Rising inflation and the cost-of-living crisis have left most of the UK with far less disposable income, and recent studies suggest businesses are consequently more exposed to employee fraud.

In the last five years, eight out of 10 UK mid-sized businesses experienced fraud, with almost 86% of those occurring in 2022, according to accountancy and business advisory firm BDO. The majority of the fraud reported involved employees – either colluding with external individuals (35%) or working alone (34%)1.

Reported employee fraud cases jumped by 10% in 2022, according to a freedom of information request submitted by audit, tax and consulting adviser RSM, while City of London Police data indicated a fivefold increase in total losses stolen through employee fraud, with an average loss of £256,668 per incident2.

Insurer Zurich also reported that employee theft jumped by a fifth (19%), with almost 6,000 workers caught stealing from their employer in 2022, up from 5,000 the year before3.

While employee fraud figures for this year are yet to be published, the wider economic picture continues to provide cause for concern. Latest figures from the Office of National Statistics (June 2023) state around two-thirds (67%) of UK adults reported their cost of living has increased in the past month, with 97% experiencing an increase in the price of groceries4.

With no significant respite from the cost-of-living crisis expected in the short term, internal fraud may become an increasing problem, especially in a hybrid/remote working environment. What should an employer do if they suspect an employee of committing fraud?

Immediate action

Fraud may be discovered by a variety of means – a whistleblower, a formal complaint from a witness or suspicious behaviour. With an inside attack, employers may feel a sense of betrayal or abuse of trust and emotions can run high. There may be an urge to rush to hold the employee accountable publicly. Legally this is extremely unwise. Before confronting the employee, it is important to gather as much evidence as possible.

A fraudulent breach requires quick and decisive action focused on ending the fraudulent act as quickly as possible. Remove access to funds/any resources the employee is exchanging for funds; block the IP address and remote access plus any other means of access.

Taking the employee’s computer and work phone could provide intelligence: how and why they were committing the fraud and whether they were being supported by anyone else. Also, isolate any other devices they may have used. All devices must be held safely to prevent anyone from wiping incriminating evidence.

Hiring companies to retrieve deleted files could also be instrumental in building a case. Take care to hire wisely, as the police may not acknowledge any evidence gained by unqualified persons.


The HR department could conduct an investigation but, depending on a company’s structure, it can be more prudent to employ an outside agency who can be professional and objective, with experience and training in managing these enquiries.

The employer must decide whether to make an insurance claim or pursue civil or criminal charges against the employee. If the latter path is chosen, then legal support will be necessary to process the documentation.

Insuring against employee fraud

Some insurers still offer fidelity guarantee insurance but a crime policy will offer a broader protection and compensation should a business be defrauded by its finance director, employee, or temporary worker (or even an external fraudster). There are usually standardised limits available within packaged policies, and these may be appropriate for small businesses with minimal/petty cash style exposures. Stand-alone crime covers are generally much wider and can offer limits of £100,000 up to £10 million or more for businesses with greater assets or a number of daily financial transactions.

These insurances usually have excesses that relate back to the limit and the asset size of the policyholder. While a petty cash style cover with a £25,000 limit might only have a £500 excess, a full crime policy is likely to have an excess of £5,000 or £10,000.

Many insurers offer support in terms of free advice on improving fraud risks and minimising impact once an incident is notified. Please contact your local broker if you would like to discuss any of the issues raised in this article further.


The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein. Arthur J. Gallagher Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 7th Floor, 55 Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909.