5 March 2007

Crime does not just happen on the streets and is increasingly taking place under our very noses in the workplace. If the results of a recent survey are to be believed, you can expect one in five of your employees to be fiddling their expenses. Has your HR department woken up to corporate crime yet?

Travelodge surveyed 4000 workers and 22% of these admitted that they regularly submitted false expense claims worth an average of £175 a year. Based on these results, employees are claiming an extra £1 billion, mostly to pay for alcohol, clothes and adult movies. One respondent struck really lucky and went on a Caribbean cruise thanks to the unknown courtesy of their employer! In all 96% of false claims go undetected.

It appears that many of us view fiddling expenses as a natural occurrence which comes with the territory, just like helping yourself to stationery isn’t really stealing from the company- is it? The reality is that these acts, however petty, are classed as “asset misappropriation” together with forging cheques, making payroll payments to former or fictitious employees and colluding with customers or suppliers to obtain money by deception. All amount to theft by fraud.

Corporate fraud is on the increase and as well as theft covers other crimes, the common offences of which are:

• Corruption - includes bribery and theft of customer and price lists, business plans and other confidential information
• False accounting -  altering, adding, falsifying or deleting accounts or other records for example to raise the share price, obtain finance or hide losses
• Purchasing fraud – such as authorising orders in return for backhanders, issuing false credit notes or accepting under-deliveries

It is known that in the majority of cases the perpetrator will be an insider. However, surveys have also shown that both new and long standing employees are likely to commit offences. Serious offences however, are more likely to involve an employee in a managerial position. 

The Board of Directors have ultimate responsibility to assess the risks and identify appropriate controls to prevent fraud and, although many measures will be financial rules such as authorisation limits, double signatories etc., HR also has a key role to play in advising on the personnel implications and the communication, training and compliance of any steps to be taken.  In the main it will be policies and procedures which serve as the battle ground against corporate crime for the HR professional.

A comprehensive expenses policy is obviously a must and should set out exactly what an employee is or isn’t entitled to claim. Ideally, specify that you will only reimburse expenditure that the employee can provide evidence of and require the manager to authorise the claim before any payment is made. You should also confirm that false claims will be treated as gross misconduct.

Recruitment procedures should take into account the need to check employees' criminal records if they are working in a position that requires a high degree of trust and honesty. Such positions justify the privacy intrusion under the Data Protection Act. Similarly, if employees are to be monitored, an assessment must be undertaken to show that the impact is justified and in proportion to the business benefit, which cannot be achieved through less intrusive means. If monitoring is justified by an impact assessment, although consent is not required, the employer still has an obligation to notify workers about the monitoring arrangements which can be done through a Data Protection Policy (available on buddy). Covert monitoring and surveillance should only be undertaken if you have identified a specific criminal activity.

If offences are being committed it is possible that someone knows its happening. You can encourage employees to come forward by introducing a Whistleblower’s Policy (available on buddy). To be effective the policy should specify a number of reporting options, including one directly to the Board, and confirm that the employee will be protected from victimisation, including dismissal. Complaints should be confirmed as being treated in confidence and the employee’s identity should not be disclosed to other parties unless strictly necessary for the investigation, but discourage the use of anonymous complaints.

Consider introducing a fraud policy to explain to employees what amounts to fraud and the consequences of such actions, which can lead to prosecution. This should also confirm the process that will be followed if fraud is suspected or detected. It is important that you have established procedures for such an event which identify who is responsible for the investigation, how this will be handled to avoid “tipping off” the employee, dealing with any media interest and co-operating with regulatory bodies and/or the police if they become involved. Although the investigation is likely to be more involved, remember that it is still misconduct and to take lawful action against the employee you must follow the statutory dismissal and disciplinary procedure.

In recent years the Government has introduced legal reforms to combat fraud and has introduced the Enterprise Act 2002, the Proceeds of Crime Act 2002 and the Public Interest Disclosure Act 1998. Criminal prosecution isn’t always necessary and, in some cases, companies may choose to protect their interests by taking civil action only. Regardless, all employees should be aware that corporate crime equals corporate punishment, which from an employment perspective is most likely to be dismissal.