In this article, we’ll discuss what employee fraud is and provide six ways of dealing with this while minimising damage.

Dealing with a fraud investigation can be fraught at the best of times but, when the perpetrator is an employee, it can bring unwelcome scrutiny on your business from clients and shareholders.

In this article, we’re sharing six ways to deal with employee fraud as quickly and effectively as possible.

What is Employee Fraud?

Employee fraud is a criminal act carried out by somebody who works for you and who will use their ‘inside knowledge’ of your business in order to gain financial benefit for themselves or to leverage power over your company. The most common types of employee fraud tend to be:

  • Payment fraud
  • Receipt fraud
  • Procurement fraud
  • Travel / expenses fraud
  • Exploitation of assets and / or information fraud

As well as financial losses, employee fraud can result in reputational damage to your company and a loss of trust from shareholders and clients.

6 Ways to Deal With Employee Fraud

If you suspect that an employee may have committed fraud against your company, you need to act fast in order to minimise the damage. In this section, we’re explaining the steps that you should take to control the situation.

1.   Remove access to sensitive accounts

The first thing you need to do is to remove the employee’s access to all sensitive systems or sources which may potentially be used fraudulently pending an investigation. At this stage, the employee may continue working on other tasks which do not require access to these systems.

Your Human Resource department should explain to the employee that an investigation is imminent and that their access will be limited until that investigation has been completed.

2.   Change passwords to accounts

As well as removing the employee’s access, it’s a good idea to assume that they have copied information, including passwords. This means that you will almost certainly need to change passwords for any and all systems which may have been compromised and to isolate any computers or devices which may also have been involved in the fraudulent behaviour.

3.   Gather as much evidence as possible

You should now task competent and impartial employees, or a third party, to investigate the fraudulent activity and gather all evidence. This should then be collated and put into a report containing the details and outcomes of the investigation.

4.   Arrange a formal meeting with the employee

Once the investigation has been completed, it’s time to arrange a formal meeting with the employee to discuss the issue. The employee should be informed that they may – and should – bring somebody along to the meeting for support. This can be a colleague, a solicitor or even a friend or family member.

From the company’s standpoint, the meeting should be attended by a senior manager and a representative from Human Resources. The purpose of the meeting is to explain to the employee the findings of the investigation and to give them an opportunity to present an explanation or further information.

5.   Update employee status

Following the meeting, you will need to decide on the employee’s fate. In most cases, this will involve either suspension (if there is an element of ambiguity as to the employee’s guilt, or further investigation is required) or dismissal.

This course of action must be conducted in adherence to company policy and to UK law to avoid the possibility of the employee bringing an unfair dismissal case against the company.

6.   Take legal action if necessary

In some cases, you may have grounds to begin legal action against the employee in order to recoup funds obtained by the employee fraudulently and to regain the trust of clients and shareholders.

Before taking this step, you should liaise with your company’s solicitor who will be able to make you aware of any problems or pitfalls such action may involve. More importantly, your solicitor will be able to give you an idea of the cost of bringing such action against the employee.

Financially speaking, in some cases, this will cost you more than you stand to gain. However, this may be balanced by the reparation of reputational damage and by making an example of the employee to discourage other employees from committing fraud.

If, however, your business is a high-profile company, it may not be in your interests to embark on a court case which might make headlines. In this instance, you may want to instruct your solicitor to begin negotiating with the employee with respect to recompense for their fraudulent behaviour.

Don’t ignore fraudulent behaviour

Every year, there are around 5,638 cases of employee theft or fraud in the UK, costing British businesses huge amounts of money and reputational damages. Depending on the circumstances, an employer may feel a degree of sympathy toward the employee, but fraudulent behaviour within business should never be ignored.

Fraudulent behaviour can be extremely harmful to a business and can undermine your authority with other employees. It’s important to have a business policy in place to follow in the event of employee fraud occurring. Failure to follow correct procedures could result in an employee taking legal action against the company if they’re unfairly dismissed.


Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained legal professional. Be sure to consult a lawyer/solicitor if you’re seeking advice on employment law. We are not liable for risks or issues associated with using or acting upon the information on this site.