Human Resources considerations
While the old adage ‘prevention is better than cure’ holds true for fraud the incidence of employee fraud continues to rise. So what do you do when faced with the discovery that a trusted employee appears to have been committing a fraud? The initial reaction of employers when a fraud is detected or suspected is emotive, which can compound the problem. If not handled correctly it can even give the employee a cause of action against the employer, such as unfair dismissal or even defamation if false accusations are made against an employee. It is essential to get legal advice to determine the appropriate course of action.
Ideally before confronting the suspected fraudster, the employer needs to conduct an investigation to gather as many facts as possible and stop any further fraudulent activities. This can prove to be a somewhat circular problem as preventing further losses often requires detailed knowledge of how the fraud has been perpetrated. Trying not to alert the suspected fraudster further exacerbates the challenge. Often employee fraud is discovered when the suspect takes leave, giving an employer the opportunity to gather the facts and limit access without raising suspicion. However, when fraud is suspected and the employee is at work, it is not always possible to investigate without tipping off the fraudster. One option is to suspend the employee with pay while conducting an investigation.
Frequently, the investigation results are circumstantial—where you know what has happened, but may not have the evidence to prove your case. The next step is then to talk to the employee. Most employers hope that confronting the employee with the facts will elicit a confession and of course all monies will be returned. Generally, this is not the case and employers need to consider the veracity of the evidence and whether or not the employee is going to be terminated, or perhaps allowed to resign. When terminating an employee, a measured approach is required to ensure the dismissal is in accordance with the law.
Most employers want to deal with fraud quickly and quietly, and are tempted to deal with the matter internally. Employers often propose confronting the employee and demanding repayment in return for accepting a resignation and not reporting the matter to the police. Employers must know that they can ask for repayment and terminate employment as long—as the quid pro quo—is not agreeing not to report the matter to the police. The Commonwealth and most States and Territories have laws making it an offence for a person to accept a benefit in exchange for not reporting an offence, a serious indictable offence or a crime. If you are in New South Wales the law is even stricter where a person who fails to report conduct which amounts to a serious indictable offence is liable to imprisonment for two years.
According to Shand Taylor Lawyers, although it is confronting, suspending an employee while an investigation is underway is often the best option for employers dealing with a potential employee fraud. It means the employee is aware of the allegations against them, and the employer cannot be accused of undermining the employment relationship behind the employee’s back.
When dealing with a potential fraudster before making any accusations and systems access is denied, you must seek legal advice immediately to ensure you don’t end up on the wrong side of the law. In next month’s issue we will consider the IT Issues.
