Tips On Detecting Employee Fraud

Financial thefts such as embezzlement & others are supposedly the most usual forms of staff fraud. No matter how credible your workforce is, your organization is never out of the chances of embezzlement or employee fraud.You must use website monitoring software in PCs to keep an eye on your staff.

As per the report from Association of Certified Fraud Examiners-

  • A typical company loses 5 percent of yearly revenue for fraud.
  • Media loss incurred workplace fraud incidents in 2009 ACFE research was 160,000 USD.
  • A fraud scheme (in average) lasts eighteen months prior to detection.
  • Small companies are victimized disproportionately by the occupational fraudulent activities.
  • Occupational fraudulent activities are possibly detected through tip from a staff or vendor or customer.
  • Over 85 percent of fraudsters found in ACFE research was never previously convicted or charged for any fraud-related offense.
  • 25 percent of family-business failures have been caused from employee fraud.
  • External audits are not always successful in fraud detection & restricting losses from fraud. Unfortunately, organizations rely too much on external audits.

Now, what is in your firm that would make it conducive to embezzlement or fraud?


The fraudster would just need the right motivation and absence of proper control to carry out the fraud successfully. It’s to remind that potential thieve would think about the chance factor prior to committing the crime & if the situation seems easy enough, some of them would go for it.

Staff Attitudes

You must know that the employees would generally rationalize the stealing from you in their minds, based on their attitude towards right & wrong. Stealing from company is not an accident and is a follow-up of careful evaluation taking place before the incident. Thus, the management has a huge role to play to affect the evaluation of the potential fraudster and would determine whether he would or would not commit the crime.

Attitude on management

The management holds a superior position & kind of sets the parameter for the other staffs to follow. In case, the management itself lacks in integrity, the same might be echoed in other employees.

Preventing staff theft

Separate the duties

You should not allot the entire control of financial exchanges to a single employee. There must be separation of duties so that it gets tough for the staffs to steal & manipulate the records for cover-up. To ensure a successful theft, the employee would have to have a complete grasp of your entire company finances & you have to prevent that.

Get bank documents personally

You must personally handle the bank statements and ask the banks to get you copies of the canceled checks. Review the endorsements, payees & signatures on every check – be alert to point out any sign of fraud-

  • Checks to unknown people.
  • Checks leading to cash larger than sum you generally permit for the petty cash requirements.
  • Any sign of forged signature.
  • Missing checks/improper check numbers.
  • Checks made to 3rd party but with endorsement by one of your company staffs.
  • Checks where payee listed doesn’t match up to name listed in software register.

Send bookkeeper on vacation

You should send your bookkeeper to vacation at month end for minimum 15 days and in the meantime get the accounts checked by somebody to find out signs of discrepancies.

Regularly auditing

Your books must receive annual audits by a 3rd party as this makes it tough for the fraudster to cover up the actions. Make sure to get unscheduled surprise audits 7 consider especially “fraud audit” in case you can smell any sign of fraud.

Employee theft examples

  • Opening checking account under similar name like the employer firm, in some nearby community.
  • Overpaying the payroll taxes & asking for the refunds that get deposited in your staff’s new firm account.
  • Convincing boss to cancel independent account &citing that the staff himself would prepare the financial statements.
  • Soliciting help of any specific supplier’s staff, then overpaying him & sharing the commission.
  • Opening checking account bearing similar name of your major supplier & then paying the invoices twice. First one would go to supplier & the last to “additional supplier account”.

What might force a trusted employee towards crime?

  • Unusually huge medical expenses
  • Living beyond financial means
  • Excessive gambling, drug or alcohol addiction
  • Huge investment losses
  • Increasing disregard for company
Amita Choudhary
Amita Choudhary is a contributing author for the 'corePHP' blog. Business technology news, views and insights.