Top 4 Signs That Your Employee or Business Partner is Committing Fraud

Man Committing Fraud

One of the most commonly asked questions our firm receives is “how do I know if someone is committing fraud?” Well, unfortunately you don’t know until you know. However, the sooner you identify the presence of fraud, the less detrimental to your business it will be. It is important to understand inherent risks your business model holds, and in turn, create awareness around certain parts of your business that are more vulnerable to fraud and how certain employee actions should raise particular concern.  Our team has compiled a short list of helpful hints that you may be experiencing employee theft, embezzlement, fraud or any other type of financial misconduct.

1. Drastic lifestyle changes or choices that don’t seem to match up with their pay and position.

This may seem obvious but could become incredibly easy to overlook. As all of us want to be employers that are reasonable, non-judgmental, and unobtrusive, it is OK to wonder why your unmarried controller making $85k per year moved into a $1.2M home and drives a Bentley to work every day. As funny and sarcastic as that comment may seem, you would be surprised how often this occurs… on different levels of course.  In the grand scheme of things, if a person of interest acquires items of larger value than what their paystub may dictate, such as a new home, car, luxurious trips, etc., this should be a particular point of concern.

2. When someone in a position with the ability to make financial decisions on behalf of the business (shareholder, accountant, controller, CFO, etc.) becomes defensive or closed off.

The vast majority of cases with financial misconduct present within a corporation involve various personality and communication traits that should “raise an eyebrow” to say the least. If an employee or business partner starts to act distant, closed off, or defensive about their decisions, it may be worth asking additional questions with the possibility of performing some type of high-level investigation into their responsibilities. Part of this behavioral change may include an employee insisting on completing projects alone, especially if you generally work in a collaborative environment. These types of things become especially concerning when the normal personality or behavioral traits of this individual are on a completely different spectrum than what has been generally observed.

3. Strange or long working hours and never taking time off.

This tip goes hand in hand with #1 and #2 above, in that, it’s another behavioral change. If someone is suddenly working odd hours at odd times, especially if they’re in a position to make key financial decisions on behalf of the business, this may be reason for concern. The reason that this may be of particular concern, is when employees with these types of responsibilities take time off, certain things may be brought to light. Simple examples may include the cash drawer now having a much higher daily balance, realizing 23 employees are being paid when you only have 22 on the team, or you review accounts payable only to discover that you are paying ABC Marketing Company for online advertising purposes when you don’t run online ads. “Ghost employees” and “ghost vendors” sink small businesses all too frequently.

4. Signs of financial distress, desperation, or dissatisfaction.

The key component of this tip is not to identify an employee that is dealing with financial difficult times, as the majority of your employees will be in that position at some point, rather it is to analyze how they handle those situations. For example, an employee may develop a newfound hobby or habit of gambling, a suspected drug problem, or being unable to separate personal problems from the way they are being paid at work.

It is all too common for employees to allow dissatisfaction to turn into a belief that their employer owes them something and in-turn justifies certain actions. This level of dissatisfaction could be created by a multitude of things, such as an employee believing they should have received a higher year-end bonus, their performance review doesn’t go as planned, other employees get raises when they don’t, or they believe their contribution to a certain project should be compensated differently. The introduction of these types of things should incline you as a business owner to ask more questions, implement different financial review procedures, and analyze the vulnerabilities created by the responsibilities that particular employee has.