Fraud and the impact of Covid-19

In the wake of the pandemic, it is vital for businesses to maintain vigorous prevention procedures

Over the past 18 months, businesses have seen an unexpected surge in fraud cases as individuals are presented with new opportunities to commit crimes. According to recent research from Cifas, the UK’s leading fraud prevention service, 80% of fraud prevention professionals believe that businesses are ill-prepared for this rise in cases.

Failure to prepare against fraud can come at an incredibly high cost. NatWest recently revealed that fraud cases cost UK businesses around £190m a year, with 40% of these instances caused by internal employees.

It is not difficult to see why Covid-19 has provided fertile ground for fraud within businesses. A combination of commercial and health threats has made employees more vulnerable, and business models have been changing rapidly, encouraging executives to focus on critical operations rather than fighting fraud.

At the same time, key functions are remaining understaffed as absences from work cause capacity issues. With many companies choosing to cut staff in order to make savings, the incentive to commit fraud is increased among employees.

In such a volatile environment, it is vital for businesses to maintain vigorous fraud prevention procedures to protect their assets.

How to protect your business from employee fraud

  • Examine bank settlements, statements and cheques on a regular basis; ensure these are reconciled by someone else who is not the handler and have a procedure for countersigning cheques and payments
  • Conduct regular internal audits
  • Maintain a code of conduct with zero tolerance towards fraudulent actions
  • Deliver regular training to new and existing staff on financial crime and prevention
  • Ensure your professional indemnity policy includes fidelity guarantee insurance. If it does not, we recommend purchasing this separately. 

What is fidelity guarantee insurance?

From theft of company funds to rogue trading, internal fraud poses a growing threat for businesses of all sizes. In order to protect your assets from this exposure, fidelity guarantee insurance (FGI) is a necessity and compulsory under ACCA regulations if you have employees.

FGI is designed to protect firms and organisations against loss of funds and/or property due to forgery, fraud or theft by an employee, partner, contractor or volunteer. This can also be known as first-party fraud/theft or employee dishonesty cover.

FGI cover should not be confused with third-party fraud and dishonesty cover. The latter refers to theft of the client's money, as opposed to the accountancy firm’s own funds. This is usually covered within the main insuring clause (civil liability) of a professional indemnity policy.

ACCA FGI requirements

ACCA requires that member firms in public practice with more than one member of staff have at least £50,000 cover in place for any one claim, to help protect the business and enable it to continue trading following a fraudulent act. This can be included in the professional indemnity policy as a separate section or clause, or it can be bought as a separate policy. It is important to note that if you do not have FGI you will be in breach of ACCA’s regulations.

If you would like more information on FGI, or further advice on how best to protect your organisation from fraud, we at Lockton would be more than happy to help. Get in touch with Lockton directly by using the details below.

Our next article will focus on retroactive date and what you should look for when selecting your policy.

Muazzez Acar
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