples of the many forms of employee fraud and ways in which businesses are vulnerable to risk through the people who work for it. Most employees value their job and the company they work for and want to work in an ethical and company focused way to promote the future of the business and, in doing so, their own prospects.

Whilst only a small minority of employees behave in a fraudulent manner, this small percentage can do an enormous amount of damage and fraud has huge financial implications for the economy and country as a whole; the Financial Cost of Fraud Report 2019 estimated the cost of fraud to the UK to be around £130 to £190 billion per year.

It’s important for businesses to be aware of the risk posed by employees and insider individuals; this is not about being suspicious and mistrustful of every person working for your company, but applying reasonable safeguarding and prevention measures within systems, processes and technologies to protect your business and those connected to it and acting quickly if you notice or become aware of any potentially concerning behaviours or situations. 

If you do feel that your company may be at risk from a particular employee or associated individual you can take steps to prevent this from developing and further harming your business, to do so you can hire our corporate investigation team.

Professional private investigator agencies have knowledge and expertise within the field of employee fraud and will be able to advise on the best preventative measures or next actions you need to take in safeguarding your business.

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