Keeping your legal practice afloat and operational is challenging enough during the COVID-19 pandemic, without having to worry about employee fraud. The threats presented from outside sources including cyberattacks, competitor rivalry, and of course lockdown restrictions can all have a tremendous impact on the success of your law firm. Yet, new research highlights internal threats could be the costliest. NatWest reveals that UK businesses are hit by fraud at a cost of £190 million a year, with 40% being caused by internal employees.
Impact of Employee Fraud
Employee fraud isn’t just about the financial consequences and the amount stolen from you. If your law firm is hit by dishonest staff, then you can also expect enormous reputational damage for not spotting that the deception was taking place. If clients and members of the public distrust your law firm, then they’ll be concerned about the ethics of your workforce and how they handle their confidential information. Any legal case contains highly sensitive information, so your clients will want the assurance of knowing that only the most trustworthy and lawful employees can access their data.
Of course, the financial implications of employee fraud don’t stop with the amount of money stolen from your law firm. You could also be in breach of GDPR, which carries a penalty fee of up to EUR 10 million. It’s good practice to have employee fraud as an operational risk on your risk register.
Types of Employee Fraud
The types of employee fraud can be wide-ranging, which is where law firms will need to create a robust internal framework to help prevent or detect any criminal activity.
Typical employee fraud can include:
- Payroll fraud – for example, paying company wages to fake staff members with false bank account details.
- Expenses fraud – this can cost businesses as much as £30,000 per year, whether it’s a mild exaggeration of an otherwise legitimate expense, or an entire fabrication using fake invoices.
- Personnel fraud – providing false details to an HR department or working a second job during contracted employee hours are both examples of employee fraud.
- Procurement fraud – creating documents and invoices to purchase items or services dishonestly from fictitious sources.
- Data fraud – theft of company and client data is a growing and large-scale problem, with UK courts experiencing a 25% rise in this type of fraud. Although data can be obtained externally by cyberattacks, internal employees also have access to information which they may then sell on for a profit. In a BUPA employee fraud case, a staff member was caught after trying to sell over 500,000 customer records on the black market.
Preventing Internal Fraud
Regardless of the size of your legal practice, there are multiple steps you can take to crack down on the likelihood of being hit by internal fraud. It’s a shocking fact that staff members with at least five years’ service commit two-thirds of fraud cases, so don’t be tempted to focus merely on new arrivals. Your team members may be experiencing financial difficulties or have the opportunity to steal due to a promotion. Whatever the reason for the temptation, your legal practice can help to minimise the risk of fraud by creating a workplace culture focused on employee satisfaction.
To further reduce the risk, you can put operational safeguards in place, for example, splitting up tasks which require responsibility such as payroll or expenses. By sharing the workload out, you’re increasing the possibility of an employee being caught if they attempt to steal. Expectations of employee conduct should also be crystal clear, with an emphasis on accountability and reporting any unusual behaviour or activities exhibited in colleagues.
Optimising Your IT Security
Data security must always be one of the top priorities for your law firm. Your confidential data may be at risk of being exposed either through malicious or accidental insiders. Social engineering is also a threat where employees can be exploited and persuaded to obtain company data in exchange for their own privacy.
To mitigate against any of these risks of employee fraud, City Business Solutions will identify your confidential data and create a clear and robust data protection policy. We will review your security systems and make enhancements in areas such as access control, login credentials and account privileges to safeguard your information. To get started, contact CBS today for a FREE security consultation.