Employee fraud

Employee fraud involves people who are direct employees or contractors who commit acts of fraud against their employer.

How does this work?

There are many ways employees commit acts of dishonestly against their employer.

Cash handling

The main risks involved in cash handling procedures include:

• Theft
• Misuse of petty cash
• Submitting fraudulent claims with fraudulent receipts
• Cash sales not being recorded

Keeping large amounts of cash on the premises and not securing them or banking them promptly also creates opportunities for theft.

Other factors include:

• Using common registers, drawers and lockers among staff
• Paying claims without appropriate authorisation or receipts
• Not supplying details of purchases on claims
• A person generating a cash document and the same person authorising it.

Purchases and accounts payable

The purchasing and supply of goods for business purposes is an area open to fraud as employees are given the trust they require to do their job. However, the accountability to ensure an appropriate level of ethical behaviour is often not present. Sometimes opportunity alone leads to employee fraud such as:   

• Corrupt practices
• Kickbacks
• False claims
• Payment for goods not supplied
• Private purchases being made through company accounts
• Creating fraudulent creditors and paying the proceeds into the employee's account.

How do I protect myself?

Cash handling

• Segregate duties involving cash handling
• Arrange for cashiers to operate their own float and balance when undertaking duties
• Minimise the use of an open cash register
• Compare cash trends to identify whether expected cash flow is equivalent to actual
• Monitoring the number and regularity of 'No Sales' transactions on cash registers and countersign 'No Sales' transactions
• Reviewing petty cash transactions and claims
• Retaining all receipts for audit purposes
• Review goods returned transactions against stock figures.

Purchases and accounts payable

As an employer, you can take several steps to safeguard your business against this form of fraud:

• Authorising separate individuals to make purchases and payments
• Issuing guidelines and training on making purchases and payments
• Setting an expenditure limit
• Segregating purchasing, receipting and payment duties
• Monitoring compliance with policies and procedures
• Reviewing transactions and conducting fraud audits
• Making regular inquiries with debtors and creditors to ensure the invoice values are correct
• Making independent inquiries on new customers not known to management 
• Installing application programs that monitor cash management to identify potential instances of fraud.

Often after a fraud has been identified, management and employees commented that they had some concerns about the way that the fraudster had done their job, but dismissed their concerns because they had been there a long time and were good at their job.