Spotlight on fraud investigations as insider fraud risk rises

The threat of insider fraud is on the rise so if it happened in your business would you know how to respond? If you had a suspect, what type of investigation should you conduct? We’ll speak to a fraud investigation expert to find out.

The rise in this type of crime is in the news following research published by leading fraud prevention service Cifas. They report more cases than ever filed to our Insider Threat Database in relation to dishonest conduct by employees. As we highlighted in Tuesday’s programme, they are calling for large UK businesses to carry out specialist fraud prevention training to protect themselves against the threat. The advice is on the back of research showing that many businesses are unaware of the level of risk and the extent of their vulnerability. Their survey shows that 6% of organisations with over 1,000 employees only held insider threat prevention training while onboarding recruits, whilst 2% admitted to having never conducted any training of this type. 

Clearly HR has a role in identifying arranging the necessary training and raising awareness of this type of threat. Likewise, HR will be heavily involved in any misconduct action taken against an employee suspected of this type of crime. But what would that investigation involve and how does it differ from your typical run-of-the-mill misconduct case? 

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 and put those questions to him: 

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.”

On Tuesday 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 programme is available for viewing now from the Out-Law website and we’ve put a link to it in the transcript of this programme for you.

LINKS
- Link to HRNews programme: ‘Calls for fraud prevention training as insider threat increases ‘