5 Signs of Employee Fraud (and How to Stop the Damage Before It Spreads)

by | Jun 13, 2022 | Blog

Employee fraud is a consequential problem that many business owners face every year—it is costly and can have lasting effects on the success and reputation of a company for years. According to a report by the Association of Certified Fraud Examiners, the total cost of fraud across the globe from January 2020 to September 2021 was $3.6 billion, while the median loss sustained by businesses was $117,000.

Fraud can happen in any organization, so it is critical for all business owners to know the signs of fraud so they can stop the damage before it’s too late.

5 Signs of Employee Fraud Every Business Owner Should Know

1. Living Beyond Their Means

The type of lifestyle a person leads is typically indicative of how high their salary is. While any given employee may have other income streams, such as from investments or generational wealth, if you notice they have made several recent expensive purchases (for instance, a new car or designer clothing or jewelry), you may want to investigate more.

2. Working Long Hours or Alone

Coming in early, staying late, and taking full ownership of certain tasks could be a sign you have a dedicated employee. However, it could also mean you are the victim of employee fraud. Working during irregular hours or when no one is overseeing the work being done creates an opportunity for fraud.

3. Overreacting to Routine Questions

When an employee commits fraud against their organization, the stress of getting caught can be overwhelming to them. Employees who display irritability when asked routine questions about their work (especially the work that is tied to their fraud scheme) could be taking advantage of the business’s finances. While not all overreactions to oversight can be attributed to fraud, it’s worth asking more questions if any of your employees (or business partners) seem on edge.

4. Irregular or Suspicious Financials

If you notice sudden expense increases, unusual invoicing patterns, or otherwise suspicious financial documentation, it could be a sign of employee fraud. Dedicate some time to implementing controls within your organization to ensure that all expenses are legitimate.

5. Resisting Tighter Controls

Employees may resist changes to controls within your organization for a variety of reasons. In some cases, such changes can bring extra work and more micromanagement, which can cause some employees to express their displeasure. Resistance to these changes, however, could also mean they do not want additional oversight on their work. If an employee seems to be hiding something, that’s a bad sign.

What to Do When You Discover Employee Fraud

If you discover employee fraud within your organization, it is critical to take action quickly. First, make sure that the employee cannot commit further fraud. You might consider removing their access to sensitive information that could be used to commit fraud. If they have any company-owned electronic devices, try to secure them so they cannot destroy any evidence. Once you gather evidence that details the fraud, you should report the fraud to the proper authorities.

Before you do anything, however, you should consult with an experienced business fraud attorney. Need help proving an employee has committed fraud against your business? Contact the Saltiel Law Group today to schedule a consult.