Internal Fraud Committed by Employees

Employee fraud

When an employer employs certain staff to work for his organisation they do so on the basis that the person is not only capable of doing the job for which they are employed by also that the individual is trustworthy and will not commit any form of fraud.

However, often this is not the case and an employee is involved in certain acts of fraud which can end up costing the company huge sums of money.

What is meant by employee fraud?

Employee fraud can take the form of many different acts. Some of these acts may be committed by many employees and are deemed as trivial by that employee. In many of these instances the employee will not even consider the fact that they have committed fraud. Examples of this are where an employee may lie on an expenses sheet or something similar. The employee may regard this as a trivial act as it may only gain them a small amount of money. However, if all employees within a certain company were to do the same act then there may be certain financial implications for the company.

Reportedly since the economic downturn there have been more instances of this form of employee fraud taking place.

What are other more serious forms of employee fraud?

More serious forms of employee fraud can take the form of the following:

• Direct theft of Intellectual Property
• Passing on business information for personal gain to competitors
• Passing customer details to third parties in order that attacks may be facilitated against that organisation – this is where there may be an employee of a financial institution passing customer account details to organised crime

Can fraud take place during the recruitment stage of a particular employee?

Often when applying for jobs many people will provide some form of material falsehood on their application form or on their CV. This can be anything from overstating their qualifications and responsibilities through to false employment histories.

Often in many cases this will be made worse by the problems in obtaining references. For example some employers – including many public sector employers – are no longer willing to provide any reference other than to confirm the dates that an individual was in their employment. This means that there is little opportunity for employers to check any fraudulent statements on either an individual’s CV or application form.

Are there any perceived problems with the current employment system in the UK which may increase the potential of employee fraud?

Currently within the financial industry in the UK – an industry which is particularly susceptible to employee fraud - there are a number of perceptions as to how specific attacks were perpetrated and who was responsible for these attacks. Below are some of the major concerns:

• The use of temporary staff from agencies was a cause for concern due to the vetting process being carried out away from the employing company
• That Human Resource departments are undertaking insufficient vetting checks on prospective employees
• There is a general feeling that call centres are vulnerable
• Corrupt employees were moving between companies
• Individuals were being approached by organised criminals in their lunch breaks, upon leaving work and even whilst employed within branches and encouraged to pass on customer detail
• Corrupt employees coercing other employees into criminal activity

Is there anything which an employer can do to try and stop employee fraud?

Other than being extremely vigilant in running their own employment checks prior to employing a particular individual and putting specific measures in place when individuals are in employment it is also possible for an employer to join up to a specific database which provides information regarding potential employees.

How does this work?

Certain databases run a data sharing scheme which enables members to access cases regarding internal fraud. This will then enable them to check whether an individual has previously been recording for committing fraud.

Also members are able to create a case on the data sharing website if they have been the subject of internal fraud from one of their employees.

What must an employer do if they wish to create a case on a data sharing system such as this?

If an employer wishes to create a record on a database such as this they must be able to establish that there is a clear and demonstratable burden of proof.

Are systems such as this legal in the fact that they deal in personal information?

The area of law which could potentially be breached by such a system is that of data protection. An individual may claim that if information relating to them is being held in a system such as this and made available to their potential or already existing employer that this is in breach of the Data Protection Act 1998.

Is this the case?

The database itself and the members of the system are subject to the Data Protection Act 1998. This means that anyone applying for a role in a company that is a member of a staff fraud database will be informed by that company as to how their personal data will be used.

Notice of this is termed a Fair Processing Notice and will be included on application forms, employment contracts etc. These may act not only as a powerful deterrent to fraud but they will also safeguard the individuals from incorrect use of their personal data.