Protecting your business after discovering fraud: five practical steps
30/07/2024
1. Plan before taking action
Discovering fraudulent activity usually comes as a shock to business owners, and there is naturally an impulse to take immediate strong action. However, business owners must take care and be systematic, having a carefully (but urgently) formed plan. Having such a plan should reduce the risk of further aggravating the situation and increase the chances of a satisfactory resolution.
Certain immediate protective steps may be required to avoid further harm. Such steps should only be taken with the benefit of suitable advice (see point 5). This advice can usually be obtained urgently at short notice. Knee-jerk reactions, such as on-the-spot firing without the benefit of legal advice, can give rise to additional problems such as employment law claims, as well as the internal and outward-facing disruption and risk to reputation caused by sudden, dramatic departures.
Your plan of action, informed by suitable advice, should include immediate damage limitation and a proper investigation and gathering of evidence.
2. Investigate and gather evidence
Your investigation should, wherever possible given all the other factors involved, be carried out discreetly so as not to alert those committing the fraud that you are on to them – at least until you are fully equipped and ready to confront them. This should reduce the risk of the fraudsters successfully destroying important evidence and will allow you to build your own comprehensive record.
You need to ensure that all available evidence is preserved as far as possible. There are many ways to do this, which might (for instance, in the context of emails) include taking steps to monitor certain accounts remotely, and to place them on “litigation hold” using the options available to the owner included within many business email platforms. This should preserve deleted items until the hold is removed. This is just one example of a prudent step in investigation and evidence-gathering.
You should already be maintaining back-up copies of financial and company information when it is created or updated. If you are not yet doing this, now is the time to start.
3. Protect your reputation
You will need to consider what steps (if any) should be taken to ensure that the reputation of the business is protected. Maintaining the trust of customers, employees and partners is vital. The fraud could be a major blow to your reputation, which however could be mitigated or avoided entirely with careful handling (and the benefit of suitable professional advice). For instance, if total confidentiality cannot be preserved and the fraud is or will become known internally or to third parties or the public, you might need to issue a formal statement internally or externally. Advice should be sought in connection with the wording of any formal statement before it is issued.
4. Prepare early to hire
If fraud has been discovered, the minimum consequence is likely to be the ultimate termination of the engagement of the employee, worker or officer. This means that you may need to hire a new employee, worker or officer to fill the newly opened role, and quickly. As fraud is often committed by those in positions of considerable responsibility, finding a replacement to occupy such a high-level position at short notice may be challenging. You should therefore prepare for this possibility as early as you can.
5. Seek specialist professional advice
In circumstances in which the fraud has been committed by an employee, you should speak to an employment lawyer at the first opportunity to receive advice on your options and the correct process for investigating and removing the employee. This will include reviewing and obtaining advice on their contract of employment or service contract. You will want to limit as far as possible the spread of information internally and externally, which will include seeking to avoid legal comeback from the individual that could become known internally or to third parties or the public.
You should also confidentially notify your accountant and take advice on any potential financial and tax implications. Furthermore, as a separate matter to the employment law considerations just mentioned, you should seek legal advice from a commercial dispute resolution lawyer. Such an adviser may be able to help you recover the loss the business has sustained in full, or at least in part. Available measures might include making an urgent application to the court for an order freezing the fraudster’s bank account or other known assets.
You should also notify the police, and consider making a report to Action Fraud.
If you think you may have discovered fraud within your business and require advice or representation, or if you simply wish to discuss the content of this article, please contact Claire Boucher ([email protected] or 07939 288777).
This article is not legal advice, which it may be sensible to obtain before you take any decisions or actions in the areas covered. Please do contact me if you would like an initial discussion of your situation.
