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Yorkshire broker says businesses must stay alert to internal crime

Pictured is Gauntlet director, Ian McCarron

 

Yorkshire-based commercial insurance broker, Gauntlet, is advising British businesses of the need to safeguard themselves against the impact of internal theft, following research in 2016 that showed 67 per cent of British workers have stolen from their employer. 

Whilst many thefts can be small and insignificant, with employees often stealing items such as stationery or a packet of biscuits, the cost of an individual theft or fraud can add up to a five-figure sum or above.

Figures show the UK is one of the worst countries in the world for stealing by employees and the problem is on the rise.  It costs the UK economy around £168 million per year, according to the British Retail Consortium, and each individual incident costs £788, on average – more than that of a customer theft.

Employee theft could be a straightforward case of robbing a colleague, or the employer, of their property, but could also entail: compromising or altering customer or payroll data to facilitate fraud; fraudulently transferring or withdrawing funds; or manipulating internal accounting systems and records for personal or third party benefit. 

False or inflated supplier invoices may also be submitted by an individual, to assist either themselves or a third party, and employees could pass on vital information that enables a cyber crime to take place. 

Certain sectors, like retail, are particularly vulnerable. Theft by employees in the UK is said to account for 42.7 per cent of inventory shrinkage in the retail sector, according to The Global Retail Theft Barometer. This costs retailers at least £2 billion a year. Much theft goes unreported, so this could be the tip of the iceberg. 

Employers need insurance protection to cover internal theft for various reasons. Firstly, they may need to physically replace equipment or other items stolen. They could also need to prove funds have been diverted from their account into another person’s and try to recoup that money. Additionally, they may need to cover the costs of prosecuting an employee, which can be significant. 

Most prosecutions are brought under the Fraud Act 2006, but this could involve a long, painful exercise that necessitates providing defence lawyers with training manuals, details of procedures, records of all financial transactions and other data.  A case might also require the appointment of a forensic accountant who can sift through evidence, bank accounts and other accounting records. It all adds up to lost time and money. 

An internal theft can lead to a business incurring significant costs,” said Gauntlet director, Ian McCarron. “Businesses protect themselves by installing security devices to prevent robberies, but are often too trusting when it comes to employees.  This trust can lead to them overlooking the need to have protection against internal theft, as they do not see that the enemy could be within the organisation, rather than outside it.” 

Much internal theft is driven by dislike, grievances and envy, but other incidents occur when an individual’s circumstances change and they are desperate for money.  Identifying who is stealing from a business may be difficult and may necessitate the incurring of other costs, such as hiring a private investigator to work within the organisation, to try to tease out the information that will uncover the culprit. 

Having the right insurance policy is vital. In a case Ted Baker brought against an employee who had stolen seven tonnes of clothes, over the course of hundreds of thefts, the retailer lost £2.16m in business and £2.5m in legal fees. 

Whilst this was partly due to it not being able to provide certain documentation to the insurer, Ted Baker’s claim also failed because the employee had stolen on hundreds of occasions, the value each time being less than the £5000 per incident policy excess.  Despite police finding £300,000 of clothing – equating to 14 pallets – in the employee’s garden shed, Ted Baker was still unable to get an insurance pay out. 

Ian McCarron said: “A business needs to sit down with an insurance broker and talk through their operations, so that possible scenarios can be discussed.  This enables it to be covered by an appropriate insurance policy, rather than an off-the-shelf policy that is actually unsuitable for their way of operating, the stock and valuables they possess and the likely impact and size of an internal theft.” 

 

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