Fight in-house fraud by knowing who–and what–to watch for

employee stealing moneyThere are plenty of ways for organizations to lose money—bad business decisions, tough competition, fickle markets. But often highlights one of the most unexpected and insidious fiscal perils: employees who steal. A few recent cases:

  • A civilian employee of the Marine Corps in North Caro­­lina used a government credit card to steal $74,000.
  • A Pennsylvania health care executive set up a series of shell companies to invoice his hospital. For 12 years, he pocketed the checks, taking $1.7 million.
  • The comptroller of a Florida nonprofit skimmed $1.6 million in withholding from employees’ paychecks, leaving the organization’s budget in tatters.

U.S. businesses annually lose an average of 6% of revenues to employee fraud and theft, and smaller businesses are even more vulnerable. It’s well worth it to focus security efforts on stopping in-house thieves.

Here’s a sketch of whom and what to watch out for.

Who are those masked men (and women)?

Position: Low-level workers commit 68% of all workplace fraud, more than managers (34%) and execs (12%).

Tenure: Long-term employees tend to steal more. Two reasons: They’ve likely advanced to higher positions and they’ve earned their supervisors’ trust.

Gender: Men commit only slightly more workplace fraud (53%) than women (47%). 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 higher rank, collect more in their scams.

Background: Workplace con artists typically don’t have criminal backgrounds (83% have clean records), but they do feel underpaid and unhappy on the job.

Most common scams

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:

  • Billing schemes in which an employee submits invoices for fake goods (pocketing the check) or to pay for personal items.
  • Payroll fraud involving bogus claims for additional hours, or manipulation of an employee’s rate of pay.
  • Expense reimbursement scams that rely on fake or inflated business expenses.
  • Check tampering in which an employee forges, alters or steals a company check.
  • Register schemes that let retail employees make false entries on a cash register to conceal stealing cash.

4 steps to prevent in-house theft

These broad measures can help limit the risk of internal theft and fraud:

1. Spread responsibility for major accounting and financial transactions so no single employee controls them.

2. Catalog all processes with a potential for being manipulated, including accounts payable and receivable, payroll tax deposits and deposits to benefits accounts. Establish ironclad processes for controlling at-risk processes, including redundant oversight.

3. Keep a list of individuals with access to potentially risky processes, as well as the computer systems involved in transactions.

4. Check incoming equipment, supplies and merchandise against purchase orders and invoices.