How businesses are protecting themselves against employee fraud

Finding out that your business has been a victim of fraud can be an uncomfortable discovery, but it is a real risk to businesses of all sizes. With 50% of UK businesses finding themselves the victims of fraud in the last 2 years and losses of £72,000 or more in over 51% of fraud cases¹ it’s important that you recognise the risk and have the right balance of controls in place to minimise the risk. 

In particular, employee fraud is posing a significant risk to businesses. Our research estimates, that up to 10% of companies are defrauded by their employees every year and they cause huge financial losses.

There are several ways you can protect your business against potential employee fraud:

• Conduct a company-wide risk analysis to identify weaknesses or loopholes that could be manipulated by fraudsters.
• Have a Whistleblowing policy so tip-offs from other employees, outsiders or collaborators can be treated in confidence.
• Ensure your infrastructure and systems are secure.
• Conduct thorough due diligence checks before doing business with a new customer or supplier.
• Train employees on data and cyber security to help them stay vigilant.
• Check references and conduct background checks on new employees.
• Buy business fraud insurance as part of your risk management strategy.

While prevention is always better than cure, fraudsters are becoming increasingly sophisticated and sometimes even the best prevention strategies won’t stop them. Business fraud insurance can help protect your business against financial losses. At Allianz Trade, our business fraud insurance policies cover: 

• The financial loss caused by an illegal or malicious act from an employee on their own business.
• The losses caused by certain types of social engineering where the fraud is committed by assuming a false identity also known as fake president fraud.
• The costs to mitigate the reputational damage caused to the business and any contractual penalties triggered by a loss event.

There can be an element of embarrassment associated with this type of crime, but we find that sharing the stories of clients we’ve helped can help you understand the types of risk you could be exposed to. Here we share two real-life examples of employee fraud. 

The best creative accounting

Loss: Around £1m

The head of finance kept four sets of parallel accounts to conceal her embezzlement of around a million pounds through forged cheques and unauthorised expenses. She’d even increased her salary and paid a little extra into her pension pot. Because of a lack of oversight, she could present different books to different stakeholders. Her finance directors did spot a few inconsistencies, but she explained them away with overseas tax issues and special provisions. 

After failing three consecutive annual plausibility checks, the fraud finally came to light when the holding company decided to commission a full external audit which detected her creative accounting.

The best getaway driving 

Loss: £152,000

Fraudsters decided to drive a truck straight through the wall of a commodity trader’s offices, right into the middle of the building. Masked and armed, the criminals broke into a strongroom and collected over £150,000 in gold bars, watched all the while by the building’s security cameras. Setting fire to the truck on the way out, they escaped in a waiting getaway vehicle and were never caught. Investigators are certain - this was an inside job because the perpetrators knew the location like the back of their hands.

Unfortunately, not all insurance policies are created equally, and you need to know you have the right cover. We have built our business fraud insurance policy over the last 60 years to provide a market-leading wording that is broad, affordable, and easy to understand. 

To start with, we’ll ask a list of basic risk management questions. Your answers will enable us to underwrite the risk while also providing you with insights for building your own robust risk management controls.

Our comprehensive policy will cover you against losses caused by your employees, external workers, and temporary staff as well as lawyers, tax consultants and auditors working for your company through theft, fraud, embezzlement, or property damage.

It also covers costs for the continuation of business operations up to 6 months after the occurrence of the event of loss.

For additional peace of mind, our policyholders benefit from:

• Unlimited retroactive cover for losses incurred by your company before, but discovered after, the inception of cover.
• Cover in the case of unidentified Insured Persons – i.e., when it’s not possible to identify who caused a loss but, in all likelihood, it was one of your employees. 
• Cover against losses due to disclosure of company and business secrets by Insured Persons.
• Flexible coverage. There is no need to update us when personnel changes because all your employees are automatically included in our cover. New employees joining the company mid-year have no effect on the premium rate for that year.
• A range of cover limits where the limit of indemnity can be used up to 3 times, meaning you can make more than one claim in the period of insurance as long as it’s within the limit of indemnity.
• A period for notifying losses after the expiry of the policy of 36 months, which can be extended to 48 or 60 months.

Business crime is a growing concern for companies and employee fraud is something for businesses to be aware of and protect themselves against.

To find out more about our market-leading business fraud insurance here and if you’d like a quote please complete the form online to request a callback.