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Take a page from JK Rowling’s book: How to spot staff financial fraud

As employees come back to work after an extended period of excess eating over Christmas, the first victims of the New Year may well be the cull of the office biscuits.

Employees being “caught with their hand in the cookie jar” can take on a whole new good-natured meaning.

The risk of employee fraud, however, is very real and it is imperative that employers have adequate systems in place for the prevention, detection and investigation of fraud.

Fraudulent activities by employees are rarely in the form of some grandiose ‘smash and grab scheme.

Often it is incremental, smaller-scale acts that can go undetected for a period of time.

We have seen this recently in the ongoing case against JK Rowling’s personal assistant (PA), Amanda Donaldson, who is accused of using the author’s credit card to buy luxury cosmetics, expensive stationery and lavish lunches.

The case shows why it is essential that systems detecting fraud are not only implemented but consistently updated AND monitored.

How to spot fraud

Certain unusual employee acts can arouse suspicions amongst employers. Although some of these may seem innocuous in isolation, they can build up to a pattern of behaviour that points to fraud.

Take the example of an employee refusing to take a vacation. This could suggest the employee is afraid to spend any time away from the office in the fear that their theft will be detected by the person covering their duties.

Similarly, they might work unnecessary overtime or take the work home. They might even refuse a promotion or change of function in an effort to make sure their fraud isn’t uncovered.

Financial clues could include excessive personal spending by an employee as is alleged in the JK Rowling case petty cash or office supplies being used up too quickly, or extravagant expenses for employee travel.

And when challenged about the discrepancies, the employee might overreact to avoid answering difficult questions, as part of a broader attitude of secrecy and even disgruntlement.

Many companies, including banks and financial institutions, require staff working in areas where there is a greater risk of fraud to take holidays in minimum two-week blocks in order to increase the opportunity for the company to detect any fraudulent activity.

Identification of fraud by an employee is damaging not only to the company but to personal and professional relationships, particularly in a small or medium sized company.

Clearly a serious fraud would be considered an act of gross misconduct leading to immediate termination, however, for smaller or ad hoc acts of fraud, it is important that employers do not react emotionally, but consider and follow their own disciplinary procedures.

An emotional reaction without following due process could see the employer having to deal with a claim for unfair dismissal!

The employer must, also, establish a reason for dismissal and demonstrate that this is a potentially fair reason.

Employee fraud occurs where an employee intends to defraud the employer and uses deception to either carry out or cover up their fraudulent activities.

This is an act of misconduct and so falls into one of the five potentially fair reasons for dismissing an employee.

The starting point for employers when starting these procedures should be the ACAS guidelines but taking legal advice is worthwhile due to the sensitive and potentially complicated nature of employee fraud.

Simon Walsh is a partner at Oury Clark Solicitors and Ian Phipps is a partner at Oury Clark Accountants


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