Employee Fraud and How to Prevent It

Employee fraud accounts for $7 billion in annual losses, according to Property Casualty 360 studies, and few businesses are immune to it. Below are seven common types of employee fraud and ways to prevent it:

Data or intellectual property theft: Stealing information on customer accounts, for personal use or to pass to a competitor, falls under this category. Restricting access to information of this type in a way that creates a traceable trail can help keep less-than-honest employees on the straight and narrow.
Asset misappropriation: Using the company credit card for personal purchase, padding an expense account, or using a company vehicle for personal errands all fall under this category. Careful and regular auditing of the company accounts, as well as paying attention to employees who aren't where they're expected to be, can catch such schemes before they go far.
Health insurance fraud: Not just submitting claims for medical treatment or health services that the employee didn't receive, but also conspiring with a health care provider to submit phony or inflated receipts can be the hallmarks of this type of fraud. Knowing one’s employees can be the key to uncovering such tactics, particularly if an employee is active in a way that doesn’t mesh with medical claims that have been submitted for payment.
Workers compensation fraud: An employee faking or exaggerating an injury or disability can cost a company a sizeable amount of cash, as can one who claims an injury happened at work when it took place elsewhere. Any of these can put the company on the hook for a large amount!
Procurement fraud: Employees might be ordering goods or supplies ostensibly for the company, but taking them home or returning part of an order for a refund. They could also engage in purchase order fraud by setting up a phony vendor account in which fraudulent invoices are paid. Audits on both receipts of goods and payments can help uncover such strategies.
Theft of cash: Depending on the type of business, this could be easy, with cash sales simply not recorded or phony refunds recorded as issued to a customer. Having specific procedures in place for the handling of cash, as well as being alert to any unexplained differences in money coming in or goods going out, can forstall at least some cash theft plots.
Payroll fraud: Claiming overtime hours that were never worked or falsifying time sheets for regular hours are all forms of payroll fraud. Again, knowing ones employees, separating payroll duties so that a single employee isn’t in charge of the whole process, and verifying hours with employees themselves can put an end to this.

The problem presented by employee fraud is very real – and costly! Follow the tips above to help prevent fraud in your small business!