Mitigating against potential fraudsters

As the trial against the former UBS trader, Kweku Adoboli continues this week, Rupert Emson, CEO of Vero Screening explores the role of ongoing monitoring in identifying potential fraudsters and considers the warning signs to look out for.

Former trader, Kweku Adoboli stands accused of gambling away a record £1.4bn on unauthorised deals while working at Swiss bank, UBS. It is claimed that he falsified records and dishonestly used his position to try to make a personal gain. He is not alone, insider fraud is on the rise and poses a serious threat to organisations. The latest figures from CIFAS, the UK’s fraud prevention service revealed a 52% increase in fraud committed by employees in the first half of 2012 compared against 2011. And according the KPMG’s Fraud Barometer fraud committed by company managers was the fastest growing area, up 30% in value (to £441m) against last year.

In the current financial climate, screening exclusively at the point of hire is no longer sufficient. As the UBS case demonstrates, the risk profile of an employee can change dramatically over time. This view is strongly supported by the FSA and legal regulators who advocate ongoing employee monitoring to mitigate against this risk and by MI5 which states that: “Many employees who eventually abuse their employment positions did not present significant security risks when they were originally appointed. Instead, the risk they present increases during the period of their employment.”

Evidence also shows that in the face of increasing pressure and concern over job security, employees have a greater propensity to commit fraud against their employer. American Criminologist, Donald Cressey has found that when there is a strong increase in pressure – whether it’s fear of dismissal, redundancy or feeling ‘hard done by’ the employer – that fraud also becomes easier to rationalise and therefore more likely to happen.

At a time when organisations are making huge job cuts (e.g. UBS announced 10,000 job cuts) and employees feel disgruntled, the situation doesn’t look good. But there are steps employers can take to protect against this increasing risk such as developing an ongoing screening policy and raising line manager awareness around spotting specific suspicious behaviour patterns.

Interestingly, organisations who already have an ongoing monitoring process in place have found that employees are more likely to come forward and flag potential issues such as CCJs and other financial issues on a voluntary basis. This in turn helps create a more manageable and open process for dealing with discrepancies but at the same time can highlight any potential red flags that could indicate suspicious activity.

During the trial of Kweku Adoboli, it came to light that he lost £123,000 of his own cash through a spread betting account. His personal bank accounts were also mostly overdrawn despite his £360,000 annual salary. Such drastic changes in expenditure are classic warning signs. And while Adoboli’s financial status could not have been known by his employer, the pressure and stress associated with such personal financial exposure is likely to have influenced his behaviour.

So what are the warning signs and behavioural changes that employers should look out for? Post appointment, it is vital that HR and line managers continue to assess employees in order to identify any changing or suspicious behaviour patterns that might indicate any potentially fraudulent activity including:

Employee showing signs of disaffection (lack of interest in promotion, appear unhappy and unmotivated)

Effects of drugs

Support for extremist views

Sudden change of religious practice

Major, unexplained changes in lifestyle

Sudden changes in expenditure

Sudden loss of interest at work

Excessively emotional behaviour (maybe confrontational and intimidate colleagues)

Changes in working patterns

Unusual interest in security measures

Frequent, unexplained absences

Repeated failure to follow security procedures

Rupert Emson, CEO of Vero Screening