When you think of business fraud you may think of online scams, which attempt to bait employees of companies into performing actions that compromise the cybersecurity of your organisation. But in reality, another insidious type of fraud is actually more common - internal fraud.
This involves employees of businesses purposely attempting to defraud their employer. They are able to do this due to the fact that they are often privy to sensitive company information, which could aid and abet them when conducting the fraud. Smaller companies often require their employees to perform different functions for the business, even if what the business is asking them to do is not actually in their job description. This means that job titles get blurred and more people within the organisation are likely to have access to sensitive information.
Internal Fraud
. Payment Fraud: This occurs when somebody purposely uses false or stolen
information to make a purchase or to justify sending payments to themselves
from company or customer accounts. For example, they may change the payee
details on a check or on payable orders.
. Procurement Fraud: This type of fraud occurs when there is deliberate deception
within the procedure-to-pay process. This could involve an employee picking a
vendor that they know would not be the best fit for the company that they work
for; this could be for a number of reasons including the fact that the vendor
may charge above market prices for their services or that their service or
products are inferior to the competition. Employees committing procurement
fraud may still pick vendors like this if they have received personal under the
table gifts as a bribe from the vendor.
. Travel And Subsistence Fraud: This is where the employee claims money for expenses that
they did not actually pay for, for example they could claim money from their
employer for travel or entertainment expenses that they did not spend money on.
Meaning the employee just pockets any money that is wrongly given to them.
. Personnel Fraud: Personnel fraud can occur when employees claim sick leave but are
actually working elsewhere. Another form of personnel fraud is where employees
lie about having experience or qualifications that they don’t have. This means
that the employer has hired somebody without the required skills for the job.
. Exploiting Assets And Information: This occurs when employees of
businesses supply sensitive company information to outsiders for personal gain.
. Receipt Fraud: This occurs when cash or checks that have been sent to the company
are stolen by employees working for the company for personal gain.
Combating Internal Fraud
. Background Checks: When hiring new employees they should be vetted based on their
actions in the past, if they have been convicted of a serious fraud offence in
the past they will show up on the Cifas’ Enhanced Internal Fraud Database.
. Restrict Access: Only provide employees with sensitive information if they need it
to perform their job responsibilities.
. Whistle Blowing: Implement a whistleblowing policy where employees can speak to
management in a confidential manner if they notice any suspicious behaviour
from their fellow colleagues. You should have protections in place for the
employees who are whistleblowers so that they feel empowered to alert
management if they notice something wrong, as it is important for
whistleblowers to feel like their job won’t be threatened by doing something
they feel is right. You can also retain a business lawyer who
will be able to help you navigate this process as a business.
. Zero Tolerance Policy Towards Fraud: Make it clear to your employees that
fraud is not acceptable and if they are suspected of fraud their details will
be passed over towards law enforcement for a full investigation.
. Employee Wellbeing: Ensuring that your organisation is taking care of your employee
wellbeing, ensuring that you do your best as an employer to take care of their
needs. You could implement a policy of clear communication between employees
and management; allowing employees to discuss any problems with finances in
their personal lives and potentially get help from the business, for example
the business may be able to give the employee more hours at work or a pay
increase to help the employee cover costs within their life.
. Employee Monitoring: You could perform random checks on employees' conduct within the
workplace and question anything that looks out of place, this may allow you to
catch employees involved with fraud and act as a deterrent to other employees
who may be considering defrauding the company in the future.
. Fraud Response Plan: Creating a plan of action if internal fraud does happen within
your business, gives you a framework of how your business should be acting and
dealing with the employee that has committed fraud.
Internal Fraud During The Holiday Season
In the run up to the holiday season, many people feel their
finances tighten as they feel pressured to spend more money than they normally
would. People may feel more obligated to spend more money in the run up to
Christmas because everyone else is and they don’t want to disappoint loved
ones. This extra financial constraint could drive employees who have been
honest in the past to commit fraud in order to gain access to extra funds to
support their financial situation during the holiday season.
Conclusion
Internal fraud can cause significant financial problems for
businesses, this is why it is vital to have a robust set of policies that
detect and deter internal fraud from occurring in the future.