Employee Dishonesty – A Concern for Every Employer

A recent report issued by the association of Certified Fraud Examiners places the cost of employee fraud at 7% of annual revenues. Employers with less than 100 employees saw a median loss of $200,000 according to the ACFE. Another study performed by the Institute for Corporate Productivity and HR.com showed that 20% of all employers have some form of employee fraud.

Here are some of the most common types of dishonesty claims: 

1. Theft of inventory– This is commonly known as shrinkage of inventory. It is not limited to just materials or goods, it also applies to office supplies and even office equipment.
2. Vendor kickbacks– Employees set up over payments from vendors then receive payments in cash or in the form of goods, services, or trips.
3. Padded expense accounts– Employees can pad expense accounts, use fake receipts and even purchase personal items.
4. Embezzlement– Employees simply siphon off money from a business, by setting up fake accounts, stealing cash, or forging checks they deposit into their own accounts.
5. Phantom vendors– Employees set up phony businesses and produce fake invoices. This can also be in partnership with a vendor that is paid for work not performed.

 Fraud Prevention Suggestions

• Complete background checks on all employees
• Check references
• Separate duties; split up check writing and deposit responsibilities
• Require two signatures on checks over $250
• Add a third person to reconcile books
• Have an outside firm perform an annual audit
• Hold employee training on policies and procedures
• Install video cameras in warehouses and parking lots
• Review your employee dishonesty coverage annually

Here are some of the potential red flags to look out for include:

• Not taking vacations
• Being overly protective about their workspace
• Prefers to be unsupervised by working after hours or taking work home
• Unexplained debt
• An unexpected change in behavior

If a loss occurs, you should immediately seek legal advice, which can assist you in evaluating the case and calling in additional experts. You should also check your insurance policy for theft coverage. Every business large or small should have some level of coverage.