Insider fraud: has the cost-of-living crisis increased the risk to your business?

Our fraud awareness specialists give their insights on how you can protect your business against the growing threat of insider fraud.

Against the backdrop of increased financial pressures on individuals brought about by inflation and the rising cost of living, our fraud awareness team is seeing an increase in cases of insider fraud committed by employees within small businesses.  

And while there is an increase in all types of fraud against businesses, insider fraud can have particularly damaging consequences for a business and its employees because the threat comes from within the organisation.

John Allcock, fraud awareness specialist, says data gathered from customers is showing a definite upwards trend in the number of insider fraud cases since the beginning of the cost-of-living crisis.

“We’ve started to see a rise in insider fraud in the last six months,” he says. “We believe this increase could be connected to the cost-of-living crisis, where employees who are in financial difficulty may commit this type of crime.

“With so many households impacted by inflation and the rise in the cost of living, individuals may become more desperate, and can turn to crimes like fraud as a misguided solution.”

Typically, insider fraud involves diverting payments or creating false invoices against known suppliers. This enables the criminal to avoid many of the usual fraud-detection measures that might be in place. It can be committed by new employees, long-serving members of staff or even trusted family members, says John.

To commit insider fraud, an employee usually requires three elements, sometimes referred to as the ‘fraud triangle.’

        1. Pressure or motive

A person can be driven by financial difficulties, or an addiction to alcohol, drugs or gambling. They could also be trying to maintain an unrealistic living standard, or they may have become involved in organised crime.

        2. Rationale

Employees can convince themselves that the crime they’re committing is justified. For example, thinking they’ve been treated unfairly at work, aren’t paid enough, or that the company can afford to lose the money they are stealing.

        3. Opportunity

When an employee sees and takes the chance to commit fraud, the opportunity often occurs due to lack of internal controls or when access to financial systems is allowed when it isn’t needed. It can also be the result of an abuse of a position of authority.

So how can business owners prevent insider fraud?

“The key is to control the opportunity element,” says John. “If you take away the ability of employees to set up and authorise payments without any checks, you’ll have gone a long way towards reducing the risk.”

Ways to prevent insider fraud:

  • Employ two or three-step authorisation for payments
  • Screen employees before and after hiring them
  • Set up regular internal audits, including fraud-risk assessments
  • Check bank accounts, transactions and balances regularly
  • Show staff that you have policies in place to prevent fraud

Another factor to consider is staff morale. If a workforce is unhappy, staff might be more inclined to engage in insider fraud. Situations like imminent layoffs, frozen salaries or changing working conditions can all mean a business is at higher risk.

As the cost-of-living crisis continues, and financial pressures on individuals increase, the number of fraud cases against organisations is likely to continue to rise. It might be a good time to put fraud prevention measures in place, and for your senior staff or internal audit team to review the fraud triangle within your business.

“The threat of insider fraud is growing and in periods of heightened volatility, it’s vital for internal audit teams to continually re-evaluate the fraud triangle to help anticipate threats to a business,” says John. “They need to be proactive in the fight.”

For information on the latest fraud and cybercrime threats, and practical advice on how to protect your business, visit our security centre.

If your business has been affected by fraud, you should let us know. If you are a Bankline customer, you can call (+44) 800-161-5157. If you’re a Business Banking customer, call (+44) 8457-114-477. You can also visit Action Fraud for information and support.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.

scroll to top