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Employee Fraud! Spotting the Signs and how to stop them.

employee fraud spotting the signs and how to stop them

When was the last time you really investigated the internal controls and processes of your company?

Many businesses are built upon the core values of trust, integrity and loyalty. While these are great pillars of strength, business owners of small enterprises should not be naïve. Fraud, particularly from employees, is real and can have an extreme effect on the health of your business.

A relationship of assumed trust can lead to actions of greed and opportunity. If your business has limited internal controls or processes, then it is time to update and be prepared. Remember, this is about protecting your investment, your commitment and your responsibility.

Fraud can take many forms, from employee card fraud to the left of company assets. Therefore, we need to spot the warning signs in order to prevent bigger disasters from happening.

Here are some warning signs:

  1. Lives beyond his or her means

  2. Have financial difficulties

  3. Is frequently absent

  4. Is reluctant to take vacations

  5. Exhibits excessive personal spending

  6. Uses petty cash too quickly

  7. Uses office supplies too quickly

  8. Exhibits extravagant expenses for employee travel

  9. Spends too much time with vendors

  10. Are related to independent contractors working for you

Consider implementing the following to mitigate the risk of employee fraud happening in your business:

  • Communicate regularly with your employees. This can take the form of a regular team meeting to discuss the day-to-day running of the business. Keep in mind that your employees are not suspects, but if red flags start to rise, take note.

  • For outgoing bank transactions, put in place a two-person authentication process. This installs a simple check that money leaving the business is legitimate and being received by the right people.

  • For large transactions, personally approve the transaction. Fraud often happens in small transactions over time, but don’t discount the possibility of it happening to large transactions. Sign off on transactions over a certain amount, to ensure you aren’t facing cash flow problems down the line because of an assumption that fraud can only happen in small amounts.

  • Have an open-door policy. If you are often unavailable or out-of-reach, you could create an environment where employees cutting corners or behaving unethically will go unvoiced. If you’re open with your employees, you encourage a working relationship where your employees can approach you if something just doesn’t add up.

  • When Hiring – screen new employee by conducting thorough background checks.

  • Separate financial duties. Assign one employee to write checks, another employee to sign them, and a different one to reconcile the bank statements. Create a regular rotation of duties for your employees especially in areas like procurement, accounts payable, and accounts receivable.

  • Perform data analytics on payroll records is a great way to check for irregularities.

Talking about employee fraud can be hard, awkward and intimidating. But for the health of your business it is essential. A head-in-the-sand mentality doesn’t help in situations like this. Be proactive and put in place internal controls that are relevant to your situation.

Contact us at Dolman Bateman or Buildersbooks if you are looking for an experienced forensic accountant who can help you with your fraud case.


This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice.

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