The impact of financial fraud by employees has reached unprecedented levels. It is also increasingly hard to discover, and can often have a devastating impact on a business, says Jodie Jones, a Senior Manager in the forensic accounting team at Kreston Reeves

The cost-of-living crisis with employees struggling to make ends meet, the rise of hybrid and remote working together with the pressures facing businesses following a prolonged period of economic uncertainty are behind the increasing levels of employee fraud.

Employee fraud can be notoriously difficult to spot and even more so when the individual with their ‘hand in the till’ is in a trusted position of authority, and with access to company banking facilities. They are often quite adept at covering their tracks. Fast-growing businesses with small teams where responsibilities may not be shared are particularly vulnerable.

Every year, KPMG publishes its annual Fraud Barometer. In 2023, the levels of fraud in the UK cost businesses almost £1bn, with 226 separate crown court cases involving fraud of £100,000 or more.

Whilst the KPMG report suggests fraud is most prevalent in the public sector, employees and managers stealing from their employers follows closely behind.

Yet this is likely to be the tip of the iceberg, with many more incidents of corporate fraud left undiscovered or unreported.

Warning signs of employee fraud

Whilst employee fraud can be difficult to spot, there are some warning signs for employers and senior managers to look out for:

Lifestyle
Business owners will have a good idea of salary levels within their company. But where an employee appears to enjoy a lifestyle beyond their means, that might raise questions.

Lack of segregation of duties
If an employee has too much control or if there is a lack of authorisation from senior management, this can allow for fraudulent activity to go unnoticed.

Change in bank details
A perpetrator may change bank details to their own so that funds are paid into their account. This could cover supplier payments, customer invoices, employee payroll.

Abuse of corporate credit cards
Corporate credit cards are intended for corporate expenditure. Whilst mistakes might be made, repeated personal use of corporate credits might raise red flags.

Accounts inconsistencies
Excessive or unexplained trans-actions, increased expenses, untypical supplier payments and unreconciled bank accounts can all be signs of fraudulent activity. Having good management reporting is essential.

Workplace gossip
Whilst not always reliable, keeping an ear to the ground can be a helpful way to discover fraudulent activity.

Fighting employee fraud
In an ideal world, business owners should segregate the duties of those with access to the finances of a business, leaving no one individual with access or control. But we recognise that for many businesses, that is simply not possible.

We also recognise that successful businesses are built on trust, and this is a key factor in all employee fraud cases we come across – founders and owners need to trust key team members to do the job they are appointed to do. When that position of trust is abused, it is both a financial and emotional blow.

So, what should business owners do when they suspect an employee of committing fraud? It is, unfortunately, not an easy question to answer. But here are a few things to consider:

• Do you raise suspicions straight away? If there is a risk that it involves more than one individual, it may be prudent to take time to ascertain the scale of the fraud and identify those involved. Asking your accountant to conduct an ‘interim audit’ is one way to discover the extent of fraudulent activity without raising suspicions.

• If the case is more clear-cut, revoke access to bank accounts and accounting software/documents to ensure individuals cannot continue or hide their activity.

• Understand the extent of the fraud. Here your accountant can help interrogate the financial records.

The impact of fraud can be long-lasting and there can often be wider implications, such as the impact on company tax liabilities.

In all instances of suspected and proven fraud, it is helpful to have your accountant working alongside. A specialist forensic accountant can help discover the full extent of fraudulent activity and manage its impact, as well as providing recommendations for improvements
in systems and control procedures to reduce the risk of fraud in the future.

To discuss your situation in more detail, please contact Jodie Jones:

Call: +44 (0)33 0124 1399

Email: enquiries@krestonreeves.com

Visit: www.krestonreeves.com