Spotting the Signs of Employee Fraud and How to Stop Them

By August 16, 2017Fraud

Employee engaging in fraud

In any business or workplace, there is always a need to keep your company’s important assets safe. Employee fraud or occupational fraud can happen to anyone at any time, even if you have a family-like approach to your organization. Fraud can also take many forms, from employee time card fraud to the theft of company assets. It is, therefore, a must to understand the warning signs of possible fraud to be able to prevent bigger disasters from happening.

Behavioral red flags often exist that point to employee wrongdoing. Fraud is harder to spot than outright employee theft. Keep your eyes and ears open for the following signs to reduce the risk of fraud and increase the chances of catching fraudulent employees within your company.

Be aware and watch out for an employee who:

  1. Lives beyond his or her means
  2. Have financial difficulties
  3. Is frequently absent
  4. Is reluctant to take vacations
  5. Exhibits excessive personal spending
  6. Uses petty cash too quickly
  7. Uses office supplies too quickly
  8. Exhibits extravagant expenses for employee travel
  9. Spends too much time with vendors
  10. Are related to independent contractors working for you

These are only a few of the most common indicators of employee fraud. But spotting the problem is not enough. It is essential to resolve and limit them from occurring. There are three immediate things that you can review:

  • Is there a lack of internal control?
  • Is there a lack in management review or oversight?
  • Is there someone overriding existing internal controls?

Moreover, you need to conduct anti-fraud training for all employees, as well as the placement of effective fraud reporting mechanism. It’s also important to promote an environment of honesty and integrity in management and company culture, enforce the placement and operation of specific anti-fraud controls, and make use of employee tip hotlines.

Your success at protecting your organization starts with the steps you take to prevent the problem from happening in the first place. There are many ways to do this. The most basic of all is to screen new employees. You can do this by conducting thorough background checks.

For existing employees, something as simple as updating yourself with their lives can be a big help. Manhasset NY private investigator Darrin Giglio advises, “Listen to office small talk and be aware of what is going on with them outside work. Paying attention to any issues or difficulties your people are having will allow you to become aware of any potential situation that’s brewing in the office.”

Money-wise, it’s also a good idea to properly account for any petty cash that’s being used. Cash on the drawer can be tempting for some employees, so it’s best not to let it lie around and reconcile regularly to catch any irregularities as soon as possible.

Also, separate financial duties. Assign one employee to write checks, another employee to sign them, and a different one to reconcile the bank statements. It also helps if you rotate the duties of your employees. Regularly rotate people in places like procurement, accounts payable, and accounts receivable. Performing data analytics on payroll records is a good way to check for irregularities, too.

Another effective strategy is to verify vendors. Check their business name, TIN, phone number, bank account, and contact person. Compare the vendor addresses with employee addresses, as well as conduct random audits of the vendor master file and check billing for consistency. You can hire an independent contractor to review accounts if need be. All these will help you safeguard the interests of your company.

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