In our many years of working with Small and Medium companies
As a business grows, the founders inevitably rely on ” trusted” employees to perform critical tasks and lose the hands-on control of all that happens in their business. This provides an opportunity for some employees to take advantage of their position of trust and invariably defraud the company and compromise their jobs as well as the viability of the business.
Undetected fraud tends to grow in value due to greed and the employee becomes brazen and sometimes feels entitled to benefit from the fraud. (as weird as it sounds, thieves try to justify their actions)
There are many ways in which employees defraud their companies but these are the 6 common methods used:
- Purchasing for private consumption – staff buying goods and services for their own private benefit using the company’s name and payment.
- Payroll – phantom employees being added to payroll and/or excessive overtime charges as well as employees remaining on payroll after termination
- Corporate credit cards – use of credit cards for personal gain especially in travel and entertainment.
- Sales and receivable – employees collusion with customers using extended credit terms and/or illegitimate credit notes and/or customer returns without adjusting salesperson commissions, etc
- Information and critical data – employees providing critical data to external sources.
- Full access to bank accounts & cash – some trusted employees are given “carte blanche” access to the corporate bank accounts where they are able to transact without verification or third party authorization.
Some companies are under the false expectation that an annual audit by their accountants will pick up employee fraud and this could be no further from the truth. Most auditors are simply checking on procedures and sampling transactions control/allocations and not actually expected to do a forensic investigation and in-depth analysis of all transactions.
The lack of scrutiny and overly trusting employees integrity opens up the doors for employees to abuse the systems and commit fraud.
What is the root cause of my employee commit fraud
- Employee resentment – unhappy staff or people that feel resentful of their bosses success
- Misplaced trust – staff with long service and/or improper segregation of duties where they are allowed and encouraged to fulfil multiple roles within the company
- Technology – with the advent of electronic banking, the employee is able to load a payment, change payee details and effect the transaction all on their own.