Your employees are the backbone of your company; you trust them to be reliable, loyal, and honest in order to keep your business running at its optimal capacity. Employee fraud can cost a company so much more than money… an employee’s misconduct can also seriously tarnish the reputation of a business that you’ve worked tirelessly to build.
What exactly is employee fraud? The definition isn’t as clear cut as you may think, since there is a wide range of ways in which an employee can commit fraud against an employer. Benefits or WSIB fraud, embezzlement, accounting or payroll fraud, vendor fraud, asset misappropriation, bribery, corruption and data/intellectual property theft are a few of the more common instances of employee fraud, all of which can cause a substantial financial drain upon a business.
Your best defense against employee fraud is understanding the warning signs and ensuring that suspicions of fraud are quickly investigated and dealt with accordingly, before your business is adversely impacted. Early detection can mean the difference between a minimal loss with quick recovery, or a suffocating loss (of possibly millions of dollars) that can cripple your company financially. Below, we share some of the top signs of deceptive employee behaviour that may indicate employee fraud:
Purchases Beyond Their Means
While we all deserve the occasional treat, be aware if an employee is suddenly flaunting a string of purchases that seems inconsistent with their salary level. While a wealthy spouse or family member may be behind the recent lifestyle upgrade, in some cases your own business may be the source of these additional funds!
Secretive Behaviour
An increase in private meetings with a particular client or vendor may indicate the relationship is worth questioning, especially if the employee makes a concerted effort to host meetings behind closed doors, or outside of the office.
While an employee putting in extra hours is rarely frowned upon, it may be a warning sign if these attempts to be in the office alone are combined with other suspicious behaviours. If the employee in question is in an internal control position with access to company records, funds or inventory, their efforts to come in early and leave late may be a sign that they are trying to conceal activity. This red flag becomes even more obvious should the employee refuse to take any vacation time or sick leave, at the risk of sharing duties or records.
Omission of Information
Are there particular records that suddenly can’t be found? Or maybe there are select pieces of information that have intentionally been left out of invoices, such as the contact information of the purchaser, or the quantity of supplied goods. Does the suspected employee become defensive when questioned about these missing pieces? Should these inconsistencies become a regular occurrence, it may indicate that an employee is creating a false paper trail to conceal stolen funds.
Excessive Expenses
Your accounts receivable team should be trained to alert you of a spike in employee expenses or other inconsistencies regarding an employee’s business account. This may include unexplained cash transactions, a sharp increase in requests for reimbursements, supplies, entertaining expenses or activity within previously inactive accounts.
Employee Risk Factors
Sometimes personal circumstances within the life of an employee, may suggest that they are at a greater risk of involvement within fraudulent workplace activity. Financial obligations such as a divorce, mounting personal debt, family pressures, or medical expenses may lead a desperate employee to seek temporary funds through illegal means. Or perhaps the employee has a history of gambling, substance abuse, sex additions, or involvement in an outside business that is draining their personal finances. Do these personal financial challenges correlate with the sudden disappearance of inventory or missing funds?
It’s important to keep in mind that while these red-flags of employee fraud should be taken seriously, they should in no means be misinterpreted as a clear sign of fraud; they instead mean that an investigation is encouraged to reveal the answers behind any suspicious activity. An unwarranted employee fraud allegation without the presentation of factual evidence, can pose a number of big issues for your business, including some costly liabilities.
Should you suspect that your company may be experiencing employee fraud, seek the counsel and expertise of an investigation agency experienced in corporate investigation and employee fraud matters.
As Toronto’s leading Private Investigation Team, Star Quality Private Investigations® has over two decades of experience assisting small, medium, and Fortune 500 companies with custom-fit corporate investigation solutions. As your trusted partner, we are committed to not only helping bring cases of fraudulent behaviour to light, but we’ll empower you with the necessary tools and knowledge to safeguard your business from future incidences.