insider fraud - the threat within

29-09-2015

John Baker from Moore Stephens highlights the importance of effectively managing the risk of employee fraud. Moore Stephens is the UK's 10th largest independent accounting and consulting network and a Counter Fraud Centre Founding Partner.

All organisations, irrespective of size or sector, will suffer from fraud and/or corruption at some point. Often, the fraudster is unfortunately a member of staff. This can be devastating, not only in terms of morale and reputation, but the financial losses can be huge due to the fraudster usually having a deep understanding of the organisation’s controls and anti-fraud capability.

Rather than waiting for it to occur, a more proactive approach can deter, prevent and detect fraud. With the ever-changing landscape and nature of fraud and corruption, it is critical to ensure your organisation is effectively managing its risks through the implementation and constant updating of simple, effective policies and strategies.

Robust pre-employment screening is an excellent place to start. Advances in document creation can make it relatively easy for a fraudster to create an identity (on-line and hard copy) and qualification certificates. Instead of relying on what the applicant has told you, or taking at face-value the contact details of referees etc., a successful pre-employment screening process should ensure that (at least) all CV’s, qualifications and education/ employment history are properly checked. Often, simple open-source, public domain searches can be quite revealing in highlighting any discrepancies. 

However, many frauds are committed by long-standing employees for whom pre-employment screening would not have highlighted any risks or issues. In such instances, it is often behaviours (whether personal or through results or documentation) that should act as a ‘red-flag’ and warrant raising through your whistleblowing or concern reporting process. Some examples of red-flags are:

  • Sudden and unexplained change in lifestyle/living beyond visible means
  • Does not take holidays or go off sick/refusal of promotion
  • Controlling behaviour
  • Too perfect performance and/or documentation (too good to be true)
  • Missing documentation
  • Concerted efforts to avoid audit.

Staff should be trained in understanding what fraud is, how it manifests itself and how to report concerns. 

It’s important therefore to ask yourself:

  • When did you last undertake a fraud and/ or bribery risk assessment (strategic and/or operational)?
  • Is your counter-fraud/bribery strategy properly designed, up-to-date, and working?
  • Has your organisation undergone (or is planning) any major changes in personnel, structures and/or systems?  If so, have the fraud risks/controls been re-visited/considered?
  • How effective is your pre-employment screening process?
  • What is your anti-fraud/bribery culture and what is the quality of the fraud awareness training (if it is) provided to your staff? 
  • Would your staff know what to look for and how to respond to suspicions of fraud?
  • How effective are your whistleblowing arrangements?

All too often, the words “We trusted him/her” are uttered at the client de-brief stage so it is important to remember that ‘Trust is not a control’. If that’s all you’ve got, it’s time to think again.

Related items

  • Find out more about CIPFA’s whistleblowing e-learning for staff here.
  • Find out more about CIPFA’s anti-corruption health check service here.

About John Baker

John leads the counter fraud/bribery services at Moore Stephens. He has been involved in countering fraud and corruption for over 20 years, having worked in or with a host of organisations to develop and embed counter-fraud and corruption strategies, undertake investigations, design and deliver training and undertake fraud and bribery risk assessments. John has delivered counter-fraud services to a large number of local authorities and other organisations across all sectors. He sits on the Advisory Panel of the University of Portsmouth’s Centre for Counter Fraud Studies and on the Editorial Board for the Fraud Intelligence magazine and is Vice-Chair of the London Audit Group’s Fraud Sub-Group. Previously, he was a Director of the London Fraud Forum and an Executive Member of the Institute of Counter Fraud Specialists. He is a regular speaker at conferences and workshops in the UK and overseas.