Opportunistic fraud by employees and officers during COVID-19
It is axiomatic that the risk of fraud increases in challenging economic times. Approximately 75% of all frauds perpetuated within a business are committed by its own employees or officers.
Fraud
Employees or officers may be inflating or falsifying a company’s financial results or their own productivity in order to appease shareholders, secure financing or retain their positions. Or, they may be misappropriating goods in the current supply chain chaos, or inventing reimbursement claims.
The fraud triangle is a commonly accepted model which identifies three factors which lead an employee to commit fraud, those being financial pressure, opportunity and rationalisation.
This economic downturn has created new opportunities to commit fraud through the weakening of internal controls due to staff cutbacks or working remotely. It has also created financial pressures in the shape of decreased work hours and falling sales which can be the catalyst for such fraud.
Mitigating the risks
Some prudent measures to implement may include:
(a) Establishing a fraud policy to communicate behaviours that are not tolerated and a whistleblower policy to provide protection for employees who suspect others of fraud;
(b) Regular training and education to assist employees to identify red flags within both the company and other organisations with which the company transacts;
(c) Investing in software allowing the tracking of computer, email and internet use to secure the company’s finances, data and accounts;
(d) Appropriate fraud or fidelity insurance policies (our firm’s internal insurance broker and risk specialists, Allegiant IRS can assist with this);
(e) Conducting background checks before hiring staff, looking out for unusual behaviours and performance (e.g. results inconsistent with industry trends or a reluctance to allow others to help with their work), and providing a positive work environment; and
(f) Multiple level sign-offs and monetary purchasing limits, and regular audits and reconciliations of payroll, financial statements and inventory.
Obtaining the correct advice and guidance
Understanding legal ramifications (such as admissibility of evidence) around the surveillance of employees, dealing with their electronic devices, and validly terminating their employment can be crucial. Asking the right questions in an interview can result in benefits such as admissions from the employee and maintaining the morale of other employees.
It may also be that you have a legal obligation to disclose or report the fraud to the police or a regulatory body such as ASIC or the ASX. Concealing a serious indictable offence or not making the requisite disclosures could result in personal liability for directors of a company.
Our team can provide you with strategic advice and assistance relating to the investigation of the fraud, dealing with an insurer who might reject your claim, and instituting civil proceedings to seek recovery of losses sustained as a result of fraud.
We can also assist with obtaining urgent injunctive relief such as freezing orders or search orders from the court if you suspect an employee may destroy evidence, dispose of assets or abscond from Australia. We can also engage experts such as forensic accountants, IT specialists or communication strategists while maintaining your confidentiality and legal professional privilege.
Thanks to Rob Sosnowski for his help in putting this article together.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.
