The Enemy Within: A Roadmap for Managing Corporate Fraud and the Employee
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In a new white paper, The Enemy Within: Corporate Fraud and the Employee - A Roadmap, UK law firm Glovers Solicitors and Privy Council Agents states that over £40 million is lost every day to fraud in the UK, that 80% of that fraud involves an employee, and that 90% of fraudulent employees have been with their employer for more than a year – 20% for more than a decade. Arguing that these statistics represent a huge risk to corporations, the guide offers companies directions for three main elements of dealing with insider fraud - deterrence, punishment and protection (Note: While the guide refers to some laws specific to the UK, its suggestions can be useful for all companies).
DETERRENCE
Managing Workplace
The paper makes several suggestions for deterring corporate fraud Use the employment contract as a deterrent against fraud by including a “fraud buster” clause that mandates fraud awareness training and includes: • a rigorous monitoring policy • a contractual clawback provision for owed sums • notice of instant termination for gross misconduct
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notice of possible suspension during investigations and noted rather than tape-recorded disciplinary meetings, which, the paper argues, can delay fraud investigations.
PUNISHMENT The Disciplinary Process - Investigating Fraud The paper argues that the best approach to investigating employee fraud is to report the activity to the police, taking legal action to preserve evidence and freeze assets before informing employees of the investigation; make IT-based evidence clear and understandable; get statements from potential witnesses early in the process; and make decisions of guilt based on a balance of probabilities. The Disciplinary Process - The Letter The letter should: • Set out the allegations • Include witness statements, unless there is a risk to the witness • Inform the employee of their right to be accompanied by either a trade union representative or a colleague • Inform the employee that they could be terminated on the grounds of gross misconduct • Include who will conduct the meeting • Include a date, time and place.
PROTECTION The paper makes several suggestions for protecting companies legally and in terms of maintaining an ethical corporate culture: •
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Involve the Police - Failing to report to the police undermines deterrent. While management may feel that by reporting to the police they will lose control of the process, this rarely happens unless there are money laundering issues, in which cases police involvement is essential to minimize risks to the manager or money laundering officer. Avoid Compromise Agreements Compromise Agreements, in which the employer and employee agree to settle all employment law claims that an employee may have, can send the wrong signal to other employees (hence damaging corporate culture) and add little to limiting publicity as the fraudulent employee is unlikely to advertise his own fraud. Follow all Processes