Employee Fraud on the rise: Know what it is and how to prevent it

The future of work is here to stay. Instead of the traditional nine-to-five office setup, more and more companies need to maintain a hybrid work model where employees work at a physical location and spend a significant portion of their time at home or elsewhere - also described as remote working. While this has been on the rise for the past few years, the extent of the impact it has had on the world of employment has been relatively understated.

One area where remote working has had a profound impact is employee fraud. With the ability to work from wherever they choose, employees have the flexibility to avoid in-office policies and security protocols that many companies implement to ensure safety and security. As a result, fraud is noted to have increased while some employees seek to take advantage of the system.

This article will discuss the most common types of employee fraud today, what types of behavior is considered fraud and how to prevent it from happening in the first place.  

What is Employee Fraud?

Employee fraud is a consistent and serious problem. It can take many forms, from stealing company property to submitting false expense reports. It can also involve embezzling or claiming improper or unlawfu expenses. While fraudulently obtaining a company’s money is wrongful, activities outside a company’s payroll are also illegal.

In the post-pandemic corporate environment, many companies have loosened restrictions to access company resources via devices such as laptops and company-owned cell phones. This has led to an increase in the number of cases of employee fraud that had previously been undetected. It has also made it difficult for companies to detect and prevent employee fraud without the help of an experienced fraud detection specialist.

Common Forms of Employee Fraud

Senior executives frequently commit large-scale frauds that have severe financial and reputational consequences. A typical fraud includes misappropriation of assets, financial fraud, payroll theft, data embezzlement, bribery, violation of confidentiality, excessive disparagement, and subversion of employment clauses and company policies, each requiring different tactics of identification.  

Discovering, investigating, and preventing employee fraud offers one of the most difficult challenges.  

Tips on Identifying and Preventing Employee Fraud

An employee may commit fraud due to unmonitored access or lack of checks and balances in internal control systems. 

While virtual hiring helps filter unsuitable candidates, the final interview should always be in person. The cost of bringing in candidates for a final face-to-face meeting is far lower than the subsequent loss of management time and litigation expenses. The impact on the company reputation and its management has an impact on the brand too. 

Once a candidate is hired, orientation and training programs are one of the best measures a company can take to prevent the most common types of employee fraud. This program should cover basic policies and practices, as well as the company’s fraud prevention policies and procedures.  This, of course, must be regularly reiterated. 

Antecedent screening of new hires is standard. However, having a system in place to have regular verification (e.g., every second year) of current employees may assist management in understanding any undisclosed or significant lifestyle or work ethos changes. 

Having a multi-level approval process for hybrid working, leave, employee monitoring and feedback can mitigate incidents to a great extent.  A policy/grievance mechanism and whistle-blower complaints management system will encourage transparency in the organization, and allow for an early warning system. 

Protocols

Keep an eye out for red flags indicating an employee is engaging in or considering fraud. An employee who never takes a proper vacation, for instance, may be protecting or controlling a fraudulent process. 

A single individual should not be in-charge of vendor approval, addition, and purchase. Smaller firms may find it challenging to divide tasks among numerous workers. It is crucial to establish internal controls that make staff aware that they will be exposed if they embezzle. 

The IT person (having administrative rights) should be mandated to report any data loss, back-doors, remote access, and verbal instructions for access to emails or folders of peers or even seniors.   

Finally, asking for assistance in implementing preventative measures and investigating identified fraud would benefit the organization.  In some cases, it may be a control play which requires reporting restructuring too, so obtaining professional, unbiased assistance is critical, as soon as a problem is suspected.

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The author is founder of Alea Consulting. a leading private global risk consulting firm in India.

(Disclaimer: The views expressed above are the author's own and do not reflect those of DNA.)