Pictured above: Speakers at Challinors' Fraud & Asset Recovery Breakfast briefing were (L to R) Arun Chauhan (Challinors), Mohammed Zaman QC (St Philips Chambers, Birmingham) and Mark Kenkre (Challinors).

Employers are being urged to check and screen both long-serving and new employees as the cost of serious employee fraud takes a dramatic upturn.

Speaking at a briefing on employee fraud, Arun Chauhan and Mark Kenkre, joint heads of the dedicated Fraud & Asset recovery department at Midlands law firm Challinors, urged businesses to "continuously and retrospectively screen employees who were not adequately checked when they joined a business", in the wake of the findings of the cost of fraud in the UK.

"The National Fraud Authority has put the estimated cost of fraud to over £30 billion a year, in its first comprehensive fraud estimate," said Mark Kenkre, "whilst KPMG's Fraud Barometer identified the cost of serious employee fraud by employees and managers as totalling £567 million.

"The recession has doubtless contributed to employees who are struggling with personal finances and debt being tempted to commit fraud against their employer, but inadequate internal systems, procedures and checks of employees and their activities at work are doing very little to slow down the dramatic increase in employee fraud," he said. "Employee fraud takes a number of forms, from falsifying invoices, redirection of computer fund transactions and procurement collusion, to company credit card misuse and false expense claims." 

Illustrating the findings of the UK's latest fraud surveys, Challinors Briefing highlighted the importance for employers to remain vigilant of the issue of employee fraud by referencing the recent case of 57-year old Paul Hopes, a 'down to earth' and 'quiet' individual, employed as Purchase Ledger Manager of international retailer Toys 'R' Us

"Paul Hopes was charged with embezzling £3.7million to fund a secret life of fast living and women," explained Arun Chauhan. "Employed by the Toys R Us for 23 years, he was known by his colleagues as a polite and quiet individual living the '2.4 children' lifestyle with no signs of affluence at all. However, in less than three years he took sums ranging from £101,000 to £350,000 from the company, to fund a life of five-star hotels, fast cars and escort girls.  He used bogus invoices to siphon off the money for encounters with expensive call girls, buying one a Bentley and paying off the mortgage of another. He gave nothing of his gains to his wife and children.

"The case was described by police as 'a classic case of a valued, long-standing employee who was able to act with autonomy,' and should sound a warning bell for all employers as it proves any employee, even those considered to be quiet and living a life of suburban normality, is capable of this type of insider fraud. Paul Hopes was sentenced to seven years imprisonment in December 2009. Toys R Us is understood to have launched civil proceedings against him but investigators suspect that up to £2.7million of the missing money may be impossible to recover."

According to KPMG's Fraud Barometer, 2009 saw 123 cases of serious fraud by employees and managers, the most since the barometer began 22 years ago. Crimes carried out by managers accounted for £335 million of losses and employees committed £232 million of fraud last year. 

"Last month, it was announced that City regulator The FSA handed down record fines of nearly £35 million in 2009 and that it plans to increase the total in the future," explained Mark Kenkre. "The fines were levied as a result of a range of offences, but interestingly some involved failure by financial firms to guard against employee fraud."

Challinors has offices in Birmingham, West Bromwich, Wolverhampton, Halesowen and Nottingham. The firm has 24 partners and over 100 fee earners, and is ranked as one of the top legal firms in the West Midlands, being Number 1 in the Chambers UK Directory in a number of categories, including Clinical Negligence.