An article by Marlene Satter on the Benefits Pro website lists eight types of employee fraud and prevention strategies. The article is at https://www.bnefitspro.com/2019/08/12/8-kinds-of-employee-fraud-and-how-to-prvent-it?.
- Payroll fraud - claiming extra hours or putting phantom employees on payroll. No single person should be in charge of payroll.
- Theft of cash - check unexplained shortages.
- Procurement fraud - ordering goods for own use on company account, or setting up phony vendor account. Audit receipts and payments.
- Benefits fraud - false or excessive treatment claims, with or without provider connivance.
- Workers compensation fraud - faked or exaggerated injuries, reporting off-hour injury as work related.
- Health insurance fraud, including conspiracy with a provider. (Employee behavior inconsistent with these types of claims should be investigated.)
- Asset misappropriation, such as using company credit cards or vehicles for personal use. Accounts need to be audited.
- Data or intellectual property theft for personal or competitor use. Access to information should be on a "need to know" basis.
According to a 2018 study from the Association of Certified Fraud Examiners, employee fraud cost over $7 billion, with a median loss of $130,000. (Food for thought, for organizations with $100,000 or less employee theft insurance.) A typical organization loses 5% of its annual revenue to fraud. Small businesses lose almost twice as much per loss as larger ones, probably because of weak controls (responsible for about half of frauds).
Data monitoring analysis and surprise audits are the best way to reduce fraud loss, but only 37% of businesses use them.
Common red flags include employees living beyond their means; unwillingness to share duties; job pressure; family problems; past legal problems; refusal to take vacations. Potential fraud should be taken seriously.