What Is Employee Fraud? 5 Types and How It Can Hurt You

by | Nov 14, 2023 | Blog

Have you ever wondered, “What is employee fraud?” This elusive question unravels a pervasive threat that often lurks in the shadows of business operations, striking when least expected.

Employee fraud is a pervasive threat that often lurks in the shadows of business operations, striking when least expected. Defined as the act of an employee engaging in deceptive activities for personal or financial gain at the expense of their employer, it is a menace that can have far-reaching consequences. In this blog, we’ll delve into the depths of employee fraud, exploring its prevalence, various forms, and its detrimental impact on businesses.

What Is Employee Fraud?

Employee fraud isn’t an abstract concept confined to corporate crime dramas. It’s a real and prevalent issue that businesses face. According to PwC’s Global Economic Crime and Fraud Survey 2022, a staggering 46% of organizations reported experiencing fraud within the last 24 months. What’s even more surprising is that a significant portion, 31%, of these fraud cases involved internal participants, with an additional 26% resulting from collusion between internal and external actors. In simpler terms, over half of the fraud incidents examined by PwC were facilitated by employees.

5 Employee Fraud Examples

  1. Theft

One of the most straightforward yet insidious forms of employee fraud is theft. This occurs whenever an employee pilfers money, property, or resources from the company. It’s a direct attack on the company’s assets, and if left undetected, it can lead to substantial financial losses.

  1. Embezzlement

When those entrusted with managing a company’s finances turn rogue, embezzlement occurs. This form of employee fraud involves the misappropriation of funds by individuals responsible for handling money. Accountants, in particular, may succumb to the temptation of diverting company funds for personal gain.

  1. Kickbacks

Kickbacks exemplify a more covert form of employee fraud, where individuals accept monetary rewards in exchange for granting preferential treatment. This unethical practice erodes a business’s fair and transparent operation, jeopardizing its integrity and reputation.

  1. Benefits Fraud

Employee fraud extends beyond direct financial theft. Benefits fraud occurs when employees exploit company benefits for personal gain. This can involve dishonestly claiming sick days when healthy, putting an additional strain on the company’s resources.

  1. Payroll Fraud

Time is money, and payroll fraud directly attacks both. Employees engaged in payroll fraud manipulate timesheets, falsely presenting their presence when, in reality, they are absent. This deceitful practice not only results in financial losses but also disrupts the efficiency of business operations.

How Does It Affect Businesses?

The impact of employee fraud extends beyond immediate financial losses. Businesses, especially those with fewer than 100 employees, are at a heightened risk. The Association of Certified Fraud Examiners (ACFE) 2022 report to the Nations on Occupational Fraud and Abuse highlights that organizations with fewer employees experience the highest median loss in employee fraud cases. Additionally, small businesses find it more challenging to recover from these losses than their larger counterparts.

Industry plays a crucial role in determining the risk of employee fraud, such as banking, real estate, healthcare, and manufacturing sectors are particularly susceptible. For-profit companies bear the highest risk, followed by government entities and public agencies. Surprisingly, nonprofit agencies make up only 9% of employee fraud cases, making them the least at-risk.

Talk to an Attorney Experienced with Fraud Civil Litigation

Now that we have explored what is employee fraud, it is time to call the professionals. In the face of such risks, businesses need a robust legal ally to navigate the complexities of fraud civil litigation. The Saltiel Law Group, situated in Coral Gables, Coconut Grove, Doral, South Miami, Pinecrest, Key Biscayne, Miami Beach, Kendall, or Wynwood, stands ready to be that trusted partner. If you’re concerned about the impact of employee fraud on your business, schedule a consultation with the Saltiel Law Group today by calling 305-735-6565.