6 steps to lower the risk of employee fraud

Employees don’t always set out to commit fraud—sometimes in a weak moment they commit a "crime of opportunity”. In other cases, employees may intentionally target a weakness in a business’s processes and protections. Regardless of motivation, employee fraud can do great harm to your business.

Common sources of employee fraud

An Association of Certified Fraud Examiners (ACFE) survey^{Disclosure 2} found that employee fraud falls into three main categories:

• Asset misappropriation is the most common source of fraud. It occurs when an employee steals or misuses an employer’s resources through the theft of cash or goods or by tampering with sales, payroll, expenses, or other receipts and records.
• Financial statement fraud is often the costliest form of fraud, It occurs when an employee intentionally makes an error or omission in the company’s financial statements.
• Corruption includes bribery, corruption, and actions driven by a conflicting interest.

Often perpetrators commit more than one type of fraud.

How exactly do fraudsters commit fraud? Typically, by creating or altering physical or electronic documents and destroying or withholding physical documents. 

How to lower the risk of employee fraud

You can take measures to protect your business from employee fraud. Start with these six steps:

1. Set clear standards. Create a culture of honesty and integrity, with an ethical work environment and a no-tolerance policy for violations. Include training for signs of internal fraud. This approach can be a deterrent to would-be fraudsters while also encouraging honest employees to speak freely when they see something concerning.
2. Segregate fraud-sensitive functions. Measures like dual controls—which require two approvals from two different individuals—make it much harder to conduct fraudulent transactions and access sensitive data.
3. Take advantage of anti-fraud controls and solutions, like Truist Fraud Inspector™. Tools make it easy for you to review the prior day’s transactions, quickly dispute and reverse fraudulent items, and recover your money quickly for any reversals—often as fast as just one business day.
4. Maintain a rigorous screening of job candidates. Be disciplined about verifying employment history and checking references. Perform criminal and civil background checks and conduct credit checks and drug screenings where appropriate. It might be tempting to skip the time or investment required, but these simple measures can go a long way toward preventing larger problems later.
5. Watch for telltale fraudster behaviors among your employees. Employees who seem to live beyond their means or are experiencing financial difficulties are often the most tempted to commit fraud. Watch for an employee who has an unusually close association with a vendor or customer. An employee who has control issues and is resistant to sharing duties can be a red flag—especially if their behavior shows any hint of bullying, intimidation, or defensiveness.
6. Get insurance. Crime or employee dishonesty coverage can help protect you from the financial damages of employee fraud and even fraud by third parties such as your accountant. You can often get adjacent coverage that protects you from cybercrime. Talk to McGriff Insurance Services to explore options to protect your business. 

Good news for small business owners

Online fraud prevention resources are plentiful, and virtually all modern banks or financial services organizations have some level of fraud protection embedded in their systems, as well as numerous alerts and other mechanisms you can take advantage of to be sure you’re constantly protected. Many also offer additional fraud solutions you can add to increase your level of protection.

With just a reasonable level of awareness and caution, you can operate with a strong sense of trust in your employees, while at the same time keeping your eyes open and taking practical measures to protect the business you’ve worked so hard to build.