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Warning Signs of Employee Frauds


Warning Signs of Employee Frauds

The risk of employee fraud is much higher for companies with fewer than 100 employees than large corporations. According to a report published by the Association of Certified Fraud Examiners (ACFE), 30% of fraud cases take place in small businesses, and up to 60% of fraud victims were unable to recover their losses. 

There are various types of employee frauds, the most common types include embezzlement, payroll fraud, procurement fraud, kickbacks / bribery, data theft and more. It is important for business owners to take steps to combat any type of frauds.

Starting from existing employees, watch out for suspicious behavior and here are some of the warning signs:

  • Lives beyond his or her means
  • Exhibits excessive personal spending
  • Struggling with debt and/or investment loss
  • Having financial difficulties due to unfortunate situations (e.g. custody battle, divorce, a family member’s poor health)
  • History of drug abuse
  • Involved in gambling
  • Uses petty cash too quickly
  • Spending too much time with vendors or with specific vendor only
  • Related to independent contractors working for the company
  • Frequently absent
  • Working unnecessarily long hours or outside of regular hours 
  • Refusing to share certain tasks 
  • Little too protective for specific job duties
  • Receive frequent tips or complaints about a certain employee

If an employee is acting suspiciously, the employer should monitor the company financial records closely and look out for below discrepancies:

  • Mismatched payees
  • Identical payments
  • Questionable companies
  • Suspicious invoices

To prevent employee frauds, implementing straighter internal procedures and policies such as verifying vendors, segregating financial roles, limiting access control and so on are always a good idea. For new employees, should include pre-employment screening (PES) to verify candidates’ claims can mitigate potential risks. 

If employers suspect frauds have been committed, it’s important to hire a professional to investigate. Depending on the type of fraud and the outcome of the investigation, this could result in criminal action taken against the employee or even the business if they carry on unnoticed.