Economic turmoil can create a perfect storm for employee fraud, as companies sacrifice compliance activities to save money, and financial insecurity and temptation among workers increase. To protect your business from potential fraud, it’s important to be aware of the warning signs of employee fraud and take preventative measures.
Warning Signs of Employee Fraud
Here are some key points to keep in mind:
Unethical behavior: If an employee has a history of dishonest behavior outside of work, it’s worth keeping a closer eye on them in the workplace.
Constant dissatisfaction: Employees who are consistently unhappy with their jobs may be more likely to rationalize inappropriate actions against their employer.
Cutting corners: Employees who frequently look for ways to bend company policies and procedures may also try to cheat the system for personal gain.
Hoarding information: Dishonest employees often refuse to share information or give up control over tasks, concealing fraud by keeping key documents and data to themselves.
First in, last out: An employee who consistently comes in early, stays late, and never takes a vacation may be trying to be alone in the workplace, which may be a red flag for potential fraud.
Other warning signs to consider include personal problems such as substance abuse, gambling habits, living beyond one’s means, financial instability outside of work, legal problems, or infidelity.
Steps employers can take to prevent fraud include:
Segregating duties: Dividing financial responsibilities among multiple employees can prevent any single employee from having too much power.
Setting limits on company credit cards: Daily and monthly limits on company credit cards can help prevent excessive spending.
Monitoring electronic audit trails: Tracking electronic trails can help uncover any unusual behavior in financial transactions.
Checking backgrounds of new hires: Conducting thorough background checks on new hires can help identify any red flags in their past.
Rotating staff in financial areas: Switching up employees in financial areas, such as accounts receivable or cash management, can help prevent any one employee from being in a position of power for too long.
If You Suspect Fraud
If you suspect fraud in your workplace, it’s important to take action immediately to prevent further damage. Here are some steps to take:
Secure the evidence: Gather and protect any evidence that could be helpful to investigators, such as computers, flash drives, cell phones, and digital accounts.
Don’t fire the employee—yet: Keep the employee on the payroll until evidence has been gathered by investigators, as employees have a duty to cooperate during a lawful investigation.
Restrict access: Restrict the employee’s access to the workplace and company systems to prevent them from covering their tracks or stealing proprietary information.
Fraud response team: A financial investigation is no time for a do-it-yourself mentality. Consider pulling together specialists with deep knowledge in a variety of areas:
Legal counsel. An attorney with experience in employment law can help you navigate the maze of employer and employee rights. Additionally, an attorney with experience in white-collar crime can assist you in developing and executing a plan from investigation through resolution – either civil or criminal.
Financial investigator. A Certified Fraud Examiner will maximize the efficiency and effectiveness of the investigation. Avoid the temptation to use your accountant to serve as your financial investigator.
Computer forensic specialist. The preservation of digital evidence is critical to most financial investigations. A computer forensic expert will use forensically sound methods to recover and preserve digital evidence
Contact your insurer: Notify your insurer as soon as possible, as many policies have a notification provision that could be voided if you fail to report a potential loss.
Economic turmoil can increase the risk of employee fraud. By being aware of the warning signs and taking preventative measures, companies can protect themselves from potential financial losses. Monitoring employee behavior, setting limits and restrictions, and taking action when necessary, can help businesses minimize the risk of fraud and maintain compliance—even during rough economic weather.
Kelly J. Todd, CPA, ABV, CFF, CFE, Author
Forensic Strategic Solutions
Kelly J. Todd is the president of Forensic Strategic Solutions, LLC, and the member in charge of forensic investigations. Ms. Todd has a broad range of forensic experience including financial and white-collar investigations, asset misappropriation, trust disputes, fraudulent financial reporting, accountants’ malpractice, and the calculation of economic damages. She has extensive experience conducting interviews and has secured numerous confessions. Ms. Todd has conducted forensic examinations for publicly held and closely held businesses, municipalities, and governmental and educational entities including the second largest school district in the United States. Ms. Todd has a strong working relationship with plaintiff and defense attorneys, corporate boards, government inspector generals and government agencies. Ms. Todd has testified as an expert witness in federal and state courts.