Why a Year-round Transfer Window Makes Commercial Crime Insurance Key

The January transfer window is open for one month, allowing football clubs to buy and sell players.  Unfortunately, when it comes to internal commercial crime, the transfer window is open pretty much continually, making commercial crime insurance one cover to consider.

Much commercial crime involves transfers.  It frequently consists of money transfers made into an employee’s own bank account and taken out of the employer’s.  Sometimes, it is transfers of stock, from the employer’s premises into an employee’s car, so it can be transported away and sold on.

It is also commonly about making payments to a third party who does not actually exist.

Why the extent of commercial crime makes an insurance conversation relevant

When we talk to employers about commercial crime insurance, we discover that many believe this could not happen to them. That’s simply not true.  Between 2019 and mid-January 2022, 18,784 employee thefts had been reported to UK police.[1]  Employee thefts going unreported would dwarf these figures.  Many would have remained undetected.  Others would have been dealt with internally, either by issuing a final warning to the employee concerned or dismissing them for gross misconduct.  It actually requires the collation of a solid bank of evidence to be able to take things to a criminal prosecution level, under the terms of The Theft Act 1968.

In a YouGov survey, 38% of employees actually admitted to having stolen something from an employer.[2] Northamptonshire has been shown to be the region in which employee theft is highest.[3]

Theft by employees was on the decline during the pandemic, with the opportunities to commit this crime being reduced.  As we start 2023, the pressures of the cost of living crisis and the soaring price of energy are likely to force many other employees to consider the ‘easy’ opportunities that they find to make money out of their employer.

How much can commercial crime cost an employer?

In some cases, the theft can be relatively minor, involving things such as stealing stationery from the office.  However, it only takes a few members of staff to be doing this, to impact on the bottom-line.

At a more serious level, commercial crime takes the form of falsifying expense claims, stealing company property, stealing company data and business knowledge and stealing money.  It is said that employee theft actually costs UK businesses more than £183m every year, before employee fraud is even considered. That adds another £40m to the total.[4]

How do employees operate commercial thefts and frauds?

80% of all theft is committed by employees in positions of trust and responsibility.[5]  That status is often the key to being able to commit the crime.  Many case studies show how such employees observe and detect flaws within a system, a commission-earning scheme, payroll procedures and accounting practices, and then consider how to  manipulate and defraud them.  A ‘test run’ often occurs.  Once that succeeds, the fraud becomes a regular one.

Other case studies show how it is not always a case of an employee transferring a huge sum into their own bank account, because they know the passwords and procedures, but frequently a case of stealing little and often, over the course of very many years.

Sometimes, the employee is in cahoots with a third party, convincing them to create  a ‘ghost’ employee within payroll, or a fictitious supplier who produces invoices for payment.  In some cases, employees in position of authority can work together, with each relying on the other to carry out part of the successful fraud.

Often, the theft or internal fraud is because employees simply spot an opportunity.  Sometimes, it is down to an aggrieved employee feeling they are not being paid their worth, or feeling slighted, having been overlooked for promotion.  In other cases, it is because an employee has a lifestyle they cannot maintain on their salary, or have a drugs habit to fund.

Theft of company and client money

The average organisation loses about 6% of its total annual revenue to fraud and abuse[6] committed by employees but things can be much worse.  One large lump sum payment, successfully taken out of the company by an employee, can be to the firm’s ruin.

Of course, it is not just employer money that can be stolen.  Organisations that handle money on behalf of clients are also susceptible to having client monies stolen by fraudulent employees.  This is always a risk for professionals such as financial consultants and solicitors.

There is also the ongoing risk of social engineering, where an employee unwittingly makes a bank transfer, truly believing it was what their employer wanted them to do, but actually playing into the hands of a clever impersonator.  That impersonator could be an employee or be someone who has benefited from inside knowledge.  It is not always an unknown hacker.

How to protect yourself against commercial crime: risk control strategies

Firstly, all employers should engage in strong risk management tactics.  These will help reduce the risk of theft but also help you gain more favourable terms with an insurer, if you see the worth of commercial crime insurance.

Reducing the risk involves tactics such as:

  • limiting the number of people who have access to accounting systems and ensuring that passwords are not banded around and known to everyone. It is easier to identify a thief, if only a privileged few could perpetrate the crime.

  • not being an absent employer. It’s all very well delegating to trusted staff but you need to be able to delve into the accounts and see what’s been going on, on a regular basis.

  • having accounts audited on a regular basis. An external auditor should be able to flag up discrepancies.

  • remembering that employees typically find it harder to sustain a fraud whilst they are away from the office. Holiday periods could be good ones to focus on, to spot any different trends in the books.

  • performing regular checks on supposed suppliers and making sure you know who names on the payroll actually are. Don’t just trust that people being paid have performed the service suggested.  Delve into things and look for evidence.

  • making sure there are a few layers of protection when it comes to bank transfers with a confirmatory call to you being one of them. Two people could otherwise collude internally and ensure a bank transfer is ultimately paid to them both, once the fraudulently obtained money is divided up.

  • having good stock control measures in place, so any discrepancies can quickly be flagged up. An automated system might help, but the person stealing stock could be inputting wrong figures, or manipulating those on the computer system.

  • checking out all new suppliers thoroughly and ensuring you actually need their products. Exercise strong background checks on new staff too, but remember it is often long-serving staff who are behind most commercial crimes.

How to cover employee theft and employee fraud losses through insurance

Talk to an insurance broker about commercial crime insurance cover, to prevent suffering a huge financial loss, should a member of staff succeed in taking you to the cleaners via a theft. Many larger frauds easily run to six-figures and even smaller frauds, committed over many years, can amount to staggering sums stolen.

If you need help with arranging insurance cover, to safeguard your business from employee theft, talk to a Gauntlet local broker.

Simply call the Leeds local team on 0113 244 8686 or choose a local broker from our Find a Local Brokerdirectory.

[1] https://hrnews.co.uk/the-frequency-of-employee-theft-in-the-uk/

[2] https://yougov.co.uk/topics/economy/articles-reports/2018/11/28/what-are-britons-stealing-work

[3] https://standout-cv.com/employee-thefts-uk

[4] https://wirehouse-es.com/advice/employment-law/employee-theft/

[5] https://hraspectsmagazine.co.uk/employee-theft/

[6] https://www.mprunderwriting.com/products/crime-insurance/


<< Back to News