Businesses are being warned to be vigilant of fraud involving employees as the financial pressures of the economic downturn will give rise to new cases of fraudulent activity according to PKF Accountants & business advisers.

David Liddell, forensic services partner at PKF, said: "We expect that the recession, low pay increases, the fear of unemployment, coupled with increased levels of personal debts will tempt an increasing number of staff to execute frauds.

"Forensic accountants traditionally see the recipe for employee fraud as having three key ingredients: personal or organisational pressures, opportunities, and the belief the crime will go undetected.

"All types and sizes of businesses are likely to be affected, but the most vulnerable companies are those with weak or inadequate systems of internal control, or those which fail to ensure adequate supervisory checks over employees' work."

Fraud committed by employees is wide ranging from straightforward theft, inflating expense claims, data security breaches or obtaining property by deception, to falsifying information such as qualifications or references on a job application form.

Though fraud can take many different forms there are a number of typical warning signs that may indicate potential wrongdoing:

• Staff without high workloads being under stress

• Marked personality changes

• Staff always working late (often being last to leave)

• Reluctance to take holidays and time off

• Disproportionate and unexplained wealth; staff apparently living beyond their means

• High staff turnover (new staff resigning quickly)

• An unexpected increase in the level of customer complaints

• Rising overhead and supply costs, without any ready explanation

• Suppliers and contractors insisting on dealing with only one individual

• Suspense account balances with no satisfactory explanation.

David Liddell continued: "Taken in isolation, these signs are not necessarily cause for concern or indeed evidence that a fraud has taken place. Nevertheless, these indicators should prompt employers to investigate further, even if only informally at first, as few employee frauds occur without one of more of these signs being exhibited. If left undetected, what started out as a small fraud to repay a credit card for example can quickly escalate as there is no incentive for the perpetrator to stop.

"Fraud thrives in a recession, so employers need to ensure that they have good management practices in places to deter and detect fraudulent activity. Safeguarding a business against employee fraud is all about having an effective and reliable system of internal controls. Systems - in particular those covering cash collection, recording and expenditure payments - should be actively reviewed to ensure that they are operating satisfactorily and reliably."