My whistleblower looks to be on to something

Although I would not suggest you should be too hasty to involve the police, you may want to be aware of the offence(s) which could be involved here.

It could be the case that both your employee and a representative of the customer have committed one or more offences.

Your employee could be guilty of 'fraud by abuse of position' by virtue of being an employee acting against the interests of his employer dishonestly with an intent to make a gain for himself - see ss1 & 4 Fraud Act 2006.

It could be that in dishonestly authorising credit notes your employee is guilty of false accounting (by falsifying a document required for an accounting purpose) - see s17 Theft Act 1968.

It could be that your employee is guilty of accepting a bribe to behave improperly - see s2 Bribery Act 2010.

Your employee could be in possession of 'criminal property', or of converting 'criminal property' (money received by himself and / or his own company), which could amount to a money laundering offence - see ss327 - 329 Proceeds of Crime Act 2002.

Your employee and a representative of the customer could be guilty of conspiracy to defraud - see s1 Criminal Law Act 1977 (and common law).

A representative of your customer could be guilty of offering a bribe to behave improperly - see s1 Bribery Act 2010.

If you did wish to involve the police I would suggest you direct their attention to 'fraud by abuse of position' and tell them that you believe / allege that the employee has deliberately and dishonestly advantaged this specific customer and disadvantaged his employer (by unwarranted discounts and credit notes) for the purpose of gaining financial advantage for himself and / or his own company.  This will give a focus to any enquiries / investigations the police may undertake.  (Of course you would name the employee, the customer and the employee's company.  The police have powers to obtain information from banks etc and to search premises - including the employee's home - and to seize documents, computers and mobile phones, any of which might yield crucial evidence for use in a criminal trial.)

It is much better to give the police a clear and focussed allegation than a generalised 'we've been had'!

David

Speaking from personal experience, the whistleblower will have endured lonely and stress-filled days, even weeks, leading up to the approach to the CEO (assembling the evidence, wondering what to do, doubting herself, worrying about being wrong, about the response from management, about who else might be involved in the scam, unable to ask for advice internally etc).  

She will still be feeling exposed although the CEO will, I hope, have given her all the re-assurance that she needs.  What will be more difficult will be the period when it all comes out - possibly preceded by rumours.  The CEO may be constrained at that stage from saying too much for legal reasons but he may end up having to giving a public pat on the back to the unfortunate witness.  I congratulate her on her courage.

Don't forget what the famous Irish politician Edmund Burke is reputed to have said: "For evil to prosper, it is sufficient that good men do nothing."  I am sure he meant to include women too.  Possibly a lesson here for many others among us.

At the very least you have evidence of conflict of interest... something that should be covered by the employment contract and/or the company's ethics policy. I suggest you consult with an employment lawyer, to see if you have grounds for instant dismissal for gross misconduct.

Additionally, unless this is a very recent start of bad behaviour by the employee, the chances are that if you look, you will find evidence of not only of the same fraud committed with other customers, but also of other frauds and abuses by the same person. What else have they touched that might have scope for fraud? Excessive/false expenses claims? Petty cash?

What is the employee's profile? I assume this person has been around for a few years and was typically thought of as "good, old, reliable [insert name here]" . Did this manager develope a feeling of resentment at not being more rewarded, or feel overlooked for promotion? Or maybe this person just developed a gambling habit, or a credit card habit, or... ?Typically the fraudster has been around long enough to know all the ins and outs of the sytem and to uncover weak spots.

Moving on from the fraudulent manager, how will you handle the customer(s)? Is this the case of one bad egg on their staff, or is it symptomatic of the customer's ethics? Will you continue the relationship, but with proper amounts billed, or terminate it? One thing to consider, if you involve the police - the customer may be guilty of an offence under section 7 of the Bribery Act 2010 - failure of commercial organisations to prevent bribery.

If you do want to involve the police you may encounter some reluctance on their part, and attempts to fob you off with "This is a civil matter." Knowing which law has been broken and being able to point tham at the specific section may help to overcome this inertia. Certainly you could treat this as a civil matter and attempt to recover losses through the courts.

One thing to bear in mind if you do go down a criminal/civil law route is that the case will appear in court and possibly the press. Many companies choose not to pursue such matters for this reason. Personally, I think this is a mistake since it creates a climate where people feel they can commit fraud and get away with it. But then, I'm not the CEO.

I will be very interested to read the next instalments in this tale!