Tips for defending your business against staff fraud

By the Business Fraud Alliance, 8 December 2025

Staff fraud (also called internal or employee fraud) is one of the most uncomfortable risks for business leaders to tackle. It’s not an anonymous hacker on the other side of the world – it’s someone on the payroll who understands your processes, your people and your weak spots. From micro-enterprises to listed companies, organisations lose money, time and trust every year because of insider abuse.

This article explains what staff fraud looks like, why all businesses are exposed, and –most importantly – what practical steps you can take to prevent, detect and respond.

What exactly is staff fraud?

Staff fraud is any dishonest act by an employee, contractor, temporary worker or director that seeks personal gain and causes loss to the organisation. It spans:

• Asset misappropriation: skimming cash, false expenses, misuse of corporate cards, payroll ghost employees, theft of stock or equipment.
• Financial statement fraud: manipulating figures (timing of revenue/costs) to trigger bonuses or hide problems.
• Corruption and bribery: kickbacks from suppliers, conflicts of interest, collusive tendering.
• Data and IP theft: siphoning customer lists, trade secrets or pricing models for personal use or a rival.
• Cyber-enabled insider abuse: abusing privileged access to create fake vendor accounts, change bank details, or approve fraudulent payments.

Under UK law, many of these behaviours will amount to offences under the Fraud Act 2006 (false representation, failure to disclose information, abuse of position), the Bribery Act 2010, and – in data theft cases – the UK GDPR and Data Protection Act 2018.

“We’re too small for that”…why every business is exposed

Fraudsters look for the easiest route, not the biggest target. Smaller firms often have:

• Concentrated duties (one person buys, receives and pays), creating opportunity.
• Informal culture where “we trust everyone” becomes “we don’t verify”.
• Limited controls around expenses, purchasing and access rights.
• Rapid growth that outpaces governance.

Larger organisations aren’t safe either: complex structures, dispersed teams and many suppliers make it harder to spot anomalies – and incentives tied to performance can distort behaviour.

Remember the Fraud Triangle: pressure (personal finances, addiction, debt), opportunity (weak controls), and rationalisation (“I’ll pay it back”, “I deserve it”). Addressing all three reduces risk.

Common schemes and how they slip through

1. Invoice and supplier fraud
   • Fake suppliers set up by insiders, or real supplier bank details quietly changed.
   • Red flags: new payee details approved by the requestor; multiple small invoices under approval thresholds; payments just before holidays.
2. Expenses and corporate cards
   • Personal spending coded to business categories; altered or duplicated receipts.
   • Red flags: out-of-policy claims, weekend/late-night transactions, repeated “miscellaneous” entries.
3. Payroll manipulation
   • Ghost employees, inflated overtime, unauthorised salary advances.
   • Red flags: payments to the same bank account for multiple staff; leavers still on payroll.
4. Procurement kickbacks
   • Steering contracts to favoured suppliers in exchange for benefits.
   • Red flags: persistent use of a single vendor without competition; specs tailored so only one bidder qualifies.
5. Stock shrinkage and returns abuse
   • Write-offs and returns used to mask theft.
   • Red flags: high shrinkage in one location/shift; manual adjustments with weak justification.
6. Data and credential misuse
   • Downloading customer lists before resigning; approving their own access changes.
   • Red flags: large out-of-hours exports; privilege escalations without tickets.

Newer twists to watch

• Hybrid working and bring your own device (BYOD) increased credential sharing and “off-book” tools.
• Deepfake voice/video used to spoof senior authorisations for urgent payments (“CEO fraud”), especially effective when combined with an insider who knows processes.
• Third-party insiders: contractors, agency staff and outsourced teams often sit outside your standard controls – but have the same access.

Build a practical defence (without killing culture)

1. Prevent
   • Segregate duties: No single person should create a supplier, approve it and pay it. Even in small teams, rotate duties monthly.
   • Supplier onboarding controls: Verify company identity, directors and bank accounts via trusted sources; require dual approval for bank-detail changes.
   • Access with least privilege: Role-based access; time-boxed admin rights; revoke promptly when roles change.
   • Clear, enforced policies: Expenses, gifts and hospitality, conflicts of interest, personal trading, secondary employment.
   • Training with real examples: Short, scenario-based refreshers beat long e-learning once a year.
   • Culture of speak-up: A confidential whistleblowing channel (internal or third-party) that’s easy to use and visibly acted on. The Public Interest Disclosure Act 1998 protects workers who blow the whistle in the public interest when done properly.
2. Detect
   • Data analytics (you don’t need a data science team):
     • Duplicate invoices, round-number amounts, weekend approvals, rapid vendor payment changes, card transactions just under approval limits.
     • Compare payroll lists with HR leavers; flag shared bank accounts.
   • Continuous monitoring: Simple dashboards for exceptions; monthly spot checks by someone independent of the process.
   • Stock counts and surprise audits: Rotating, unannounced cycle counts reduce shrinkage and deter collusion.
   • User activity logging: Alert on bulk data exports, privilege changes and failed access attempts.
3. Respond
   • Have an investigation playbook: Preserve evidence, suspend access, interview procedures, escalation criteria.
   • Seek legal advice early: To protect privilege and ensure regulatory obligations are met.
   • Report appropriately:
     • England and Wales: Report fraud to Action Fraud (the UK’s national reporting centre).
     • Scotland: Report to Police Scotland.
     • Consider reporting to your bank immediately for payment recall attempts and to relevant regulators (e.g. the Information Commissioner’s Office for data breaches).
   • Recover and remediate: Civil recovery, insurance notification, and a control-gap review so it doesn’t happen again.

A quick self-assessment checklist

Can you confirm all of the following takes place at your organisation?

• We separate who requests, approves and pays.
• Bank-detail changes require dual approval and independent verification.
• We run basic anomaly reports on expenses, suppliers and payroll each month.
• All staff annually declare conflicts of interest; procurement uses competitive quotes by default.
• Admin access is time-limited and reviewed quarterly.
• We have a confidential whistleblowing channel and show staff how issues were addressed.
• We can freeze accounts and preserve evidence within an hour of suspicion.
• Leavers’ access is revoked same day; devices are returned and wiped.
• We’ve rehearsed an insider incident (table-top exercise) in the last 12 months.

What does “good” look like?

High-maturity organisations treat insider risk as an ongoing programme, not a one-off policy. They blend proportionate controls with trust and transparency, measure what matters (exceptions, resolution times, training completion, whistleblowing uptake), and adapt quickly when the business changes.

For SMEs, start small: fix segregation of duties on payments and suppliers, add a speak-up channel, and run three anomaly checks each month. Those steps alone shut off the majority of common schemes.

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Courses

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