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Redundancy fuels employee fraud

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Redundancy is rife in the UK, and increased numbers of redundancies go hand-in-hand with increased risk of employee fraud. Rupert Emson, CEO of Vero Screening, examines how HR can mitigate against potential damage to the business from insider fraud and what to do if it occurs.

The increasing risk of employee fraud which rears its ugly head in tandem with redundancy. This is both from the threat of employees who have been made redundant, as well as people who feel they are at risk even if they haven’t been selected for redundancy. Employee fraud is an escalating problem, leading to financial and reputational loss to the organisation and damage to staff morale and customer confidence. The first half of 2012 saw a 52 percent increase in employee fraud over 2011, according to fraud prevention body CIFAS, while serious fraud committed by managers increased by 30 percent in value to £441million against last year, according to KPMG’s Fraud Barometer.

Fraud can vary in form from small thefts of stock to major threats to the organisation such as embezzlement, identify fraud or disclosure of sensitive personal or commercial data. According to American criminologist Donald Cressey, an increase in business or personal pressure or fear can lead employees to start taking minor unauthorised risks and practising deceptions which can escalate over time, while becoming increasingly easy for the fraudster to justify. Add to the mix a working environment that allows opportunities for fraud to arise, such as a lack of reporting structure or a culture of blame, and angry and unhappy employees who may feel they have badly treated or are resentful about not getting year-end bonuses or annual salary reviews, combined with the feelings of ill will which can arise when bosses take massive payoffs, and you have a time-bomb waiting to go off.

HR professionals are in a key position to both prevent insider fraud in a redundancy situation, and protect the employer from recurrence. There are various measures to help protect the business. First and foremost, employees should be kept as happy as possible, since the risk of insider fraud rises proportionately with the dissatisfaction of the employee. It is key for HR to ensure that the redundancy consultation process is handled in a positive, transparent and sympathetic way, to retain goodwill. It needs to be emphasised that it is the job that is being made redundant, not the person – neither the employee, nor their colleagues, must be made to feel redundancy is personal, as this leads to the first step towards fraudulent behaviour. Efforts should be made to help redundant employees find new roles and keep those who remain positive.

Second, a formal ongoing screening system, in the shape of annual checks or random sampling, should be included in the employee handbook, after open consultation with existing employees. Continuous staff screening is needed because the risk profile of an employee can change dramatically over time, perhaps because of pressure in personal lives. Checks should be proportionate to the level of risk and the seniority of the role, more senior staff generally present a greater risk – so they may need more stringent screening. Third, HR and line managers should be trained to pick up warning signs from staff, such as a change in their conduct, or suspicious behavioural patterns that might indicate potential fraud. For example, employees might appear to lose interest in their work, change their working patterns, or demonstrate sudden changes in lifestyle, views or religious practices. There might also be evidence of drug-taking, frequent unexplained absences or a sudden interest in the organisation’s security arrangements. Legal aspects must not be overlooked. Rigorously-drafted restrictive covenants should be included in employment contracts. Equally important, employers should ensure their IT policy enables them to monitor workplace internet use and stop access to confidential company information if necessary.

Sensitive handling is needed if an employer suspects an employee of fraudulent activity. First, the employer needs to seek appropriate legal advice and support. Then they should quickly gather as much information and evidence as possible, questioning the employee concerned and ensuring there is no tangible doubt about their behaviour before taking any decision to suspend or investigate. The organisation’s IT and security policies need to be enforced immediately. All IT equipment, including company laptops and mobile phones, should be confiscated. Finally, access to organisational systems and other employees should be restricted during investigation. Employee fraud is a clear and present danger that HR needs to wake up to.

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