Tips for Thwarting Employee Fraud

December 10, 2018

Most business managers and owners are well aware of the threat of loss from outsiders, and they will install alarms, hire security guards and take other preventative measures.


But, most employers pay less attention to reducing the risk of theft by an insider. No one wants to believe that an employee will purposely defraud the company of money.


Most people want to trust their employees, and rightly so. But it only takes one bad apple to do significant damage.


Depending on the person's position within the company, and the length of time the theft continues, substantial losses can result.


Business owners often have a tendency to believe that it can't happen to them. Unfortunately, employee fraud is quite common. Furthermore, no risk reduction measures can be guaranteed to keep it from ever happening or to detect every instance of fraud or theft.


What you can do

  • Institute an anti-fraud policy - Many employers wrongly assume they don't need to discuss insider theft, since their employees know it is wrong.
    But experts say a strong, written anti-fraud policy, published in the employee handbook and/or posted on employee bulletin boards, helps prevent insider theft.
    The written policy reinforces the employer's intent to maintain an honest, ethical environment, as opposed to one where it is regarded as common practice to steal from the business.
  • Ask employees to report suspected fraud - Honest employees will usually report fraud when there is a good policy for doing so. Provide guidelines and have a system in place for reporting fraud. Explain to your staff how they can report any suspicion of fraud or theft. Take all tips seriously and investigate them.
  • Maintain a business climate of loyalty and trust - Expectations influence behavior. When you expect employees to steal, some are more likely to do so, reasoning that there is no point in behaving honestly if you are already suspected of being dishonest.

Maintaining an atmosphere in which employees feel trusted and valued, and are rewarded for loyalty, helps prevent insider theft.

  • Encourage ethical business practices - The typical employee thief is often a first-time offender who rationalizes their behavior to avoid having to face up to their criminality.
    Employees who have a weak moral character are more likely to act on it in an environment where they see the business engaging in unethical practices. When the company promotes and rewards ethical business practices, the risk of insider theft goes down.
  • Compartmentalize job functions - When the same person both approves and pays invoices, it is especially easy for a dishonest employee to submit bogus invoices and then pay them.; Compartmentalizing duties helps to prevent this type of scheme.
  • Accountants should look for red flags - Among the methods accountants often recommend are accounting controls, frequent audits, and reconciliation of records. Make sure that accountants understand that you view the discovery of insider theft as an aspect of their duties and services.

The takeaway

To reduce the risk of insider theft, the employer's position should be one of trusting employees in general not to steal, while at the same time being proactive about measures to help keep workers honest.


Most employees will never engage in schemes to defraud, but unfortunately, there are always some who will. The dishonest employees are often the very people the employer would be least likely to suspect.




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