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31st March 2025
Fraud in the workplace, a deceptive and often hidden crime, undermines the foundation of trust between employers and employees. It encompasses a range of illicit activities, from petty theft to complex financial manipulations, all designed to gain an unfair advantage. The statistics paint a sobering picture: in the 2023/24 reporting year, England and Wales recorded 6,244 instances of employee theft, highlighting the prevalence of this issue. Beyond the raw numbers, the impact of fraud extends far beyond financial losses, affecting morale, reputation, and overall business stability.
For professionals, understanding and mitigating workplace fraud is a strategic imperative. Vigilance and proactive measures are essential to safeguard an organisation’s assets and maintain a healthy work environment. This blog post explores the multifaceted nature of workplace fraud, its impact, and the pivotal role HR plays in prevention, detection, and response.
Workplace fraud takes various forms, each with its own set of characteristics and potential consequences. While financial misappropriation is a common theme, other forms can be equally damaging. Here are some prevalent types:
Credit card fraud involves the unauthorised use of company-issued credit cards for personal expenses, where an employee makes purchases that are not related to their job duties, effectively misappropriating company funds.
Payroll fraud occurs when employees manipulate payroll systems to inflate their own salaries, claim payments for hours they did not work, or even create fictitious employee profiles to receive fraudulent paychecks.
Other examples of financial fraud include submitting false expense claims for non-business-related activities and receiving payment from suppliers or clients in exchange for preferential treatment.
Asset misappropriation is the theft or misuse of a company’s assets by individuals, often insiders, for personal gain. This can involve tangible items like cash and inventory, or intangible assets like data and intellectual property, through schemes such as fraudulent disbursements or data breaches.
This involves employees stealing sensitive company data, like customer lists, supplier databases, intellectual property (IP) or trade secrets, for personal gain or to harm the organisation, such as selling information to competitors.
This insider threat, driven by motives like financial gain or revenge, can be difficult to detect and poses significant legal and reputational risks to the company.
This occurs when someone in a trusted role exploits their authority. This involves a deliberate misuse of power, such as a manager approving fraudulent expenses or a procurement officer favouring personal interests, resulting in financial or reputational damage. This type of fraud in the workplace can be difficult to detect due to the perpetrator’s elevated position within an organisation.
Conspiracy to defraud involves a planned agreement between two or more individuals, either employees or with external parties, to commit dishonest acts that harm the company. This coordinated effort, often involving collusion to manipulate finances or steal data, carries severe legal consequences and requires proof of a shared fraudulent intent.
The consequences of workplace fraud extend far beyond the immediate and easily quantifiable financial losses. Direct monetary losses, stemming from theft, embezzlement, or other fraudulent activities, represent only a fraction of the overall damage.
Beyond these immediate losses, businesses face significant reputational damage, as public trust erodes and the company’s image is tarnished, potentially leading to long-term loss of customers and business opportunities. Furthermore, legal costs associated with internal investigations, litigation, and potential regulatory fines can place a substantial financial burden on the organisation.
The impact on internal dynamics is equally severe; a loss of trust among employees leads to decreased morale, which in turn results in reduced productivity and increased employee turnover, as staff can feel disillusioned and insecure.
Operational disruption is another significant consequence, as investigations and legal proceedings can interrupt normal business operations, causing delays and inefficiencies.
Particularly concerning is the increased regulatory scrutiny, especially with the impending Failure to Prevent (FTP) fraud offence. From the 1st of September 2025, large UK organisations meeting specific criteria (more than 250 employees, a turnover exceeding £36 million, and/or assets exceeding £18 million) will be subject to this new corporate offence.
Introduced under the Economic Crime and Corporate Transparency Act 2023, the FTP offence applies to fraud committed by individuals ‘associated’ with the firm, where that fraud is intended to benefit the organisation or its customers. ‘Associated persons’ includes employees, agents, subsidiaries, and anyone providing services on behalf of the business.
This regulatory shift underscores the heightened responsibility placed on organisations to actively prevent and address fraud, or face potentially severe legal repercussions.
Human Resources (HR) plays an indispensable role in cultivating a workplace culture characterised by integrity and in implementing proactive measures aimed at fraud prevention. This multifaceted responsibility begins with robust recruitment and screening processes, which involve conducting thorough background checks and diligently verifying the credentials of potential employees to ensure they align with the organisation’s ethical standards.
Furthermore, HR and managers alike must develop and communicate clear policies and procedures. To reinforce these policies, regular employee training sessions are essential, focusing on fraud awareness, ethical behaviour, and the establishment of clear reporting mechanisms for suspected wrongdoing.
Implementing strong internal controls, such as the segregation of duties and regular audits, is crucial for minimising opportunities for fraudulent activity and maintaining financial transparency. Managers should work with HR teams to establish confidential and accessible whistleblowing mechanisms, providing employees with secure channels to report suspected fraudulent activities without fear of reprisal.
A vital component of fraud prevention is fostering a culture of open communication, where employees feel comfortable raising concerns and discussing potential ethical dilemmas. Finally, employers must ensure that employment contracts and company policies are regularly reviewed and updated, incorporating clauses that effectively deter and prevent fraudulent activity, thereby safeguarding the organisation’s assets and reputation.
Early detection can significantly reduce the damage caused by fraud. Employers and managers should be aware of potential red flags, such as:
Sudden changes in an employee’s behaviour should be noted. For instance, a reluctance to take scheduled holidays, particularly when an employee has previously enjoyed them, may indicate an attempt to conceal ongoing fraudulent activities that require their continuous presence.
Similarly, an uncharacteristic defensiveness when questioned about work processes or financial transactions could suggest an employee’s fear of their actions being discovered. A general reduction in engagement, manifesting as decreased participation in meetings, withdrawal from team activities, or a decline in overall productivity, can also be a sign that an employee is preoccupied with fraudulent schemes or experiencing stress related to their illicit activities.
These behavioural changes, while not conclusive evidence of fraud, warrant careful attention within the context of other potential indicators.
An unexplained transformation in an employee’s lifestyle, particularly when it starkly contrasts with their known financial circumstances, can raise concerns. This is particularly true when an employee’s spending habits shift dramatically, showcasing lavish purchases or extravagant displays of wealth that are incongruent with their established salary and financial history.
Repeated and deliberate violations of established company policies, particularly those designed to ensure financial integrity and transparency are something to keep a close eye on. These breaches often indicate a calculated attempt to circumvent internal controls and conceal fraudulent activity. For instance, consistent missing documentation, such as incomplete expense reports, lack of supporting invoices, or unexplained gaps in financial records, can suggest an effort to obscure unauthorised transactions or misappropriation of funds.
Employees, due to their daily involvement in company operations, are often the first to notice irregularities or suspicious behaviours. Customers, who interact with the company’s financial systems or observe business practices, may detect discrepancies or anomalies that raise red flags. Similarly, suppliers, through their transactional relationships with the organisation, may identify inconsistencies in payments, orders, or other business dealings.
It is critical that organisations establish secure and confidential channels for reporting these tip-offs, encouraging individuals to come forward without fear of reprisal.
When addressing workplace fraud, employers must navigate a complex landscape of legal considerations. Firstly, it is crucial to recognise that fraud constitutes both a civil and criminal offense under UK law. Consequently, employers have the option to pursue legal action to recover financial losses incurred and to seek prosecution of the individuals involved. Obtaining an injunction is another legal avenue available, particularly when immediate action is necessary to prevent further harm, though it requires swift action and compelling evidence. Additionally, employers have the option to report the matter to the police for criminal investigation.
Throughout any investigation, employers must strictly adhere to UK data protection laws, including the Data Protection Act 2018, ensuring that all data collection, processing, and handling of evidence is conducted lawfully and ethically. It is advised to have an investigation carried out by a third-party independent company.
Regarding disciplinary actions, employers are obligated to follow their own established disciplinary procedures, as outlined in employment contracts. Suspension of an employee may be deemed necessary during the investigative phase, but this decision must be made with utmost caution and based on reasonable grounds to avoid potential claims of unfair treatment. Actions, if warranted, can range from formal warnings and demotion to termination of employment, depending on the severity of the offence and the company’s existing disciplinary policy.
Fraud in the workplace can have a significant emotional impact on employees who are not involved. Employers should provide support and mental health resources to affected employees and make an effort to foster an environment of trust.
Employee fraud poses a significant threat to businesses of all sizes. HR professionals play a critical role in preventing, detecting, and responding to fraudulent activities. By implementing robust policies and acting decisively when fraud occurs, organisations can safeguard their operations and minimise reputational damage.
At Sapphire HR, we understand the complexities of workplace fraud and its impact on businesses. Our team of experienced HR professionals can provide comprehensive support in:
We can create tailored fraud prevention strategies that align with your company’s specific risks and operational needs, including risk assessments, internal control frameworks, and early warning systems.
Our experienced team can conduct impartial and legally compliant investigations into suspected fraud, guiding you through the disciplinary process to ensure fairness and minimise legal risks.
We can run dedicated training sessions designed to educate your workforce on fraud awareness, ethical decision-making, and the importance of reporting suspicious activities.
As part of our HR consultancy services, we can draft or review your employment contracts, policies, and procedures to ensure they are up to date with current UK employment law and include watertight clauses that effectively deter and address fraudulent activity.
Our team can offer expert guidance on implementing enhanced security protocols and data protection strategies. We can also help you draft comprehensive whistleblowing policies that comply with current UK legislation, such as the Public Interest Disclosure Act 1998. By being proactive, you can discourage unlawful employee activity.
We are committed to helping organisations create a safe and ethical workplace, where trust and integrity are at the forefront of company culture. Contact us today to learn more about how to deter fraud in the workplace.
Here to Help, Not Replace Experts:
The information contained in this blog presented for general informational purposes only. While we strive to provide accurate and up-to-date content, legal and HR practices can evolve rapidly. This blog is not a substitute for professional advice.
For specific questions or concerns regarding your unique situation, we highly recommend taking professional advice and booking a consultation with a Sapphire HR Consultant. Our consultants are experts in the field and can provide tailored guidance to address your specific needs.
We aim to work truly in partnership with our client organisations and to develop a high-quality, competent HR Service for all clients, the HR Provider that they can rely on and who gets to understand the culture and vision of your business.
