Signs of Employee fraud and how to ferret them out
Call it stealing, theft, embezzlement or larceny, occupational fraud occurs in all types of businesses around the globe. Taking post-it notes or K cups from the office on the sly may not have reached the level of larceny, but theft of cash or company funds, and the misuse of assets such as equipment, merchandise, and property can be truly damaging to your business.
Fraud...is when someone through a deliberate process misuses or misapplies the resources or assets of a business for their own personal benefit.
— Hubert Klein, CPA at EisnerAmper
Most fraud occurs in small companies and in small amounts, but as a business owner you know that every dollar counts and theft has direct implications on the bottom line. The Association of Certified Fraud Examiners (ACFE) says that each year companies lose 5% of revenues due to fraud, and in 2014 that number was estimated to be over $3 billion dollars.
Fraud hurts more than the bottom line. It can demoralize staff, bankrupt a firm, lead to increased audit costs, and/or ruin a company’s reputation, thereby leading to a loss of confidence and trust by both customers and the general public. Amazingly, according to Statisticbrain.com, “33% of all business bankruptcies were caused by employee theft!”
According to ACFE there are three main categories of occupational fraud:
Asset misappropriation - The theft of physical items for use or sale, check tampering, skimming or falsifying payments. Working on non-company business during office hours or providing to outsiders trade secrets, intangible or proprietary company information is also fraud.
Corruption - kickbacks, bid rigging, illegal gratuities, extortion, conflicts of interest, etc.
Financial statement fraud - Misleading or inaccurate financial information given to investors, shareholders and the public that include asset and revenue overstatements and understatements.
Often many incidences of fraud go undetected and are uncovered either by accident or as the result of a whistleblower yet there are discernible patterns of fraud as well as tell-tale signs that can alert business owners and managers to possible fraud. Here are several signs that employees may be stealing from you:
1. Different but consistent excuses for accounting mistakes.
2. Inconsistencies in their reporting and financial information.
3. Always eager to distribute mail first.