BUSINESS owners were advised to beware of the enemy within at an advice session about suspected fraud and theft.

Experts from BHP Law, Tait Walker accountants and Durham police highlighted how organisations may be at risk, particularly by not keeping a grip on access to their finances.

According to Action Fraud one in five businesses have been defrauded by an employee – but the figure is thought to be only the tip of the iceberg.

Leigh Ferguson, associate at BHP Law and specialist in dispute resolution, told delegates at Wynyard that fraud can go undetected for an average of two years.

The risk increases in an economic downturn or period of instability. "The employees within your business are the ones who can cause the most damage," she said. "Theft or fraud can destroy an organisation."

Drawing on real examples, the experts advised on how to prevent or stop a loss, what to do when theft or fraud is suspected, options for trying to recover losses and what happens when a criminal case is brought.

Threats to businesses include individuals with too much autonomy and access to key assets, sole signatories signing cheques, collusion with suppliers and customers, falsifying invoices and data theft.

In one case a commercial director plundered a not-for-profit organisation because he had sole authority to sign cheques up to £1,000. A speedy response led to a freezing order which shut down all his bank accounts.

Maria McKenna, forensics services manager with Tait Walker, said when fraud is reported, speed and secrecy are key.

Owners should resist the temptation of instantly sacking a suspect. "Although it might be heart rending to continue paying them, once they're no longer your employee you can't interview them," she said. "If there is money there you might be able to get it back if you act quickly and take the right steps."

Forensic accountants will quantify the loss and review the organisation's systems. She said: "Unfortunately that can often reveal that the problem goes much deeper and is much bigger than owners first thought."

One chief executive raised invoices for suppliers the company had not used for years. His fraud amounted to £900,000.

She warned that investigations can lead to the "victim" organisation being liable for further VAT and corporation tax and incurring a fine.

"If HMRC considers that your systems and checks were inadequate they will impose a fine, which can in turn lead to cash flow problems," she said.

On recovering losses, the experts highlighted an example of a business whose finance director had been stealing. In the recession his hours were reduced to a consultant and it was then that VAT irregularities were uncovered.

The fraud totalled £285,000 but the thief paid back £250,000 in exchange for the case being dropped. Three years later he was caught again, stealing £700,000 from another company. This time the police were involved and the fraudster was jailed for nearly four years, but the business got no money back.