The enemy within – protecting your legal firm from fraud

31 Oct 2017

In recent news, it has come to light that a legal clerk at a prominent law firm in the UK has been arrested for stealing just over £300,000 from the solicitor’s firm where she had worked for 30 years. The money had been transferred from client funds to her personal bank account, her husband’s bank account and to other clients’ accounts.

The law firm in question dealt with the crime as soon as they became aware of it, contacting the police and refunding all those affected. A spokesperson for the firm came out and said: “Whilst no client has suffered any financial loss, the breach of trust is immeasurable. In light of this, our practice has put in place further security measures to avoid any such incident or similar incident ever occurring again.”

The firm can’t be faulted for the way they handled this situation, but it does raise the question - what can law firms do to combat the internal threat?

RSM UK, a prominent accounting firm, obtained data through a Freedom of Information Request revealing the cost of employee fraud for UK businesses in 2016. According to the findings, over 800 instances of fraud were recorded totalling over £40 million worth of losses. These range from travel and subsistence fraud to creating false customer invoices. This prompted the National Fraud Intelligence Bureau (NFIB) to suggest that if an employee is to be entrusted with the handling of large sums of money or financial records then a background check on said individual should be conducted.

fraud-alertA number of steps to enhance or secure a company's financial system can be taken to mitigate this risk.

First and foremost is to have multiple people keeping track of any financial transactions - both incoming and outgoing. By keeping track of invoices, it will become harder for money to go ‘missing’. Similarly, having up to date financial records, showing fiscal liquidity, and making it known that you are on top of the firm’s money situation makes it much more difficult for people to siphon money away from the business.

For smaller law firms, using any one of the many cloud-based accounting system such as QuickBooks or Xero, you can restrict users’ access so that people only have access to certain accounts or functionality within the system. By keeping this system up to date and reviewing it frequently you can stay on top of the company’s finances and stop any fraudulent action as soon as it happens. This also means that if staff know that the system is always being checked they are less likely to attempt anything.

Limiting access is essential. Only certain staff should have access to the firm’s finances. Any invoices should go into an in-house accounting department and be recorded both digitally and physically. So if anyone wants to find a specific transaction it can be found with ease. By restricting access to company finances it lowers the number of people able to commit fraud in the first place with the added bonus of keeping the finance system more organised.

Reporting fraud is of course easier said than done and you should be very careful if you do suspect someone is stealing from the firm. If your accusation is incorrectly handled this can result in legal ramifications, as you will know better than most. So before confronting someone about suspected fraudulent behaviour, block off all access to the accounts, identify the amounts stolen, methods used and the person or persons involved. Because of the dangers associated with accusing a person of fraud it may be worth seeking external counsel before taking action internally.

Finally, there are courses available such as the Certified Fraud Examiner (CFE) - an internationally recognised fraud qualification that combines the study of financial transactions and reporting with an understanding of the law. It is a course which equips delegates with the skills to identify, investigate and prevent fraud within their business.Having someone in your business with this qualification could end up saving you hundreds of thousands of pounds as well as keeping your company’s reputation intact.