Is a solicitor under a duty to warn their client of risks falling outside their retainer?
Fraud is a real and growing problem for organisations of all sizes. For SMEs, it can be catastrophic. According to the Annual Fraud Indicator 2016, the cost of fraud to the UK economy is £193bn a year – and of course that’s just the fraud we know about. Fraud Awareness Week is an excellent opportunity for businesses to consider their key risk areas and what to do if you discover fraud in your business.
External attacks. Identify any areas that might be vulnerable to hijack, such as a large transfer of money to a supplier. Ensure the process for completing the payment is secure, for example by verifying account details from two separate sources.
Payroll fraud. Look out for warning signs such as an ex-employee kept on the payroll (with pay diverted to the fraudster), employees manipulating timesheets to increase their hours or an employee who requests an advance which is never paid back.
Accounting fraud. An employee might manipulate the company’s accounts to cover up a theft or use the company’s accounts to steal. Look out for expense account fraud, such as forged receipts or double claiming for expenses. Run spot-checks on your accounts, including accounts that have been written off by the business.
Supplier fraud. This can be committed by suppliers on their own or in collusion with an “insider” employee. Examples include an employee who accepts a payment in exchange for giving an advantage to a particular supplier, or where a supplier inflates invoices to charge the company for more goods that it provides or a higher price than was agreed. Look out for employees who are unwilling to take annual leave or seem reluctant to let others get involved in their work (out of a fear that the fraud will be discovered). Implement compulsory annual leave in high risk areas.
Low-level theft or fraud. Don’t forget about the cumulative impact of theft from your company. This could include anything from theft of petty cash to misuse of company services, for example using company services or resources, such as a company car, for personal use.
Assemble the right fraud-busting team. Gather a core team of people – including a representative from HR, IT, finance and management. Involve your legal advisors as soon as possible and consider whether you need other external help, such as IT experts to capture and secure all data.
Keep it confidential. It is important not to make the fraudster aware of your suspicions as you risk them interfering with evidence. Be aware that other employees might tip off the fraudster and keep your suspicions to as few people as possible.
Investigate. Obtain as much information as you can before anyone is questioned. Keep copies of all financial information, including copies of payrolls, expense reports, invoices and credit card statements. Ensure that electronic records are preserved. Keep detailed notes but be aware that any documents you create may be disclosable in legal proceedings.
Consider your legal options. Depending on the circumstances, and legal advice, you could terminate the employee’s employment, bring a civil claim and/or bring a criminal prosecution against the employee. You may also be able to make an insurance claim.
Consider your controls. Implement a ‘fraud response plan’ so that everyone knows how a potential fraud should be dealt with in your business and who is responsible for investigating it. This also means that employees know that your organisation is serious about fraud.
The danger of fraud if left undiscovered is that the perpetrator becomes emboldened and repeats the behaviour. We have known situations where detection has taken five years or more by which time small amounts of expense fiddling have graduated to large thefts with a real impact on the bottom line. Often it is a company’s auditor who spots irregularities but sometimes it can be an employee whistleblower or a change of manager who highlights a reason for suspicion. The only lesson for business managers is to be ever vigilant and Fraud Awareness Week reminds us to be just that.
This article was written by Hannah Fitzwilliam in the Dispute Resolution team.
This blog first appeared on Growth Business ‘s website on 13th November 2017.
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