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The hidden cost of fraud

Fraud can have a substantial impact on a business of any size and not just in terms of financial loss. Some of the ramifications of employee fraud may not be immediately obvious but can have far-reaching effects.

The vast majority of staff in any organisation are trustworthy and honest, but cases of fraud, or employee theft, are more common than you might think.

In the UK, nearly one in five businesses have been defrauded by an employee at some point, according to Action Fraud[1], the national reporting centre for fraud and cyber-crime.

However, fraud can hit companies in others ways – affecting everything from morale to reputation.

It’s almost impossible to put an exact figure on total financial loss, but in the US alone, expense fraud committed by employees is estimated to cost businesses more than $2.8 billion per year, according to a 2016 survey[2] of more than 1,000 business travellers.

For fleet managers, mileage fraud is one of the most common types of employee theft. Filling up another car using a company fuel card, exaggerating the length of a journey and submitting inflated mileage totals for trips taken in personal vehicles are just a few examples.

Recent independent research, commissioned by Shell[3], revealed that almost two thirds of fleet managers (65%) in the UK now see fuel related fraud as a major issue for their business.

Other forms of employee fraud include staged accidents and injury claims which can result in expensive payouts and increased business insurance premiums.

Fraud adds up

All fraud has significant costs beyond the value of that which has been defrauded.

One of the immediate hidden costs is the amount of time and energy it takes to investigate fraudulent claims. The process is likely to involve managers and HR and a disciplinary process, plus there are potentially additional costs involved such as recruiting, training and employing a new member of staff if the case results in a dismissal.

If mileage fraud has been detected, it’s likely the company will face penalties. For instance, in the UK, if the tax authorities investigate expenses and discover mileage fraud, companies have to pay tax on the defrauded sum and can be fined up to £3,000 per employee.

Fraud cases can also disrupt the normal daily routine of other employees as all drivers’ expenses may well have to be investigated too.

Lower morale

Team spirit and morale is likely to take a knock if colleagues are disciplined, dismissed or even prosecuted, while a culture of mistrust and suspicion can sometimes remain.

Worse still, the amount of time and money tied up in a fraud case can impact company finances to the point where salaries, bonuses and training budgets might be affected. Business growth plans could be even disrupted in the most extreme cases.

If a fraud case has been discovered, word may also get out and a firm’s reputation might be put at risk, which could affect existing and future business relationships and creditworthiness.

It’s vital to catch instances of fraud early, or better still, try to avoid them altogether. In the fleet sector the increasing use of technology such as telematics is helping to tackle mileage fraud head-on. The system is a more accurate way to capture mileage and allows companies to track private as well as business mileage, cutting down the opportunities for fraud.


 

[1] Know your employees

[2] Expense Fraud Costs U.S. Employers $2.8 Billion per Year, Shows Chrome River Survey

[3] Fraud Matters

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