October 31st, 2019 | Steven Smith, Managing Director EMEA

Why Internal Fraud is a Bigger Problem Than You Think

An Emerging Challenge

Fraud has become a huge problem for businesses, particularly in today’s digital era as fraudsters become adept at identifying and striking the weaknesses of an organisation. The Credit Industry Fraud Avoidance System (CIFAS) highlights this worrying statistic by reporting that one in nearly every two crimes committed in the United Kingdom today is either fraud or a cybercrime. This also suggests the probability of sectors emerging unscathed from the impact of fraudsters is near to impossible as every industry and organisation are susceptible to the risks, unless proactive action is taken to mitigate the dangers.

UK Internal Fraud Higher Than World Average

When you think of fraud, the notion of organised crime syndicates may spring to mind, and the thought of this being perpetrated from within your organisation seems out of the question, right? Surprisingly, this is not necessarily the case. According to PricewaterhouseCoopers, on a global level 52% of all frauds are perpetrated by people inside the organisation. This brings with it significant repercussions as occupational fraud worldwide is estimated to cost £3.2 trillion. Within the last 12 months alone, in the UK 38% of businesses experienced internal fraud, which ranks 11% higher than the global average and is only surpassed by sub-Saharan Africa at 44% as reported by the Kroll Annual Global Fraud and Risk Report. This is extremely troublesome for businesses, although the report goes on to suggest that a reason internal fraud is so widespread in the UK is a result of company cultures and specifically senior management not taking the issue seriously enough.

This may be due to the fact your organisation should automatically be able to place absolute trust in each employee knowing full well that they will act in good faith, and with the interests of the business at heart. However, just the thought of internal fraud jeopardises this notion and may cause your organisation to question your own screening processes and whether you really know the individuals you’re hiring.

Cifas Internal Database and the Steps to Mitigate Risk

Nevertheless, there are steps hiring businesses are taking and can take in order to mitigate these risks, and to reinforce an environment encompassing trust and safety. Here at Sterling, as part of the candidate integrity search and as a member of Cifas, we have the ability to access Cifas’ internal fraud database and report our findings (albeit only to clients who are existing members of Cifas). Ultimately, the internal fraud database is a sharing scheme designed with the responsible employer in mind, and helps to minimise the risk of employing someone who has committed fraud by detecting, deterring and preventing the perpetrator moving unchallenged to a new employer with the potential to commit further fraudulent acts. Using the internal database allows organisations to exchange information on the following:

• Fraudulent applications for accounts, insurance, services, products, employment or fraudulent claims for benefits, etc.
• Existing accounts claims or policies that have been accessed or misused in a fraudulent manner.
• Fraudulent insurance or other claims.
• Innocent victims of fraud to protect them from further fraud.

Additionally, the information recorded on the internal database ranges from employment application fraud to bribery and corruption but is not only limited to this, with the service not only available for permanent staff, but also extending to contractors and agency workers. If you’re unsure whether your company is a member of Cifas, you can check here.

While the fraud research by Kroll clearly highlights a challenge for businesses to overcome, the good news is there are a number of steps available to mitigate the risks.

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This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.