News

INSIDER FRAUD and the preventative steps to take

30/03/2020

Introduction

A UK Charity Commission Report from April 2018 identified that nearly 70% of insider frauds result from excessive trust being placed in an individual or a lack of challenge to or oversight of such an individual's actions.

In Jersey

The Jersey Society for the Prevention of Cruelty to Animals' former CEO was recently jailed for seven years after he was found to have embezzled £405,000 from the animal charity.

Jersey Charity Commissioner John Mills CBE has since warned that

  • "having weak internal financial controls and procedures can make charities susceptible to insider fraud. By strengthening these procedures and processes, governors can reduce the risk of it happening".

What can be done

what internal controls and procedures employers [In Any Sector] can be implemented to reduce the risk of insider fraud.

Here are five steps which could significantly reduce the risk for businesses of any size or type.

  1. Check your structure

The structure of an organisation, including the chain of command, should be considered early on in any review process.

  1. Ensure financial controls are in place

There are numerous financial controls that can be put in place by companies and charities alike to help make insider fraud less opportunistic. These include:

  1. having more than one signatory for bank transactions;
  2. having more than one person count cash collections;
  3. regularly reconciling transactions and bank statements; or
  4. having adequate transparency of financial management processes.
  5. Implement adequate internal code of conduct and ethics

Most insider frauds are identified by co-workers because they work with each other daily and can identify unusual behaviour or deviations from procedure.

Employees should understand the ethical standards expected of them from the outset of their employment. One of the easiest ways to achieve this is by having an adequate code of conduct and ethics in place. Such a code should be enforced and reinforced through regular training, which will remind staff of what to look out for and the negative repercussions of insider fraud for all involved.

  1. Implement an adequate process for reporting suspicions

A good code of conduct and ethics will also outline the process for how, when, and to whom suspicious activity should be reported.

Reporting is a complicated area in itself – for example, there are rules against alerting offending employees that may apply, depending on the nature of the business and the type of fraud suspected. Depending on the size and nature of the business, an anonymous hotline may need to be made available for employees to notify management of suspicions.

  1. Take reports seriously and investigate

For most employees, the decision to report a suspicion that a co-worker might be guilty of insider fraud will be difficult and may give rise to the following questions:

  • Will the reporting employee be believed?
  • What if the accused employee discovers who reported the suspicion and becomes angry?

Conclusion

It is vital that senior management take any report seriously and commit to investigating it fully.

Any management team dealing with suspicion of insider fraud should have a fair and lawful investigation procedure already in place which outlines:

  1. who will investigate the issue;
  2. which measures will be used;
  3. the investigation timeframe; and
  4. the possible outcomes of an investigation.

Source - https://www.internationallawoffice.com/Newsletters/White-Collar-Crime/Jersey/Ogier/Five-steps-to-avoid-insider-fraud?utm_source=ILO+Newsletter&utm_medium=email&utm_content=Newsletter+2020-03-30&utm_campaign=White+Collar+Crime+Newsletter