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Asset misappropriation fraud

Asset misappropriation fraud happens when people who are entrusted to manage the assets of an organisation steal from it.

Asset misappropriation fraud involves third parties or employees in an organisation who abuse their position to steal from it through fraudulent activity. It can also be known as insider fraud.

This type of fraud can be committed by company directors, or its employees, or anyone else entrusted to hold and manage the assets and interests of an organisation.

Typically, the assets stolen are cash or cash equivalents, such as credit notes or vouchers. However, the fraud can extend to include company data or intellectual property.

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

At the other end, it might involve organised crime groups infiltrating organisations to take advantage of weak processes and inadequate internal systems and controls.

The definition of asset misappropriation fraud doesn’t include straight theft from an organisation by insiders, such as stealing stationery or other physical assets.

Ultimately, it’s the cash flow of the business that suffers.

If they’re not tackled, opportunistic one-off frauds can become systemic and spread throughout an organisation, creating 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 also impact on an organisation’s staff morale and reputation.

Are you a victim of asset misappropriation fraud?

Asset misappropriation fraud could include any of the following:

  • embezzlement, where accounts have been manipulated or false invoices have been created
  • deception by your employees
  • false expense claims
  • payroll fraud, where payments have been diverted or fictitious, ‘ghost’ employees have been created
  • data theft or intellectual property theft.

What should you do about asset misappropriation fraud?

  • If you believe the fraud is going on right now, you should contact the police. They will start a criminal investigation. 
  • If fraud has occurred, contact Action Fraud to make a report.
  • You should immediately suspend the employee(s) involved in order to prevent further losses.
  • You might want to try and recover the stolen funds and start disciplinary or dismissal procedures.
  • You should try to estimate the direct losses your organisation has suffered and find out whether the same fraud is being carried out by other people. If so, this would indicate there’s some kind of systemic failure across your whole organisation.

Protect yourself against asset misappropriation fraud

Your organisation can take the following steps to help to protect itself from asset misappropriation fraud:

  • vet employees thoroughly checking employee CVs and references
  • implement a whistleblowing policy
  • control access to buildings and systems using unique identification and passwords
  • restrict and closely monitor access to sensitive information
  • impose clear segregation of duties
  • consider job rotation
  • use tiered authority and signature levels for payments
  • regularly reconcile bank statements and other accounts
  • periodically audit processes and procedures
  • promote a culture of fraud awareness among staff
  • adopt, and rigorously implement, a zero tolerance policy towards employee fraud
  • have a clear response plan in place in case fraud is discovered.

Your organisation also has a responsibility to protect other employers. Simply dismissing a fraudster enables him or her to move to another employer where he or she will most likely continue their fraudulent behaviour. Consider taking part in a fraud data sharing scheme, or decide to prosecute the fraudster when the fraud is discovered.

If fraud has been committed, report it to Action Fraud.