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Fraud Internal to Your Business and Ways to Stop it.

Author: Andy Parr – In this post I discuss fraud internal to your business and prevention strategies to stop it.

Fraud internal to your business - intelligence & risk solutions

The first thing to grasp is that fraud is a human construct. It is committed by humans and as much as you might think you know your team, if you employ 100 people in your business 12 of them will be lying to you on a daily basis. Of course, it is the severity of the lie that matters. The same study also claims that 31% of CVs contain lies.

What this study shows, on a small scale, is that even ‘honest’ humans lie. I was a police officer for 26 years and within policing we used to say there were three types of ‘customer’. The Mad, the Bad and the Sad. All of whom lied, but by a country mile it was ‘the bad’ that deliberately told the most damaging lies.

Not all liars do it for personal gain. But six lies are told every day, on average to managers and supervisors of teams. A separate study identifies 27% of UK adults have a criminal conviction in the UK. That’s more than 1 in 4 in your organisation.

How does this impact fraud internal to your business?

Clearly the propensity to lie is the first step to fraudulent behaviour. Fraudsters not only prey on the weak they pray on the vulnerable and that is the first lesson in dealing with fraud internal to your business.

Removing vulnerability throughout your organisation can be enough to prevent and deter criminals from acting. Every criminal, no matter how sophisticated, goes through a risk/reward decision making process to weigh up whether it is worth it. What the risk is in getting caught and what the likely sanction is if they get caught versus what the reward is if they get away with it.

Situational Crime Prevention Theory can reduce Fraud Internal to your business.

OK, that’s a mouthful. The College of Policing explain this as increasing the risk of getting caught and decreasing the reward for nefarious activity. It can be as simple as putting maximum transaction amounts for staff to access on company credit cards, or in paying for petty cash items. To putting in place CCTV over cashier tills and making two staff take the rubbish out (to make sure one of them isn’t using the rubbish as a way to smuggle out your stock).

Creating a crime prevention map and formating a risk matrix to uncover all of the fraud risks within your business and highlighting how easy they would be to exploit is a good start. It helps you to prioritise what actions you need to take as the most important mitigation strategies to prevent crime.

The matrix would include scores, one to five. An example is given below:

NameRisk ProbabilityPrevention Reward
Cash Handling5CCTV
2 staff
Cashing up
Reporting mechanisms
Invoice abuse4Double sign off
Max limits
Manager authority
Reporting mechanisms
Return Fraud3Require receipt
Accounting checks
Employee checks
Reporting mechanisms
Fake Payments3Reconcile invoices to bank account
Check with supplier
Check stock of item purchased
Reporting mechanisms
Depends on payment amount
Procurement fraud3Stealing ordered stock
Stock taking
Reconciling invoices to stock
2 staff to receive and sign off goods.
Reporting mechanisms
Depends on amount
Advance Fee Fraud32 staff to check.
Confirm identity of supplier.
Reporting mechanisms
Depends on amount
Phishing4Educate staff
Not to click unsolicited emails
Depends on amount
There are hundreds of other internal fraud types.

Report Fraud Internal to your business

There are lots of studies internationally that identify the reticence of staff to report what they know to you. There are lots of reasons for this, most notably, not being labelled ‘a grass’ or ‘a bosses snitch’. Additionally, staff fear being involved in the evidence chain that results in someone being sacked. So they stay quiet as the favourable option to them as opposed to the employer.

Can they report to you?

Statistics suggest up to 48% will not report wrongdoing. If you have an internal fraud problem in your business and you need to know who it is that is stealing from you, a good way is to secure feedback from your entire business eco-system. That is to say, employees, customers and suppliers.

You can secure this by putting in place a reporting channel that encourages reports of fraud or theft to be made. Encouragement comes from facilitating the reports anonymously. But systems being anonymous isn’t enough. They have to be seen to be anonymous to secure reports. There are many systems to choose from, most of which will claim they are anonymous. But if your staff member has to ‘click’ a link on your website or visit a web page on your website they are not anonymous and your staff know it.

This is because ‘clicks’ can be traced and visits to web pages recorded. By knowing the IP address the reporting person was using when they made the report, IT can confirm who was logged in on that computer when the report was made.

It is therefore imperative you choose a supplier that is 100% independent of your systems so staff can see the system will not divulge their identity.

HX5 can help in implementing a system to help with this and also supply investigative resource to provide you with enough evidence to deal with the theft or fraud you have been suffering from. Being positive with an employee who has been stealing from you, no matter how small, is a huge deterrent to others. You should have in every employees contract, stealing is a gross misconduct matter and will result in termination. And you should always ensure you do terminate immediately you uncover the thief.

This helps to create a known risk for every member of staff when they consider committing crime against your business. You can also state matters will be reported to the police.

If you need help in identifying who is causing stock loss or committing fraud in your business contact us today. We have ex-police detectives who use the most subtle of tactics to uncover who is stealing from you and how they are doing it. We are just a call away.