Common Types of Employee Fraud & How to Prevent It

It is estimated that organizations lose five percent of revenue to fraud each year, according to the 2022 Association of Certified Fraud Examiners Report to the Nations study. With billions of dollars lost each year, employee fraud is costly. Below are common types of employee fraud and ways to prevent them.

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. Having a relationship with employees can be 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 sizable 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 deter 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. 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! Small businesses are particularly vulnerable as they lost almost twice as much to fraud per scheme as larger businesses. As shared in the study, the most common way employee frauds are discovered is via tips or a hotline. Consider incorporating a way to allow for reporting if you don’t have something set up already to protect your small business.