Insider fraud investigations require ‘very different’ approach, warns lawyer

As you may have seen in the news, a 55-year-old woman from Aberdeen, has been sentenced to three years and four months in prison after confessing to embezzling over £1.5 million from her former employer, a metal recycling company. Her crime was eventually detected by one of the partners but it took them 6 years. We’ll speak to a specialist in fraud investigations to understand how HR can help uncover fraud quickly and limit the damage to the business.

The case has been widely reported in the media, including Sky News and national press. The High Court in Edinburgh heard how 55-year-old mother-of-four Coleen Muirhead, embezzled the money between June 2015 and October 2021 while working as an administrative assistant at Panda Rosa Metals in Aberdeen. She spent it on lavish holidays and bought cars and caravans, paid for her son's wedding, and set up saving accounts for her grandchildren.

Scottish newspaper, The Herald, reports on this and explains how the fraud was discovered when Muirhead boasted of her style of living to a work colleague who was responsible for paying out company wages. The colleague became suspicious that Muirhead, who had worked for the company since 2014, was living beyond her means. Meanwhile, a separate review of company finances was carried out amid concerns over a drop in funds. During that review, it was discovered that Muirhead had been paying invoices to a bogus customer known as G. Anderson and depositing the money into her own bank account. Police officers carried out a search of Muirhead’s home and found documents that linked her to lavish spending. On the same day, she sent a WhatsApp message to a colleague in which she said: “I have done Panda Rosa out of a lot of money. I was G Anderson. Police have just raided! Please don’t think the worst of me.” 

The total amount embezzled in that case was £1.5m but it’s by no means a one-off. KPMG’s latest Fraud Barometer shows the total value of alleged fraud over £100k reaching UK Courts in 2022 was £1.12bn, an increase of 151% compared to £444.7m in 2021. Embezzlement was the single most common type of fraud committed. 

Commenting on the findings, Roy Waligora, Partner, and Head of UK Investigations at KPMG, said:

“Embezzlement can be a big problem for businesses as employees and management look to exploit their positions. It is very important for businesses to have channels to report fraud and when businesses become suspicious about any fraudulent activity, that they act swiftly to uncover the facts so they can take decisive action against the individual or individuals. This is especially relevant as companies start to address the requirements of a Fraud Statement in their annual reports.” 

Andrew Herring is one of the lawyers in our litigation team, specialising in complex litigation and fraud related investigations and earlier I spoke to Andrew about the investigation which is very different to your typical misconduct case.

Andrew Herring: “The issue with any sort of fraud compared with that sort of ordinary misconduct situation will be the potential liabilities and risks that the business that the employer faces as a consequence of the fraud. Quite often the initial discovery of wrongdoing may just be the tip of the iceberg and so, for example, if you take new fairly standard action, in accordance with policies and procedures in response to that, you may not have the full picture and that can have some quite serious consequences. So if the employee has been stealing from the company there may actually be a web of other third parties involved in it, they may be giving money to third parties outside the business, there may be other employees who are acting in conspiracy with the particular individual and so it’s very important not to ‘tip off’ other people who are involved so approaching an investigation in a very cautious manner is the right thing to do in these situations. If the wrongdoing has affected customers, suppliers, then obviously, that all needs to be managed and not taking knee-jerk actions at the start can be very important from that respect. There may be regulatory risks concerned with the wrongdoing, depending on the nature and type of the business that's involved, so in order to manage that risk, and manage those potential liabilities, it's very important to approach the investigation in quite a methodical systematic way. But the response needs to be quick, so it's finding that balance because, clearly, if you're trying to stop ongoing wrongdoing then then you need to be taking swift action. So the usual investigation steps will involve pulling together an independent investigation team to manage things instructing the right expert professionals to support the investigation, ensuring that the crime scene, as we call it, is preserved, making sure that any evidence is preserved and not deleted, making sure that when and if witnesses are spoken to that it's done in a very controlled way and if it’s a witness who is not suspected of the wrongdoing, that they their rights are looked after in that situation, but not tipping off the wrongdoer until you're absolutely sure what the position is because actually, one of the strategies and an investigation may be to actually allow the person to continue what they're doing so you can get better evidence because you haven't got the full picture of the situation. So, all of these strategies need to be taken into account when setting up an investigation into some serious wrongdoing which may amount fraud within an organisation.”

Last week Andrew talked to this programme about the warning signs of employee fraud of this type, the behaviours which should alert HR to a risk. That’s ‘Lessons for HR after woman embezzled £1.5m from Aberdeen employer’ and we’ve put a link to it in the transcript of this programme.

LINKS
- Link to HRNews programme: ‘Lessons for HR after woman embezzled £1.5m from Aberdeen employer’