It’s every business owner’s worst nightmare: a trusted employee who has been with the company for a considerable amount of time, who has access to the finances and bookkeeping processes, is diverting funds into an alternative account for personal use. And everyone is completely oblivious to it. The question you need to ask yourself is how prepared are you to detect fraudulent activity in the workplace?
A frequently used statistic from the ACFE (Association of Certified Fraud Examiners), reports that every year companies lose, on average, five percent of their revenue to employee fraud. According to the PwC survey, the typical fraudster is most often male, with at least a secondary level education, between 31 and 40 years old, with three to ten years of service.
A few years ago, my staff members had the misfortune of experiencing a case of employee theft. An employee’s cellphone mysteriously vanished one day. After a thorough but unsuccessful search, we organized polygraph testing for each employee. Thankfully, the results revealed that the culprit was an external contracted auditor. Nonetheless, the incident was certainly an eye-opener.
Types of Fraud
Because there are so many variations of employee fraud, one of the biggest challenges faced is finding the right method for detection. While fraud can happen in every department, it’s been widely reported that the most frequent offenders are employees involved in accounting and finance roles.
The types of fraud fall into several main categories:
- Asset misappropriation: finding a way to divert funds from the company account into a personal account or stealing money.
- Payroll fraud: e.g. the salary of a fictitious employee is diverted to the fraudster’s account, or timesheets are inflated.
- Accounting fraud: dishonestly changing the figures, to hide the fact that money is going missing, or goods are being stolen.
- Vendor fraud: this involves an external vendor who gives false invoices/overcharges/offers a commercial bribe.
- Data theft: sharing proprietary information with the opposition, theft of customer details.
- Fraud and corruption: an employee secretly accepts a portion of an income or profit given to someone as an incentive for having made the income possible or bribes to secure an advantage to a particular client.
- An employee in a financial crisis.
Medical bills, credit card debt, or a partner who was been retrenched are all contributors to why a trusted employee may consider stealing money from the company.
- Employees with a lavish lifestyle.
If an employee who earns a modest salary, suddenly seems to be indulging in things like designer clothing, costly holidays, or even a new car, it may be time to do some investigating.
- Signing rights and balancing the books is limited to one person.
This occurs more frequently in smaller companies. These tasks should be shared between different staff members to avoid the temptation of pocketing cash.
- Employees who don’t go on holiday.
An employee who generally doesn’t take annual leave, may need to be scrutinized more closely. This could be because they don’t want to run the risk of having someone else check their records or files in their absence.
- Employees who routinely stay late and work on weekends.
Leaving work later than anyone else, is not necessarily diligent. They may need privacy to adjust invoices, or do transfers fraudulently.
- Over familiar with certain clients.
An employee who is very close to a supplier or vendor, may be a cause for concern. If the client always asks to speak to that particular person, they might just be friends, but they could also be conspiring in some way. Check the invoices associated with that particular client, and see if they are inflated.
- Someone who feels resentful towards the company.
Perhaps an employee didn’t get that much needed raise, or was overlooked for a promotion. These feelings of resentment increase their temptation to steal from the company, as they feel the money is rightly theirs.
How can I prevent and detect fraud?
According to experts, the solution to preventing fraud should involve regular checking of the financial statements, invoicing and stock inventories by several people, rotating staff and staff duties, and learning to read the signs that fraud is taking place. It should be a priority of every organisation to implement these techniques and be open to any possible warning signs.
In closing, every business is vulnerable to fraud of some kind, but the person taking home two notepads from the office, or the one who takes an unnecessary sick day every now and then, is not going to bankrupt the business. Before you accuse anyone of defrauding the business, make sure you have enough evidence as it is a very serious allegation.