Dealing with fraud whether it is internal or external is probably one of the most difficult things you will have to deal with as a business owner/manager. It is a highly stressful situation, especially when the scale of the fraud is significant, financial and puts your business at risk of closure.
Recently a client of ours G.B. Kent Brushes & Sons had £1.6 million stolen from the Company in 20 minutes. Their story was featured in the newspapers and across the UK media in an attempt to raise awareness of such crimes, and the lack of protection for businesses.
The fraudsters managed to gain access to their accounts. The financial controller was targeted in a sophisticated authorised push payment (APP) scam in early July. The fraudsters claimed that they were calling from the bank and that they were concerned about fraudulent activity. Their tactic was to scare and pressurise the staff member.
Could this situation have been avoided?
Yes, because there were a number of red flags that the staff should have picked up, but under pressure from the fraudsters, the alarm bells didn’t ring quickly enough. The Company have managed to recoup some of the money and, although they suffered a huge financial setback, they are strong enough to be able to trade out of this position.
What are the red flags?
If you haven’t called the bank yourself or you are not accessing the online banking in the usual way this is a red flag
- if somebody calls and says they are calling from the bank always put down the phone and call the bank yourself.
- never click on any links
- never go into websites or links given by a caller, as they can gain access to your system without you even realising it.
- never give out your account or card details
Internal fraud
Internal fraud is often harder to accept as it is more personal, committed by someone you know. It is a dishonest act perpetrated by misrepresentation, omission or abuse of position in the workplace, it includes those occurrences when a person dishonestly makes a false representation, wrongfully fails to disclose information or abuses a position of trust, with the intent to make a gain, cause a loss or expose another to the risk of loss.
Some acts of fraud may be criminal, but, if it is not a criminal act, the person responsible could still be in breach of the terms in an employment contract.
As an employer, if you discover or suspect any fraudulent activity, you must instigate the internal investigation without delay. You may need to consider suspending the employee and, depending on the circumstances, this is advisable to safeguard the business.
Depending on the nature of the fraud, we would advise that you report the matter to the police, they may instruct you not to carry out an investigation until they have completed their investigation.
The investigation will determine the next steps; the employee may resign, if they don’t, you may find there is enough evidence to proceed to a disciplinary hearing. At this stage you can consider termination as an allegation of fraud will be regarded as gross misconduct. If dismissed the employee may be summarily dismissed with no notice and with immediate effect.
If the employee has defrauded the Company, you can suspend them with no pay and recover any payments from their salary, to do this you must ensure that the contract of employment allows you to make these deductions and advise the employee in writing.
You may also need to seek legal advice, in terms of legal action against the employee, proceedings may be issued in an attempt to recover stolen money if the fraud relates to this. In the first instance, your lawyer would consider whether you should make an application to court for a freezing injunction against the employee (and any implicated third parties). A freezing order is an interim injunction that restrains a party from disposing of or dealing with its assets. The purpose is to preserve the employee’s assets until judgment can be obtained or enforced. The court has power to freeze all types of assets, including bank accounts, shares, motor vehicles and land situated anywhere in the world. Other injunctions against the employee may also be appropriate.
What can you do to ensure that you safeguard your business against potential fraud?
- ensure that your contracts and policies & procedures are in place and are robust
- ensure that you carry out a thorough induction with all new starters
- ensure that you provide the necessary training and that you provide refresher training to avoid complacency
- ensure that you are compliant with any regulatory requirements
You must ensure that you carry out a fair and reasonable investigation before termination, if you are ever in doubt, seek advice.
