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Your company has a thief; how do you handle it?

Written by Colin Gillman on 07 December 2016.

Photo on 07 12 2016 at 15.09 resizedA recently published report - The Annual Fraud Indicator 2016 - says the cost of fraud in the UK is now estimated to be as high as £193bn per year, with the private sector coming under the biggest attack from fraudsters, with both SMEs and large enterprises losing an estimated total of £144bn a year. 

The report states that by far the biggest source of fraud for these businesses relates to procurement – an enormous £127bn. Procurement fraud includes crimes such as the submission of false invoices or the awarding of contracts in exchange for bribes. The report highlights that procurement is so vulnerable because of the sheer size of expenditure which it accounts for, as well as the high volume, low value nature of transactions and the breadth of fraudulent activity it is susceptible to.

According to corporate fraud investigator Paul Wiseman, employee theft and fraud are the most serious threats to the success of businesses. “You won’t know it yet, but one of your employees is probably stealing from you,” he says. 

Wiseman, whose corporate investigations company specialises in investigating fraud in companies, usually by employees, works predominantly for small and medium sized enterprises. “Losses by businesses are estimated as ranging from 1% to 6% of turnover,” he says.

But why would anybody in your firm want to do that to you? You run a sound profitable business and pay your staff well. Well, according to Wiseman, this chap, although he doesn’t show it, thinks you’re a bit of an idiot. “In his eyes you are too demanding and you don’t treat him with the respect he deserves,” he says. “He thinks he’s underpaid and overworked and that you drive around in a better car than he does, you live in a bigger house in a better part of town. You also disappear, sometimes for days on end, while he grafts away making you more money, without any thought that he also has a family to support and expenses to pay. Yes, he thinks he has every right to steal from you, he deserves the extra. And after all, you have so much money, you probably won’t even notice if he takes just a little bit of it.”

What can you do about it? As a business owner what can you do to reduce losses incurred by dishonest employees? “Pre-employment background checks are a good way to start,” says Wiseman. “This will confirm the information given to you via references and may potentially highlight a potentially rogue employee right at the beginning.”

Have more than one person ‘doing the books’. “This will reduce the likelihood of that “indispensable treasure” controlling the finances,” he says. “Put in password protected controls so that staff only have access to documents and data that is necessary to do their job. You should also set up a regular series of spot checks – random checks on inventory, payroll, petty cash etc. Finally, you should think about outsourcing certain financial functions such as payroll for example.”

All of the above are simple measures that are easy and inexpensive to implement. More than anything they could go a long way toward saving your business should you find yourself on the wrong end of a fraudulent employee who is abusing your trust and syphoning-off funds without your knowledge, but what do you do if you discover that somebody in your organisation is a thief; how do you handle it? What do you do? Call the police? Call the thief into the office and dismiss them? Call your solicitor? Call your accountant?

“You could do all of those things and then still get it horribly wrong,” says Wiseman. “For example, the police may only prosecute for a fraction of the loss, or you could end up being taken to an Employment Tribunal by the thief. Furthermore, your solicitor may not be experienced in employment law, criminal law or the recovering of money.”

If you discover that you are a victim of fraud by one of your employees, you are not alone. Wiseman says that in most cases when a fraud is discovered, you have a pretty good idea of the identity of the thief. “This is a very dangerous time for you, and you need to use your head and dust off your plan,” he says. Plan? Who actually makes a plan for such a thing? If the sums involved are not particularly high most firms will usually just dismiss the employee and move on, but what if the sums involved are potentially ruinous for the business? In this instance Wiseman says this is when you really do need to call in an expert in fraud investigation who will work with you to do the following: 

  • Find out how much money is involved and how it was taken.
  • Find out if anyone else is involved; don’t forget it could be someone from outside of your company.
  • Begin the disciplinary process; remember you don’t want end up in an Employment Tribunal, so do this under ACAS guidelines.
  • Gather evidence to criminal and civil court standards.
  • Perform an asset assessment on the thief – how much is he worth?
  • Contact the police. 

“When I go and see the police I take all my evidence with me; that means Section 9 Witness Statements and Exhibits, all in a format that they use. You have immediately saved the police a lot of work, and it goes a long way to getting them “on side”,” states Wiseman. “Remember, the average policeman does not want to investigate commercial crime, he has very little training in fraud, and he is outside his ‘comfort zone’. A lot of companies choose not to prosecute for various reasons, but you should still gather evidence to a criminal standard, just in case you change your mind.”

Wiseman says if you do change your mind and want to prosecute, this is where your lawyer comes into play; because now you are going to begin the process of getting your money back including costs. “That’s why one of the first things we did was to undertake an asset assessment of the thief,” he says.

There are a few approaches you can take to try and recover your losses. If the police are involved, you can use the Proceeds of Crime Act 1988 and amended 2002. The CPS Barrister will apply to the Court for a Restraint Order on the thief’s assets; followed by a Confiscation Order after conviction. 

“This only happens if the amount stolen is over £5,000,” Wiseman says.  “Unfortunately it is not uncommon for the CPS to accept a lesser amount to gain an admission, and so save the cost of a trial. So much for looking after the victim.”

The other way is to simply sue the thief in the Civil Court. If you’re worried about this from a costs point of view; remember ‘the plan’ you made at he start because you now know what the thief’s assets are. 

Wiseman says if the thief is convicted in a criminal court, this effectively takes away any defence they may have in a civil court. “If the thief has not been convicted in a criminal court, this should not deter you from taking action because the level of proof needed is much lower, and if the investigation is done properly and compliantly it should not present a problem,” he says.

There is also a third way which should always be considered where the thief may wish to avoid costs being awarded against them in a civil court and be willing to negotiate a return of the money he stole, plus the costs incurred managing the issue.

And there you have it. It all sounds a bit far fetched, but this is a major problem for the private sector and it is really is going on right now; right under our noses - every day. 

I will leave you with the thoughts of the American economist Alan Greenspan who famously said: 

“Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. It is regrettably the way human nature functions, whether we like it or not. What successful economies do is keep it to a minimum. No one has ever eliminated any of that stuff.”

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