How to navigate employee fraud the right way

Fraud can have a significantly negative impact on a business, on its reputation, operations, and revenue, whether big or small. And, just like a pebble dropped into a still body of water, the ripple effect of fraudulent actions can be felt by a business long after the fraud has been committed if not handled correctly.

As such, most businesses have put in place a number of measures to detect and prevent fraud being committed against them from the outside. However, it’s often the case that businesses aren’t as prepared to deal with cases of fraud that have been committed from within the company. They don’t have clear or practiced processes in place. This can lead to delayed and disorganised responses, during which mistakes could be made with severe consequences.

As we observe International Fraud Awareness Week this year, organisations must ensure they build a structured, robust internal fraud response plan. Here are some insights into key questions you might have as an employer when taking action against employees suspected or alleged of fraud.

When should you take action?

The moment that any serious allegations of misconduct or fraud are suspected or have been discovered within an organisation, is exactly when you must take action.

The amount of time an organisation takes to leap into action and address any fraud allegations impacts its ability to collect relevant information and evidence with as little interference as possible. This time can be equated to the golden hour, a period immediately following the commission of an offence when material is abundant and readily available to investigators. A rapid response in these situations can help employers avoid the possibility of losing out on valuable information or destruction of key evidence as a result of inappropriate handling processes or inadvertently tipping off a suspect.

What are the procedures you need to follow?

The first step that any employer should take when any allegations of fraud or misconduct have been brought to their attention is to suspend the employees who are alleged to be involved.

This helps to safeguard the integrity of the investigation, any evidence, as well as any potential witnesses as an organisation is legally able to suspend an employee without informing them of any of the allegations made against them before the investigation takes place. However, it is important to note that this suspension must be authorised by the employer with full pay and organisations should refrain from making any official announcements of the suspension as any allegations have not yet been proven true and doing so could cause reputational damage on both sides of the aisle.

Once an investigation has been completed and sufficient evidence has been established to take disciplinary action against the employees involved, the next step is to convene a disciplinary inquiry. But, organisations need to rethink their idea of what an inquiry should look like while still meeting the standard procedural fairness required by the Labour Relations Act (LRA), particularly as the COVID-19 pandemic and remote work have changed the work environment.

Currently, disciplinary inquiries are held as extremely formal affairs where those involved will sit down together. This is not what was envisioned by the changes to the LRA in 1995 which aimed to de-formalise the disciplinary inquiry and move away from a system similar to that used in criminal cases, including a shift away from terms such as being “charged” or being found “guilty” or “not guilty”.

The only conditions employers must meet are that an investigation must be held to determine whether there are any grounds for dismissal; employees must be notified of the allegations against them using language they can reasonably understand; and employees must be able to respond to the allegations and be given a reasonable amount of time to prepare for the response and acquire the assistance of a trade representative or fellow employee.

Following the inquiry, an employer must then decide the appropriate sanctions to be implemented and communicate the finding appropriately.

Who needs to preside over these proceedings?

It is important that fraud or misconduct inquiries be led by a competent, and impartial, chairperson to ensure that procedures are followed effectively and are fair. This person can be an n independent party or someone internal who has no prior knowledge of the incident.

This will also help to ensure that employees are not charged incorrectly. For example, employers often get trapped into leveling an allegation of fraud which is a criminal concept, instead of their specific action of misconduct, such as the misappropriation of funds. To prove fraud, investigators must be able to prove misrepresentation, unlawfulness, actual or potential prejudice and intention but employers are not legal representatives and this is not necessary in securing a dismissal for the same misconduct and so the same standards should not be applied.

With a continuing remote work environment, instances of fraud or misconduct are much more exposed as the checks and balances businesses have in place to ensure that working from home is safe and secure has brought increased oversight into business and employee operations. It has essentially become much harder to hide fraud. This is why it has become increasingly important that businesses fight fraud and corruption by understanding when and how to process any allegations that come forward while remaining cognisant of the employee and employer rights when doing so.