Fraud in the workplace is a serious offence that can harm your business financially, damage trust within teams, and cause lasting reputational damage. It involves deliberate deception for financial or personal gain, and while not all fraud is criminally prosecutable, the most severe cases may fall under the Fraud Act 2006.
‘Reasonable prevention’ – The new legal requirement
Understanding workplace fraud is about to become more imperative for businesses. From September 2025, large organisations will be required to implement ‘reasonable prevention procedures’ for fraud or face unlimited fines.
So now is a good time to audit the risk of fraud in your business. At the very least, a policy will need to be put in place explaining what fraud is, how to spot it and to encourage reporting. It should be linked to whistleblowing and disciplinary policies.
What is workplace fraud?
Fraud is generally considered ‘gross misconduct’ in employer disciplinary policies, but it’s a term that isn’t well understood.
The Fraud Act outlines three key types of fraud:
- False representation
It’s not legal to provide untrue or misleading information. For example, an employee lying on their CV about qualifications to secure a promotion. - Failure to disclose information
You can’t omit legally required information, such as hiding an unspent criminal conviction during hiring. - Abuse of position
You can’t misuse a position of trust, such as embezzling company funds or selling confidential data.
Fraud often involves subtle manipulations, so employers should be vigilant for red flags, including unexplained discrepancies in financial records, employees living beyond their means, or secretive behaviour.
Fraud preventative measures to consider
- Communication and vigilance
Regularly update policies, conduct background checks during recruitment, establish strong internal controls and encourage employees to ‘speak up’ by having effective whistleblowing procedures in place. - Act promptly on suspicion
Restrict system access, appoint an investigator, and consider suspension if evidence of fraud emerges. - Take disciplinary action
Make sure that any disciplinary policy includes fraud as an example of gross misconduct and consider summary dismissal if an employee is found, following investigation, to have committed fraud. - Recover losses
Fraud is both a civil and criminal offence. If your business has suffered financial loss from employee fraud, then you can involve the police or pursue civil claims. In this situation the burden of proof is lower than in criminal cases.
Taking proactive steps to prevent fraud, communicating the process of reporting fraud, and responding swiftly to allegations, can help protect businesses while also creating a culture of trust and accountability.
