What is Employee Fraud: Signs and Examples in the Workplace

What is Employee Fraud: Signs and Examples in the Workplace

Employee fraud and theft are on the rise in Canadian workplaces. The CBC reported in 2017 that employee theft cost Canadian businesses $1.4 billion, with over half a million thefts occurring without employers even noticing. The problem has only gotten worse in the wake of disruption caused by COVID-19.

But what is employee fraud, and how can you recognize it? Employers must guard against both opportunistic fraud from employees and coordinated security breaches that rely on an “inside” employee.

It is impossible to eliminate the risk of employee fraud. However, awareness of warning signs coupled with a robust security system, a culture of loyalty, and incentives to promote compliance go a long way toward reducing those risks.

What Is Employee Fraud?

Employee fraud involves deliberate attempts to misuse positions of trust and authority. An employee with intent to commit fraud often takes time to get to know the system they are exploiting before crossing the line into illegal behaviour.

Employee fraud can take many forms and appear at many levels within your organization. Keep in mind that the employee could be acting to enrich themselves, in service to another person, or under duress.

Types of employee fraud include:

  • Embezzlement
  • Bribery and corruption
  • Abuse of authority
  • Payroll fraud
  • Theft of data and intellectual property

Motives to commit fraud could be as varied as fear, greed, envy, a need for control, or compassion for a loved one.

Signs of Employee Fraud

Employees who have succeeded in breaching or abusing your system usually leave evidence behind when they accept funds illegally or spend funds they should not have. A robust anti-fraud system detects precursors to fraud, evidence of the criminal act itself, and suspicious activity of employees who have committed employee fraud.

Employees Working at Odd Hours

An employee who plans to exploit their position at your business faces a higher risk of detection if co-workers are present. By arriving before everyone else or working late, employees have the opportunity to case the workplace, conduct transactions alone, view documents, and even breach areas of the building they do not have access to.

Circumventing Security Measures

An employee who “forgets” their ID card and borrows a colleague might be forgetful, or they might be trying to disguise their movements. Employees with a pattern of the following behaviours are at the very least showing disregard for security even if they have not yet committed fraud:

  • Entering unauthorized areas
  • Stealing passwords
  • Misusing ID cards
  • Failing to log transactions or movements of inventory
  • Lying about their behaviour

Disgruntled Employees

Many employees who are unhappy with their jobs or employers don’t commit fraud. However, some employees who commit fraud do so in retaliation for what they perceive as insults, poor treatment, insufficient recognition, or other slights.

If an employee shows disdain for the company in office communications or water cooler chat, it is best not to put that employee in a position where they can exploit the company until you have resolved the morale and loyalty issues.

Employees Seeking Positions that Provide Opportunities for Fraud

Whether acting alone or as part of a coordinated attack, unscrupulous employees might seek out positions with oversight to gain access to valuable data, obtain authorization to make sensitive transactions, or cover up fraud. If an employee seems keenly interested in positions with access to cash, sensitive records, or security oversight in situations that don’t fit their existing career trajectory, it is reasonable to suspect an ulterior motive.

Suspicious Transactions

If an employee with permission to execute transactions is executing transactions that differ from the norm, identify the reason for the discrepancy. These transactions could include:

  • Opening or closing client accounts
  • Issuing returns on inventory
  • Reporting lost inventory
  • Withdrawing cash
  • Charging unusual expenses on business accounts

Keep in mind that suspicious transactions supposedly authorized by one employee could be the work of another. For instance, an employee who leaves their workstation unguarded during coffee breaks could unwittingly enable another employee to commit fraud in their name.

Employees Living Beyond Their Means

Employees who have successfully exploited your system to accept bribes, steal assets, or abuse their authority might flaunt their wealth. If they make a modest salary but have a large house, children in expensive schools, a gambling habit, or other expenses, it is prudent to ask where the extra money is coming from.

Keep in mind that some employees might live beyond their employee salary due to an inheritance, lottery windfall, or legitimate side business.

How to Prevent Employee Fraud

No one step by itself can prevent employee fraud, but an integrated, comprehensive anti-fraud policy reduces the risk.

Monitor Transactions

Keeping an independent record of all transactions, including withdrawals from petty cash, cheques, and charges to business accounts, and revenue makes it harder for employees to skim money from your organization.

Control Inventory

Track items bought, sold, stored, transferred, or returned at your business. Investigate any increase or suspicious pattern in inventory that is lost, missing, or reported stolen.

Audit Your Security

Periodically review your security system with the help of a certified fraud examiner. Check for any signs of sabotage or weaknesses in your system. Ask yourself how you would circumvent the system if you were an employee set on committing fraud.

Empower Whistleblowers

It might seem like the only way to fight employee fraud is to suspect all your employees, but a constructive, trusting relationship with your employees is one of the most robust protections against employee fraud. If your employees feel that they have a stake in your company and want you to succeed, they will help you root out employee fraud.

You can get advanced warnings of problems that might otherwise go undetected for months or years by taking steps such as:

  • Create a whistleblower reporting process
  • Protect whistleblowers
  • Communicate the need for and importance of whistleblowers

Employees who commit fraud and do not value the company will likely view whistleblowers as “snitches” or “narcs.” It is essential to oppose that narrative and provide your employees with solid reasons to stand with you against any employee who might abuse your trust.

The Canadian Bar Association reported that COVID-19 has brought to light gaps in whistleblowing nationwide. Reminding employees of the importance of creating a safe workplace in the wake of COVID-19 could be an effective way of framing.

Set a Good Example

Create clear rules for transparency, compliance, and accountability for all levels of your organization and demonstrate that you will stick to them. If employees see managers and supervisors as unaccountable or engaged in fraud themselves, it is difficult to discourage other employees from committing fraud or reporting their colleagues to their superiors in the company.

Understand Your Employees as Individuals

Getting to know your employees creates conditions that deter fraud and prevent corruption from taking root. In an immediate sense, knowing your employees helps you detect changes in their behaviour that could indicate:

  • Divided loyalties
  • Financial problems
  • Employee conflicts
  • Low morale

Indirectly, knowing your employees can make you a more responsive employer. If you can anticipate and meet the individual needs of your employees, they will value their employment with you and hopefully develop a personal connection to your business.

Foster Employee Loyalty

An adversarial relationship between employees and management is toxic to employee morale and allows a culture of corruption to fester. If employees recognize that they have a stable path forward in your organization, they will defend the long-term stability of the company and defend the company against employees who would jeopardize their future by committing fraud.

Long-term benefits that could reduce employee fraud include:

  • Retirement benefits
  • An upward career path
  • Professional development opportunities
  • Supplemental health insurance
  • Disability insurance
  • Life insurance

Recognizing that employees have valid needs and ambitions beyond the scope of their employment is a crucial step in developing a compensation package and a workplace environment that supports employees. Employees cannot be unreservedly loyal to an employer who will abandon them if they get sick, become disabled, or retire.

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Establish Employee Benefits with Group Enroll

A comprehensive benefits package including health and disability insurance removes some of the financial uncertainty that workers face in these tumultuous times. Anxiety and fear for the future can cause feelings of confinement, desperation, and mistrust. Any one of these could undermine loyalty.

Group Enroll, an Alliance Income Services Company, connects businesses to insurance companies and helps them set up flexible group benefits packages and health reimbursement arrangements for their employees. We can answer questions like, “what is employee fraud?” and “which group insurance benefits have the greatest impact on employees and ROI?”

Discover attractive group benefit options and receive fast insurance quotes. Group Enroll provides you with competitive quotes from insurance companies so that you can choose the plans that fit your needs. Flexible healthcare reimbursement arrangements allow your employees to select from the plans you approve, giving them options as well. 

Find out more about Group Enroll by visiting our website and filling out the quote form. We’ll e-mail you or call to discuss your needs and provide you with the most competitive proposal. You can also reach Group Enroll by e-mail at [email protected] or visit our office at 10 Great Gulf Drive, Unit 5, Vaughan, ON, L4K 0K7.

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