Tips on Identifying and Preventing Employee Fraud

Tips on Identifying and Preventing Employee Fraud

Businesses rely on the honesty and integrity of their employees, but employee fraud is, unfortunately, not rare – and can cost businesses huge sums of money.

Businesses across all sectors are at risk, no matter how credible a job applicant is and how stringent your hiring process is. When you trust your employees, it is difficult to think the worst of them, even when there are red flags – circumstances or patterns that are out of the ordinary – alerting you to the contrary.

If you have suspicions of employee fraud, it is recommended to hire a forensic accountant to help you detect fraud, understand your circumstances, and put together evidence to target and confront the employee without tipping them off.

The good news is that you can plan and train your team to prevent this from taking place; the best thing you can do for your business is to learn how to recognise the warning signs of employee fraud, and have robust procedures in place to minimise the risks and opportunities for fraud.

Employee fraud covers a wide range of fraudulent activities in the workplace and can vary in seriousness. We take a look at some of the common types of employee fraud in this article and what you can do to minimise employee fraud in your organisation.


Embezzlement involves an employee who transfers company funds into their own bank account, for example by deliberately writing cheques in the employees’ own name, or diverting company assets without authorisation e.g. customers unknowingly pay into an employee-controlled bank account, not the business’. This is serious fraudulent behaviour, but employees usually get away with it without raising any suspicion by creating nonexistent suppliers and fake employees, or using counterfeit credit notes to hide/disguise misappropriated monies.

To spot this type of financial fraud, scour through the bank statements and financial records of your organisation and check for irregular activities or patterns of unusual and unauthorised transactions. Another sign of embezzlement is when an employee begins to enjoy a lavish lifestyle that is obviously beyond their means e.g. holidays, cars, clothes / jewellery.

If you suspect an employee or director might be embezzling funds from within your company, it is important to be discreet in your employee fraud investigation, to prevent the employee from covering their tracks and disposing of important evidence.

Other Common Type of Employee Fraud 

  • Petty fraud – for example, embellishing an expense claim or taking office supplies.
  • Commission fraud – inflating sales figures to gain a bigger commission than deserved.
  • Money laundering – hiding the origin of illegally obtained money and washing it through your business.
  • Insider Trading – making a profit by using valuable information that is unavailable to the public to their advantage, for example, confidential information that could impact the prices of shares, securities, goods/commodities.
  • Manipulation of accounts – false information on sales, purchases or stock can be used to perpetrate fraud for personal financial gain e.g. overstated trading profits to receive cash/share bonuses, or get a promotion, creating false trading accounts or stock/fixed asset write-offs to obtain goods.

What can employers do to minimise employee fraud?

Employers should put in place robust management procedures and structure job roles in a way which ensures staff are adequately monitored, and consider the possibilities for collusion between employees, particularly related employees. In particular, you must play close attention to the procedures within your accounts department, but don’t forget other parts of your operation e.g. sales and purchasing.

Here are some procedures your business should consider to minimise the chances of employee fraud:

  • Separation of employee responsibilities such as placing orders, recording invoices and collecting debts.
  • Requiring purchase or payment authorisation by more than one person.
  • Compare actual to budgeted expenditure for unexpected patterns.
  • Examine bank reconciliations thoroughly.
  • Scrutinise cancelled cheques and cheques made out to employees or unusual vendors.
  • Review supplier invoices for unusual amounts, pricing or volumes.
  • Verify credit notes and write-offs with receiving records.
  • Install and monitor CCTV to deter theft of stock or equipment.

Donald R Cressey, an American criminologist, devised a theory for the triggers required to lead to fraud, which involved three aspects which became known as the Fraud Triangle. Understanding these triggers can be help you in putting together preventative measures:

  • Pressure – overwhelming pressure, be it business factors such as company targets to meet, or personal pressures, such as gambling or financial problems.
  • Rationalisation – the fraudster will rationalise the continued deception, which increases slowly perhaps over a few years becoming an entitlement i.e. I deserve this. This offers the chance to stop some employee fraud early if robust detection procedures are in place.
  • Opportunity – a lack of internal controls or reporting structure / oversight can all in their small ways create the opportunity for fraud.


Preventing financial loss is crucial for your business’s survival and expansion, which is why it’s important to know and understand its obvious signs. Use the list above as a guide to protect your organisation and grow your business.

To detect employee fraud in a professional and thorough manner, it is recommended you seek the expertise of a skilled employee fraud accountant as early as possible. They can help you investigate your employees, by reviewing your bank statements and financial documents, and advise you whether an employee is committing fraud, and to what extent. A forensic accountant’s report will also give you the evidence you need to take the necessary action against your employee and act as a deterrent to others.

Contact us for a free and confidential chat to discuss how we can help your business investigate potential employee fraud. Aside from traditional accounting services, we offer specialist accountancy and business support services. Contact us to learn more about how we can help you!