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 can identify the perpetrator.
According to a report by the Association of Certified Fraud Examiners (ACFE), below are the main types of fraud to watch out for and how to keep it from happening:
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.
Some common types of fraudulent use of credit cards include fuel purchases, airfares, home supplies, meals that are not work-related and entertainment.
Payroll fraud
- There are typically three ways someone can pull off this fraud:
- Setting up phantom employees on your payroll systems whose “pay” is diverted to the perpetrator’s account.
- Paying out excessive overtime.
- Continuing to pay staff after they leave.
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 data.
What you can do
If you are going to do any employee monitoring to identify and thwart fraud, focus operations and systems where most fraud occurs: procurement, payments and salaries.
The ACFE said that by analyzing transactions in these areas it is often possible to identify a wide range of employee fraud.
Company credit cards
Employees who have company credit cards may use them for illegitimate purposes.
Some common types of fraudulent use of credit cards include fuel purchases, airfares, home supplies, meals that are not work-related and entertainment.
Payroll fraud
There are typically three ways someone can pull off this fraud:
- Setting up phantom employees on your payroll systems whose “pay” is diverted to the perpetrator’s account.
- Paying out excessive overtime.
- Continuing to pay staff after they leave.
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.
Fraudster traits to watch for
According to the report, three out of four fraudsters displayed at least one of the following behavioral clues (these behaviors do not mean an employee is committing fraud, so don’t jump to conclusions):
- 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%)