The enemy within: Insider fraud

Gavin Williamson, Partner, Forensic Services, BDO UK

Gordon Geko was wrong; greed is not good. Society in general, as well as successful commercial organisations, are founded on trust and ethical foundations. Companies fail when trust and honesty breaks down between boss and employee, between worker and co-worker.

We are all shocked by the headline grabbing high-tech cyber frauds and appalled by the personal harm caused by confidence tricks targeted at the old and vulnerable. But for businesses, the most insidious fraud threat comes from within. Damage caused by insider fraud goes beyond the often significant theft as organisations become paralysed by the betrayal committed by the trusted co-worker, the colleague, the friend.

"Companies should take responsibility – to be seen to be investigating suspected frauds thoroughly and independently. Employees need to know that fraud happens – to know what it looks like and how to detect it"

Build a ‘fraud aware’ organisation

However good robust internal controls may be at discouraging fraud, research shows that they are completely ineffective at detecting frauds. Most frauds are identified by co-workers’ suspicions and tip-offs but people are naturally slow to suspect misconduct among their co-workers and often fail to recognise even the most obviously suspicious behaviour. Companies can best combat this instinctive bias by acknowledging that insider fraud happens in even the best-run organisations and can be perpetrated by even the longest serving and most senior employees, and by raising awareness amongst staff of common fraud schemes and ‘red flags’ for suspicious behaviour.

Empower your people

Fraudsters thrive amongst disempowered, intimidated, cowed co-workers. By empowering your employees to raise their concerns and by embracing and supporting those that are prepared to report misconduct, corruption and theft, your organisation can become a hostile environment for internal fraud. Even when allegations are not borne-out by later investigations, it is essential to support your whistle-blowers – the manner in which they are treated by management will absolutely determine whether the next person will feel able to able to raise their concerns and suspicions.

"Fraud thrives where employees feel intimidated to raise their concerns."

Zero tolerance to fraud

And when suspicions of fraud are reported they must be investigated thoroughly and acted upon. Hard earned trust will be squandered if employees start to believe that some misconduct is tolerated or some people are above the rules. That means investigating all allegations thoroughly and independently, taking a zero tolerance approach to insider fraud and when misconduct is criminal in nature, informing the police.

Get the right advice

When fraud does inevitably occur, organisations need to move quickly and decisively to limit legal, financial and reputational damage. Few companies have the internal resources to effectively investigate fraud and most chose to involve professional investigators with the right forensic interviewing, accounting and technology skills and tools to understand exactly how the fraud was committed, recover stolen assets and, most importantly, stop it happening again. An effective response requires forward planning – organisations should engage with their auditors and investigation specialists in order that they can deploy quickly and robustly to the threat of insider fraud.

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