UK: How To Avoid The Cost Of Employee Fraud

Last Updated: 19 July 2012
Article by Stuart Evans

Stuart Evans of Rawlison Butler LLP examines the financial and reputational cost of employee fraud, and how you can combat the enemy within.

How bad is it?

In March 2012, the National Fraud Authority estimated fraud losses in the private sector at £45.5bn, and at £1.1bn in the not for profit sector.

79% of respondents to the NFA's survey conceded that their organisation is at risk from fraud. 46% confirmed that they had been victims of fraud in the past 12 months.

But here is the really worrying statistic. 50% of fraud, or over £20.0bn on the above estimates, was committed by employees and volunteers. So never mind about the dark forces of the outside world, half of losses due to fraud are down to people you have interviewed, fostered, trained, rewarded, known and trusted, sometimes for many many years.

And here's another frightening statistic. Average fraud losses were estimated at 3% of turnover. Put simply, if fraud could be minimised or eradicated altogether, a company's turnover would automatically rise by 3%, without increasing sales or cutting costs. 3% growth, tantalisingly at your fingertips. How debilitating must it be for the management of a company, striving to succeed in these difficult economic times, coming to terms with the fact that their turnover is being adversely affected by factors within the four walls of their business? And with the current unprecedented economic circumstances facing society at the moment, figures for employee fraud are only likely to increase.

It is, therefore, vital that senior decision makers in businesses can demonstrate that they have considered the risks of employee fraud and put into place effective strategies to minimise and detect fraud and react swiftly and appropriately should fraud occur.

The costs of failing to do so go well beyond the direct cost of the employee fraud itself. Management will have to be distracted from everyday tasks to deal urgently with responding to incidences of fraud, and dealing with the financial impact. The latter will include the cost of security consultants, who can come in to deal with the data reconciliation, forensic accountants dealing with the impact on the numbers, and lawyers dealing with any internal enquiries at the business, along with what may well be time consuming and costly litigation to try and recover the position.

What should you do when you discover fraud?

A considered and previously prepared fraud response plan is essential when there has been a breach of security. Bear in mind that we are not always talking here about money disappearing out of a business, but confidential data, such as customer lists and trade secrets, seeping away on the laptops of soon to be departing employees and their associates. One trap for the unwary is the instinct "to dive in" to turn employees' computers upside down in a frantic effort to get to the evidence, and to indulge in finger pointing as part of disciplinary investigations. It is essential that the right advice is obtained at this stage, in order to preserve evidence properly, as any failures to do this may result in such evidence being inadmissible in a Court action. There is also the critical issue as to when the police should become involved, along with insurers and PR consultants. The timing of these decisions is always vital.

In terms of recovery action, quite often private investigators should be involved, in order to examine the asset position of the suspects, be these employees or their associates. Again, however, care needs to be taken to ensure that evidence is obtained in a lawful manner and thereby admissible in proceedings.

What can be done to help minimise the impact?

There are a number of hugely powerful options available to a business that has suffered employee fraud, in circumstances where it needs to act urgently to obtain evidence and also freeze assets. These will include search and seizure orders, which often need to take place under the neutral guidance of an independent solicitor, formerly known as "Anton Piller Orders". Furthermore, it is possible to freeze an employee's assets, both in the UK and overseas, pending the outcome of a case. It is now commonplace for alleged fraudsters to move assets offshore, be this in places such as the Isle of Man or the Channel Islands, or BVI or in mainland Europe, (in countries such as Switzerland, Liechtenstein or Austria). Therefore proceedings in aid of such freezing orders will need to be commenced overseas. Quite often decisions need to be made for foreign police to be requested to open a file in their own jurisdiction as well, to make use of their extensive powers.

So let's look on the bright side, you have nipped the fraud in the bud, most of the data and assets have been recovered, costs have mainly been recovered from other parties, your reputation has remained in-tact through good work on the PR side, and your insurers are still happy to issue a policy for you next year with the bad apples thrown out. What lessons are there to learn?

So how can we try to prevent fraud in the first place?

The best way to combat employee fraud is to prevent it in the first place. This involves, in essence, a vulnerability assessment and anti-fraud strategy. Employers will need to be very careful to look at potential candidates for positions, and to consider the prospect of future fraud in their recruitment policy. One tale from the not too distant past was of a bank clerk at an overseas bank, who was paid a modest wage, but then managed to buy the bank outright some five years later! Psychological profiles and lifestyle checks form an essential part of the ongoing process of vetting employees.

Furthermore, employees can help businesses too. With a proper whistle blowing policy, things that "may not seem quite right" can be freely reported to management, and then discreetly investigated. The worst that can happen is that nothing untoward will be found. Do not rely upon your auditors to pick up on discrepancies – they only visit once a year with a lot to do, and much can happen in the meantime.

We hope that this article gives a useful insight into a very serious issue facing businesses today. If you can combat employee fraud effectively, the improvements to your bottom line will be measurable, even if you are otherwise standing still.

This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.