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How Your Small Business Can Combat Internal Fraud This Holiday Season

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.

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.


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.