How to deal with workplace fraud You can minimise the risk of fraud by implementing some simple measures. NO-ONE gave it a second thought when the staffer, let go in a restructure, insisted he would do the payroll one last time. That was until later when the books didn't add up. The final pay, to cover his tracks, was less than what the had been paid for the previous year. It turns out he had overpaid himself $30,000 for the year. Internal fraud is a major cause of loss to businesses because often nobody else runs their eye over the books. But what to do? PwC crime expert Malcolm Shackell says many small businesses decide to deal with it internally. "Unfortunately, they get it wrong," he says. If they find something wrong they don't know whether it is the start, middle or end of a fraud. In 90 per cent of the cases we get involved in, the final amount is nowhere near the figures being tossed around. Thomson Lawyers partner and employment law specialist Mark Branagan says many frauds, in which the employer will never recoup a cent, are fuelled by gambling addictions. Often by the time a business finds out about a fraud it is just the tip of the iceberg. You should assume the worst," he says. But you need evidence - cold hard facts - not speculation and rumour. Branagan says the use of technology has made it easier for white collar fraudsters. "It is much easier than going into a room and breaking a lock and stealing $5000," he says. William Buck audit director Grant Martinella says the first step is to seek legal advice before confronting an alleged offender. "With approval from an appropriate level, undertake or arrange a confidential investigation," he says. The investigator must be both credible and thorough and ideally from outside the firm. Shackell says it is vital that the alleged fraudster is not tipped off and able to cover their tracks. In about 20 per cent of cases the alleged wrongdoing will be rumoured around the office. In these cases, the suspect needs to be spoken to and sent on "gardener's leave" while the matter is investigated. Shackell says how the suspect is approached is very important as there could be defamation and unfair dismissal comebacks. Martinella says the alleged offender should be "supported" through the process by a union official, lawyer or other trusted person. While Branagan agrees about a support person, they cannot use it is a delaying tactic. Sometimes an employee, when presented with the evidence, may be able to provide a plausible excuse. Shackell says: "You need to be very careful how you frame an allegation and never directly accuse someone." He says the sense of betrayal and hurt in a small close-knit business means it should be handled outside the company. Many businesses will have fidelity insurance which will cover the cost of investigation. Shackell says natural justice must prevail and the evidence in civil jurisdictions must be a "balance of probabilities" rather than the "beyond reasonable doubt" for criminal cases. "People have a right to answer accusations that are made against them," he says. Fidelity insurance will require the matter be referred to police who will then assess if any charges are to be laid. Shackell says technical skills are needed to unearth evidence otherwise a potential police conviction or moves to recoup money will be undermined. Outline what constitutes fraud. Specify each employee's roles and responsibilities so there are no muddy areas. Implement control measures for specific functions that may be susceptible to fraud. Outline reporting, investigation and disciplinary procedures so everyone knows the process. Frauds are often uncovered by co-workers, so a confidential channel is vital. Ensure there is proper training and supervision of staff. Undertake regular audits. Review all claims. Review all suppliers to ensure there are no contentious kickback arrangements. Make sure employees take their holidays.