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Employee fraud: Know whom (and what) to look out for

by on
in Small Business Tax,Small Business Tax Deduction Strategies

You may be surprised to know that U.S. businesses lose an average of 6 percent of their annual revenues to employee fraud and theft, and smaller businesses are even more vulnerable.

So, instead of just trying to shield your organization from outside intruders, you may want to focus security efforts equally (if not more) on stopping in-house thieves.

When it comes to preventing in-house fraud, knowledge is power. Here's a sketch of whom and what to watch out for:

Most common perpetrators

Position: Lower-level employees account for 68 percent of all workplace fraud, compared with managers (34 percent) and execs (12 percent).

Tenure: Employees with longer tenures tend to steal more. Two reasons: they've likely advanced to a higher position and have earned supervisors' trust. The more autonomy and authority an employee receives, the greater fraud risk.

Gender: Males commit only slightly more workplace fraud (53 percent) than females (47 percent). But men take nearly three times more than women when they steal.

Age: Nearly half of perpetrators of workplace fraud are over age 40. And older employees, typically because of their rank, collect more in their scams.

Background: Workplace scam artists typically don't have criminal backgrounds (83 percent have clean records), but they do feel underpaid and unhappy on the job. About one-third of all fraud is committed by a team of two or more employees.

Most common schemes

More than two-thirds of all occupational fraud involves some form of fraudulent disbursement of funds. Here are the top five categories to watch out for:

1. Billing schemes. Employee submits invoices for fake goods, inflates invoices or submits invoices for personal items.

2. Payroll schemes. Employee makes false claim for compensation.

3. Expense reimbursement schemes. Employee makes claim for fake or inflated business expenses.

4. Check tampering. Employee forges, alters or steals a company check.

5. Register schemes. Employee makes false entries on a cash register to conceal stealing cash.

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