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Employee Fraud 101 – The Risk Your Business Faces

Employee Fraud 101 – The Risks Your Business Faces
We detect, investigate and prevent employee fraud and theft, with many years of experience dealing with forensic IT investigations. Ours is a fascinating world thanks to the incredible variety of methods by which people defraud and steal from their employers, and the sheer variety of IT systems they harness to do it. If you are wondering whether background checks for senior appointees is worth your while, read on.

The more senior the staff member, the higher the risk
First of all, it’s important to make clear that a large percentage of theft and fraud at work is by people in senior positions. It’s also true that people working in accounting and finance offend the most frequently. That should help you decide who to check.

Different types of employee fraud

Employee fraud and theft take all sorts of guises. There’s asset misappropriation and vendor fraud, payroll fraud and accounting fraud, the theft of data, and of course bribery and corruption. Here’s what they involve.

About data theft

Data theft is bigger than ever thanks to the way we work these days, using computerised systems instead of paper records and files. There’s the theft of trade secrets, customer data and contact lists, and the theft of ‘personally identifiable information’ like people’s credit card numbers and banking details.

About asset misappropriation
Asset misappropriation has a variety of faces, all common enough in business. There’s cheque forgery and tampering, seen less frequently these days because cheques are a dying breed. There’s physical inventory theft as well as the theft of money and services. And employees can defraud your business by lying about their expenses and falsifying expense accounts.
Payment fraud includes things like vendor fraud schemes and false customer accounts created specifically to make fraudulent payments. It can mean making self-authorised payments as well as working with others to claim money under false pretences. An employer might fraudulently claim on a worker’s compensation policy, carry out health insurance fraud, or falsify sales data to get bigger commission payments.

About payroll fraud
So-called ghost employee schemes involve salaries being paid to a fake employee or an ex-employee who is still on the payroll. Advance fraud is where someone asks for an advance on their money then never pays it back. And timesheet fraud is where someone falsifies their timesheets, adding extra hours or getting someone else to clock in and out for them.

About vendor fraud

Billing schemes are fraught with risk. An employee might generate false payments to themselves via your vendor payment system, or bribe a vendor to pay them to get a competitive advantage. A vendor might over-bill your business in collusion with an employee, who gets a kickback.

About accounts fraud

When someone unscrupulous has access to your accounting systems, they can cause havoc. Embezzlement and accounts payable fraud, fake suppliers and unauthorised personal purchases, and accounts receivable fraud are all commonplace. Accounts receivable fraud covers things like diversion, where an employee hangs onto money that your business has effectively written off, which is rarely tracked. Some people even create fictional accounts and sales in an effort to make the business look more successful than it actually is.

About bribery and corruption

Bribes, kickbacks, shell company schemes and substitute products are all instances of bribery and corruption. And like all the other types of fraud we’ve covered, the systems businesses use on an everyday basis are harnessed by the fraudsters for their own ends.
A lot of the time people eventually get greedy and are found out. But because it usually happens too late to take preventative action, it makes sense to carry out sensible background checks on any employee who has access to your IT systems, even more so for people who have free reign or actually control those systems.

Background checks pick up bad apples
Employee background checks are one of the best ways to head trouble off at the pass before it becomes a real issue. It’s amazing what a series of thorough checks plus assessment by a trained psychologist or ex-detective can reveal, and background checking services like ours have saved many a company from a disaster that leaves their reputation in tatters and their bank balance broken.
If you need employee background checks, talk to us. In the meantime, you can find out more here.

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