Conducting business in today’s market is tough enough, given the layers of regulations, rising insurance costs, ever increasing competition entering the fray from the far end’s the earth, and more. Exacerbating the issue for employers big and small is the problem of employee fraud, which hits the typical organization to the tune of a median 5 percent of revenues annually, according to the Association of Certified Fraud Examiners’ (ACFE) 2014 Global Fraud Study. Globally, this equates to losses approaching $4 trillion.   

The major types of fraud perpetrated range from identity theft and cybercrime (especially credit card abuse) to asset misappropriation and corruption cases, financial statement fraud and worker’s compensation fraud.

So, what are the key steps any company should take to ensure they mitigate the impact of employee fraud to the fullest extent possible?

• Pre-Employment Background Checks
• Candidate References
• Use Internal Controls
• Perform Unscheduled Audits
• Communicate Clear Guidelines
• Recognize the Signs

Pre-Employment Background Checks

One of the most important steps in reducing fraud is hiring honest employees – especially those who will be handling cash, high-value merchandise, or have access to sensitive customer or financial data. The pre-employment background check is best way to accomplish this. A good one examines the candidate’s criminal and civil background, driver’s license record, and education and employment verification.  This is best carried out by a 3rd party entity trained in investigations and familiar with the myriad laws governing the various types of background checks involved in the verification process.

Candidate References

Many employers actually forego checking references, assuming the reference will offer nothing beyond a favorable review, which is a mistake to assume. A trained investigator can conduct a brief interview and discern important information about the candidate that may not be found elsewhere. They can also subtly cross check details offered by the candidate, which provides insight into their forthrightness. These are best carried out by a 3rd party entity trained in investigations involving interviews.

Internal Controls

Controls are used to primarily to limit access and ensure duties and processes are properly separated and adhered to. Employees responsible for recording transactions are precluded from processing transactions and vice-versa. And there should be a policy governing how all transactions are carried out and reviewed. Finally, all authorizations should be strictly enforced and limited to those employees whose duties require access to accounting systems, as well as physical and financial assets and information.

Unscheduled Audits

The use of unscheduled audits is a good way to ensure controls are being adhered to and is a front line deterrent to fraud or criminal activity where employees seek to exploit those internal controls. Key areas to focus on range from cash and sales reconciliation, vacation and sick day reports and business expense reports to violations of email/social media policy, Web-use, and more.

Communicate Conduct Guidelines

While it won’t directly prevent fraudulent or even criminal behavior, communicating a clearly defined employee code of ethics and conduct will hold employees accountable and set a clear benchmark for workforce behavior. Employees should be forced to review and sign off on the guidelines annually.

Recognize the Signs

Employees engaged in or contemplating fraudulent behavior do their best to remain under the radar, but more often than not throw up red flags to those employers who are looking for them. Key signs include the disappearance of financial records, an employee who significantly increases their after-hour or work-at-home time, someone who grows abnormally protective of their work space, an employee who refuses to take vacations (fears being caught when not present), unexplained debt and an unexpected change in behavior.