Asset misappropriation fraud

Asset misappropriation fraud involves third parties or employees abusing their position to steal from an organisation through fraudulent activity.

This type of fraud can be committed by company directors or anyone else entrusted to hold and manage the assets and interests of an organisation or its employees. The different types of asset misappropriation fraud include:

  • Embezzlement by manipulating accounts or creating false invoices
  • Deception by employees
  • False expense claims
  • Payroll fraud by diverting payments or creating fictitious ghost employees
  • Data theft and intellectual property theft.

Typically, the stolen asset is cash or cash equivalents (credit notes or vouchers). However, the fraud can extend to include company data or intellectual property.

The definition of asset misappropriation fraud excludes straight theft from an organisation by insiders. For example: stealing stationery or other physical assets.

How does asset misappropriation fraud work?

At one end of the scale, asset misappropriation fraud may be limited to isolated cases of expense fiddling or an employee exaggerating his or her qualifications to get a job.

At the other end of the scale, this type of insider fraud might involve organised crime groups infiltrating organisations to take advantage of poor processes and inadequate internal systems and controls.

Ultimately, it is the cash flow of the business that suffers. According to CIFAS, the UK’s Fraud Prevention Service, it is estimated that the cash flow in nearly a quarter of UK small businesses is under threat from losses caused by staff theft and fraud.

If they are not tackled, opportunistic one-off frauds can become systematic and spread throughout an organisation to create a culture of theft and fraud. When this happens, fraudsters think their actions are acceptable and fail to make the distinction between company funds and their own funds.

Apart from the direct impact of lost funds, asset misappropriation fraud can impact on an organisation’s staff morale and reputation.

What should I do?

As an employer

If the asset misappropriation fraud is continuing, you should consider initiating a criminal investigation by reporting it to the police while preventing further losses by immediately suspending the employee(s) involved.

As an employer, you may consider that the fraud is minor. Although it may still be a criminal offence, you may seek to recover stolen funds and start disciplinary or dismissal procedures.

Whatever you decide, your organisation should try to estimate its direct losses and determine whether the fraud is being replicated by other people. This would indicate a systematic failure across your whole organisation.

Your organisation can seek to protect itself from asset misappropriation fraud by:

  • Employee vetting by thoroughly checking employee CVs and references
  • Implementing a whistle-blowing policy
  • Controlling access to buildings and systems using unique identification and passwords
  • Restricting and closely monitoring access to sensitive information
  • Imposing clear segregation of duties
  • Considering job rotation
  • Using tiered authority and signature levels for payments
  • Regularly reconciling bank statements and other accounts
  • Periodically auditing processes and procedures
  • Promoting a culture of fraud awareness among staff
  • Adopting and rigorously implementing a zero tolerance policy towards employee fraud
  • Having a clear response plan in place in case fraud is discovered.

Your organisation also has a responsibility to other employers. Simply dismissing a fraudster enables him/her to move to another employer unchallenged. Here, he/she will most likely continue their fraudulent behaviour. Therefore, your organisation should take action to ensure that, where the offence is proven, the possibilities of this happening are limited. You can do this either by participating in a fraud data sharing schemeor by deciding to prosecute when the fraud is discovered.

Reporting fraud

If you're a victim of fraud that is a crime in progress and you need an immediate police response dial 999.

If it is a non-emergency situation,

call Action Fraud on 0300 123 2040.

You can also report fraud or find further advice and information on the Action Fraud website.