At some point, the odds are that a company will be affected by some form of employee theft or outright fraud.
Fraud can severely crimp a company’s finances and put the firm in a serious bind if the theft is large enough. With technology, fraud has in some ways become easier, but at the same time it typically leaves a trail of electronic breadcrumbs that may be hard to disguise.
According to the Association of Certified Fraud Examiners’ (ACFE) global “Report to the Nations on Occupational Fraud and Abuse” report for 2024, the median loss in the U.S. from a single case of:
- Employee fraud was $61,000,
- Manager fraud was $150,000, and
- Executive fraud was $300,000.
Here are the five main types of employee fraud and what you can do to thwart it.
Purchase order fraud
This is typically carried out in one of two ways:
- The employee initiates purchase orders for goods that are diverted for personal use, or
- The employee sets up a phantom vendor account, into which they pay fraudulent invoices, with funds eventually being diverted to the employee.
Company credit cards
Employees who have company credit cards may use them for illegitimate purposes to purchase items or on entertainment and travel. Some common types of fraudulent use of credit cards are fuel purchases, airfares, home supplies, meals that are not work-related and entertainment.
Payroll fraud
There are typically three ways that an employee can pull off payroll fraud:
- Setting up phantom employees on your payroll systems who are paid like regular employees but whose funds are diverted to the perpetrator’s account.
- Paying out excessive overtime.
- Continuing to pay employees after they die or after they leave your employ.
You should have systems in place to detect whether you have more than one employee with the same bank account number or the same address, unusually high overtime payments and whether dead or terminated employees are still on your payroll.
Sales and receivables
Some employees may collude with vendors to make payments for services never rendered or products never received.
Other times, you may have sales reps who inflate sales to receive higher commissions or bonuses.
Data theft
This involves an employee stealing important company data like trade secrets, personally identifiable information, client credit card numbers or client lists. In some cases, the employee would provide this data to third parties.
You may be able to detect this kind of theft by running tests to see if a database has been accessed by an employee without access privileges or if reports were generated by employees without authorization. You may also be able to run tests to find out if any employees have sent e-mail with attachments that include sensitive company data.
What you can do
According to the report, most theft occurs at one or more of the following stages:
- Procurement
- Payment
- Expense
If you are going to do any employee monitoring, these are the places you may want to focus on first.
The ACFE said that by analyzing transactions in these areas (such as with continuous monitoring systems driven by data analysis), it is often possible to test for a wide range of employee fraud as well as bribery and conflicts of interest.
Also, three out of four fraudsters displayed at least one of the following behavioral clues:
- Living beyond means (39%)
- Financial difficulties (27%)
- Unusually close association with vendor/customer (20%)
- Control issues/unwillingness to share duties (13%)
- Irritability, suspiciousness or defensiveness (12%)
- “Wheeler-dealer” attitude (12%)
- Bullying or intimidation (11%)
- Divorce/family problems (10%)
