Watch out for the red flags that indicate insider fraud - Tom Stocker

An admin assistant who embezzled more than £1.5 million from her Aberdeen employer was jailed last month for three years and four months.

Coleen Muirhead worked for metal recycling company Panda Rosa Metals, from 2015-2021 and stole the money by creating fake transactions to a non-existent client named G Anderson. She spent the money on lavish holidays, cars, caravans, her son's wedding, and savings accounts for her grandchildren.

The crime was discovered when a senior partner noticed discrepancies in the company’s records and investigations established there was no such client. Muirhead admitted the crime in police interviews following her arrest.

Insider fraud can be a challenging issue to identify, often involving trusted, long-term employees who discreetly misappropriate funds. This problem is especially prevalent in small to midsize businesses and this type of crime can go undetected for many years, meaning the amount stolen by the end is often significant.

​Tom Stocker, Partner and corporate crime specialist at Pinsent Masons

The Aberdeen case highlights the need for companies to have strong financial controls and oversight in place to prevent insider fraud and HR departments have a role to play in minimising the risk of criminal behaviour by staff.

One red flag HR should be alive to is if an employee is working excessive hours or not taking adequate holidays - a possible indicator that they are trying to maintain control to conceal fraud or prevent audits from occurring during their absence. Some regulated sectors now mandate staff to take two weeks holiday per year so that if an audit needs to be carried out it can be done so safely.

Complex, opaque procedures around invoicing or authorisation processes, for example, is another warning sign. Confidentiality around commercially sensitive information and data protection is important, but improper secrecy around an employee's work could suggest wrongdoing – while simplicity and transparency deter fraud.

Signs an employee is living beyond their means, like driving a flashy car or wearing expensive jewellery not fitting their role, should prompt scrutiny of whether their lifestyle matches their salary. Changes in personality or behaviour in the workplace could stem from the stress of leading a “double life” and while from a pastoral perspective, HR should show care for the employee’s mental well-being, it could also be a marker that something is amiss.

Coleen Muirhead embezzled more than £1.5m from her employer Panda Rosa Metals (Picture: Ian Georgeson, National World)

A classic fraud motive and one which has featured in cases we have advised on, is where employees have a gambling habit and start defrauding their employer in order to generate the money they need to maintain their losses on a gambling account.

Overall, HR should watch for discrepancies between how a person presents professionally versus signs of excessive wealth, control issues, or lifestyle changes. While respecting privacy, reasonable oversight including reviews of procedures, audits during staff vacations, and checks on suspicious activity can help deter fraud.

Training to encourage whistleblowing on misconduct, and clear fraud reporting channels are also important. A culture of accountability from the top-down is key and HR’s role is vital in instituting the right controls while also supporting struggling staff before they turn to crime.

Tom Stocker, Partner and corporate crime specialist at Pinsent Masons