Employee Dishonesty: Identify Threats (Part 1 of 2)

Employee fraud and dishonesty take a toll on business of all sizes. This week, I provide a list of concerns that should be investigated to protect your business from occupational fraud.

Employee dishonesty can be damaging to both your business’ bottom line and reputation. Occupational fraud can result from theft of money, securities or other property of the employer. A recent report from the Association of Certified Fraud Examiners (ACFE) found that the typical organization loses an estimated 5 percent of its annual revenues to occupational fraud. In that same study, the ACFE found the median loss caused by occupational fraud was $140,000. This is a loss no business or organization can afford.

Protect Your Business

Understanding some elements of occupational fraud may help business owners realize what steps are necessary to mitigate it.

  1. Motive: The employee could be under a high amount of financial pressure.
  2. Rationalization: Employees who commit fraud must be able to justify it to themselves. They know it’s wrong, but they may rationalize that they’re not being justly compensated for their work. They may also tell themselves that the theft won’t harm anyone or the employer deserves it.
  3. Opportunity: Individuals who commit fraud recognize the chance to get away with it. Scenarios can range from a lack of cameras in sensitive areas, frequently absent owners or management, or too much trust or responsibility given to too few people.

Identify Red Flags

It’s important to understand you can protect your business. For most of the concerns above, red flags may alert you to problems. A red flag is a set of unusual circumstances or something that varies from normal activity. And it’s a signal something should be investigated.

While of a general nature, here are some red flags that may warrant a closer look:

  1. Employee lifestyle changes (expensive cars, jewelry, homes, clothes)
  2. Significant personal debt and credit problems
  3. Behavioral changes (an indication of drugs, alcohol, gambling or fear of losing the job)
  4. Refusal to take vacation or sick leave (many violations are discovered while the perpetrator is on vacation)
  5. Lower deposit amounts than expected on busy days

Have you witnessed these or other circumstances that initiated a fraud investigation?

Check back next week, when I share ways to take action to prevent these business-damaging events.

(This is an excerpt from an article that appeared in the November/December 2013 issue of On Premise – the official publication of theĀ Tavern League of Wisconsin. The complete article is availableĀ here.)

-Mike Rosenau

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