Opinion

If you discover fraud, recovery measures are at your disposal – but stealth and speed are key

It is every client’s nightmare. What should have been another Monday morning has become anything but: £850,000 is missing, apparently by the fraud of a previously trusted group of employees. Shocking, yes; uncommon, no. It can happen in the best-run organisations. Just ask John Prescott, whose Office of the Deputy Prime Minister recently discovered that sum had been potentially siphoned off by three employees. This was a very public reminder that an organisation’s most valuable asset can also be its biggest risk – employees are often best placed to exploit weaknesses in management and accounting systems.

It should not happen, but employee fraud continues to happen and it always will. Many frauds are not easy to detect and preventative measures can be hard to implement. Every organisation needs an action plan to minimise damage and maximise the chance of recovery. There is little time to think and a critical need not to panic and jump to conclusions. An ill-considered reaction or a false accusation could make a bad situation worse.

A trouble-shooter needs advisers who can work as a team to limit the damage. No single individual will have the skills to cover every aspect of the problem and organisations will have different priorities. For example, banks will have heightened concerns about reputational risk arising from adverse publicity following the inevitable press interest and will wish to consult their PR advisers.

In all but the simplest cases there will be a need to gather and preserve evidence and notify the police, the National Criminal Intelligence Service and any fidelity insurers who may cover the risk (any delay may invalidate the claim). To avoid evidence disappearing, the immediate assistance of forensic accountants to examine records and IT consultants to carry out imaging on the suspect’s computer (a snapshot of all material on the hard drive), analyse meta data and retrieve ‘deleted’ material will be key.

Urgent legal advice is likely to be required on a number of fronts. Is the suspect still behind their desk? Are there any accomplices in the office? Interviews and investigations will need to be conducted and suspensions and dismissals considered within the terms of employment contracts and an ever-changing statutory code. Employment advice at the outset will be essential to ensure that the investigation is conducted appropriately with due regard to data protection and human rights issues, to ensure that any case against the employee is not prejudiced and that an unfair or constructive dismissal claim is not created.

Delays in seeking court assistance could reduce the prospects of getting any money back. There should be little difficulty in obtaining an immediate asset-freezing injunction in a situation of this kind, or of requiring the employee to disclose the extent and whereabouts of their assets. The litigation lawyers will need details of all known bank accounts to which funds may have been transferred and the names of potential accomplices on whom to serve the injunction or to join them as parties to the proceedings. After that the litigation may roll on for a longer period as attempts are made to quantify the loss, trace assets and enforce judgment.

The Proceeds of Crime Act 2002, which provides for civil recovery, compensation and money laundering investigations, also allows for a variety of disclosure orders to be applied for. Combined with a gagging order, these can ensure that the suspect’s bank, or any person believed to be holding recoverable or associated property, is obliged to assist in the collection of evidence without informing the suspect.

With the right advice, a potentially business-threatening issue can then be managed – if not successfully, at least acceptably. Awareness of the risks and the tools available to combat and respond to fraud are key management skills for every employer.

Associate Megan Jones assisted with this article