Council Worker Facing Jail After Swindling £1m – How to Prevent Employee Fraud

Council Worker Facing Jail After Swindling £1m – How to Prevent Employee Fraud
Photo Credits - Grant Durr via Unsplash

Michael Paterson, 59, has been convicted of embezzling over £1 million from Aberdeen City Council over 17 years. He will be sentenced in July and has been told to “expect time in prison”. Read on to learn more about the facts of the case, other examples of employee fraud, and what employers can do to prevent such conduct from their staff.

Tax Refunds Issued to Council Worker’s Personal Bank Account

Michael Paterson joined Aberdeen City Council in 1988 and eventually became head of the Council Tax and Recovery team. In this role, he could issue council tax refunds of up to £3,000 without additional permission. He was also able to change payee account details without authorisation or verification. In this way, he transferred a total sum of £1,087,444.47 to accounts in his name between November 2006 and September 2023.

The High Court in Edinburgh heard Mr Paterson was over £20,000 in debt when he began the embezzlement. However, he had always lived beyond his means and frequently used the money to pay for expensive holidays, music concerts, Apple products, and other luxuries. As such, he was still in debt during his arrest.

Read: Survey Reveals Legal Teams Will Face More Employment and Debt-Related Issues

A colleague of Mr Paterson finally became suspicious after noticing that a payment of more than £2,000 had been made using Mr Paterson’s username. She confronted Mr Paterson, who told her this had been a “mistake”. Unconvinced, the colleague reported her concerns to superiors. Mr Paterson was dismissed from Aberdeen City Council and, after a police investigation, was arrested in November 2023.

Michael Paterson has now pleaded guilty to an embezzlement charge and has been remanded in custody. He will be sentenced on 5 July 2024. Judge David Young KC warned Mr Paterson that “you will understand that it is a strong possibility that a considerable custodial sentence will be imposed on you in this case.”

Mr Paterson has expressed remorse for his actions, stating, “I know I’ve done wrong. I regret what I’ve done.” Meanwhile, Aberdeen City Council has apologised for this employee fraud and assured the public that it has strengthened its controls and processes.

Aberdeen City Council Aren’t Alone

Michael Paterson is far from the first employee to fraud an employer. According to research conducted by Zurich UK, an average of 500 employees steal from their employers each month in the UK.

Earlier this year, John Brown, management accountant at Farmfoods, was convicted of embezzling £275,000 from the company by forging directors’ signatures on cheques made to his account between 2015 and 2018. The employee fraud was revealed following an investigation prompted by the Bank of Scotland reporting suspicious account activity in 2019. Mr Brown was subsequently sentenced to 21 months imprisonment and received a £77,000 confiscation order.

There has also been the case of Angela Hunter, a payroll assistant for Northern Divers Ltd, who took advantage of a new payment system. After the civil engineering company changed how employee expenses were paid during the Coronavirus pandemic, Ms Hunter paid herself a total of £84,848 in false claims. Her managing director eventually became suspicious after noticing multiple large payments to Ms Hunter’s account.

A further employee fraud forced print magazine Eugene Weekly to close and dismiss all its staff. It is understood that a finance employee stole tens of thousands of dollars from the company, leaving it financially broken.

Changes to the Economic Crime and Corporate Transparency Act 2023

To prevent such fraud, amendments have recently been made to the Economic Crime and Corporate Transparency Act 2023. These will introduce a new offence of “failure to prevent fraud” and are expected to commence later this year. New requirements under the Economic Crime and Corporate Transparency Act 2023 will include identity verification of directors and partners and more stringent registration and compliance processes. Authorised Corporate Service Providers will also be introduced.

How Employers Can Prevent Employee Fraud

Employee fraud is naturally a significant concern for many employers. Whilst it is essential to achieve a balance between maintaining financial control and avoiding micro-management, there are some measures which employers can take to reduce the risks in their organisations.

How to Prevent Employee Fraud
1. Develop and Enforce Robust Financial Policies
2. Segregate Financial Duties
3. Establish Budgets and Conduct 
Regular Audits
4. Implement Effective Whistleblowing Policies

Producing and implementing strong policies regarding financial controls and procedures is an essential first step in preventing it. These policies should be incorporated into employees’ employment contracts and backed up with clear codes of conduct. Employers should demonstrate a zero-tolerance approach to infringements and clarify potential consequences.

Separating employee duties to prevent one person from being singularly responsible for financial transactions can also help avoid such fraud. If this is impractical, employees with sole authorisation should be scrutinised. Establishing and implementing clear authorisation matrixes can also assist with this, requiring different permissions from various employees depending on the nature and amount of a transaction.

Read: Whistleblowing Laws: Plans by the UK Government’s DBT

Broader actions to prevent employee fraud might include establishing annual budgets and performing regular audits. It is more difficult to make additional transactions when a specific budget is already in place. Moreover, frequent transactional audits will make the concealment of such fraud far harder.

Finally, employers should establish effective whistleblowing policies and processes, as this will encourage the reporting of any suspicious activity. It is also important to follow up on all reports received and reward those who have made such reports. There should be a company-wide ethos of transparency, and it should be made clear that employee fraud will not be tolerated under any circumstances.

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