With the increased cost of living, it has become harder to make ends meet. Desperate people can make foolish decisions, and this can lead to an increase in employee theft or fraud.

Employers must have robust processes and systems in place to mitigate the risk of theft or fraud happening and to respond effectively if suspicion arises or an allegation is made.

Factors driving workplace crime

There are three main circumstances in which employee theft occurs. They are motive, opportunity and rationalisation. Motives can include greed, financial strife or addiction. Opportunity is common when there are weak financial controls or cash management processes. Rationalisation occurs when an employee justifies their behaviour with an excuse. The level of fraud involved can range from simple to complex schemes, and commonly involves falsification of time sheets, overpayment, fake invoices and theft of data, intellectual property or confidential information.

Managing risk

Proper ‘bookkeeping’ should be practised to minimise the risk of theft by administrative staff. No single person should control too many parts of any financial transaction. Purchases, payroll, reimbursements and the processing of disbursements should require review and sign-off by another employee. Reconciliation of bank accounts and credit card statements should be undertaken at regular intervals. Monitoring with security cameras in accordance with privacy obligations, as well as financial and computer audits, is also worthy of consideration.

Like all risk, prevention is better than cure. Sound recruitment policies, including reference checks that explicitly ask about an applicant’s honesty, should be followed.

Annual employee checks to update any changes in personal circumstances are a good opportunity to find out whether an employee has any civil or criminal matters pending or in process that may impact their employment. Even if it’s not a term of their employment agreement, employees have a good-faith obligation to answer these questions honestly, provided that they are relevant to the employment relationship.

Investigating fraud or theft

Businesses should put in place simple ways to report concerns about suspicious activity and to seek help. Sufficient information to raise a concern is required rather than mere suspicion, and it is important to follow a fair process when taking action where fraud or theft is involved. Employers must act in good faith and are required to:

• raise issues of concern with the employee in a timely manner
• provide the employee with all of the relevant information
• allow the employee an opportunity to comment on the issues
• genuinely consider those responses prior to making any decision about their employment.

An employer is entitled to protect their interests before raising a concern with an employee by documenting the information that the employer has available, removing the employee’s access to relevant systems, implementing an interim audit process and putting appropriate surveillance in place.

When giving written notice of the allegations and potential disciplinary outcome, an employer will need to let the employee know what the specific concerns are and that an investigation is underway. Employees are entitled to independent representation or a support person throughout the process. They can also exercise the right to silence, but should they choose not to comment, they should be advised of the consequences of this for any employment process. Careful communication is crucial during investigations, and caution should be used before making premature allegations, particularly those using criminal words like ‘fraud’ or ‘theft’.

An allegation of theft or fraud goes to the fundamental basis of the employment relationship, which is trust and confidence. As a consequence, employment agreements that provide for the ability to suspend an employee can be proposed where theft or fraud is suspected and raised as a concern with the employee. Employees must be given the chance to comment on any suspension proposal, and employers must consider any comments made by an employee before deciding whether to suspend them.

Involving the police

Once the investigation has been completed and the employee has had a fair opportunity to respond to the concerns raised, the employer’s decision about any disciplinary outcome must be one that a fair and reasonable employer could make in all the circumstances. If an adverse finding is made then it may be appropriate for an employer to report the conduct to the police. The investigation process undertaken fairly by an employer about conduct and its findings is separate from any criminal process.

Anecdotally, there is a concern that there may be a rise in fraudulent conduct by employees, and it is often underreported and underestimated. In particular, small business owners extend trust to employees and can become complacent or distracted by the daily operations of the business. While it can feel uncomfortable monitoring employees, dishonesty does happen. Reporting misconduct to the police is one means of addressing the concern and reducing the risk of recurrence.

Please note that this article is not a substitute for legal advice and if you have a particular matter which needs to be addressed, you should consult with a lawyer. Danielle Beston is a barrister who specialises in transport law, and she can be contacted at danielle.beston@bestonlegal.nz or 021 326 642.