Types of Employee Fraud: The Complete UK Guide

Employee fraud - also called occupational fraud - is financial crime committed by an employee against the organisation that employs them. Over 50% of all fraud is committed by employees according to ACFE research, with a median loss exceeding £100,000 per case. Understanding the types of employee fraud is essential for employers discovering suspected misconduct and for solicitors preparing civil or criminal proceedings.

The Three Categories of Occupational Fraud (ACFE)

Source: ACFE Report to the Nations 2024. Percentages exceed 100% because cases may involve multiple categories.

1. Embezzlement

Definition: The theft or misappropriation of funds entrusted to an employee. Distinguishing features: the employee has legitimate access to the funds; the taking requires professional skill to accomplish and cover up; it violates the ethical rules of a profession.

Common forms:

• Cash skimming (taking cash before it is recorded)
• Larceny (taking recorded funds)
• Payroll fraud (ghost employees, inflated wages)
• Expense reimbursement fraud

2. Payroll Fraud

Definition: Manipulation of the payroll system for financial gain.

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3. Expense Fraud

Definition: Submitting false, inflated, or fabricated expense claims for reimbursement.

Common patterns: personal expenses submitted as business expenses; duplicate claims; inflated mileage; fictitious receipts; split claims to avoid approval thresholds. Expense fraud investigation →

4. Invoice & Supplier Fraud

Definition: The creation of fictitious suppliers, inflation of supplier invoices, or sham invoices for work not done - often with secret payments made back to the employee or their connected company.

Forms:

• Fictitious supplier fraud
• Invoice inflation
• Kickback arrangements
• Duplicate invoice submission
• False credit notes

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5. Procurement Fraud

Definition: Manipulation of the procurement process - steering contracts to favoured suppliers in exchange for personal benefit.

Indicators: sole-source awards without competitive tender; split purchases to avoid approval limits; related-party suppliers not disclosed.

6. Financial Statement Fraud

Definition:Deliberate falsification of financial records to misrepresent the company's financial position - typically by senior employees or directors.

Forms: revenue inflation; liability concealment; false accounting entries; improper capitalisation. Director misconduct cases →

7. Data & IP Theft

Definition: Theft of confidential business information, trade secrets, or customer data by employees - typically for personal gain or to benefit a competitor. Digital forensics and forensic accounting often combine here. Data theft cases →

8. Bribery & Corruption

Definition: Receiving improper payments or benefits from third parties in exchange for preferential treatment - prohibited under Bribery Act 2010. Bribery & corruption cases →

The New Failure to Prevent Fraud Offence (ECCTA 2023)

The Failure to Prevent Fraud offence under ECCTA 2023, in force from 1 September 2025, makes large organisations liable if employees commit specified fraud offences for the organisation's benefit and adequate prevention procedures were not in place - with potentially unlimited fines.

Specified offences include: fraud by false representation, fraud by abuse of position, fraud by failing to disclose, false accounting under Theft Act 1968, and fraudulent trading under Companies Act 2006.

The defence: organisations must demonstrate they had reasonable fraud prevention procedures in place. Expert witnesses assist in assessing whether procedures were adequate and in quantifying losses where the offence occurred. FTPF expert witness services →

Red Flags - Common Indicators of Employee Fraud

What to do in the first 72 hours after discovering fraud → · Get expert help →