When you run a business, the idea of employee fraud can be extremely anxiety-producing. Employee fraud, as well as fraud on the part of your business partners, could be incredibly detrimental to your entire organization, financially and otherwise.
Some business owners work with private investigators to determine if employee fraud is happening, but even so, you have to know when to suspect it could be occurring to know you need to hire an investigator.
So what are some of the initial red flags that indicate employee or business partner fraud?
What are those earliest signs to watch for, particularly if you have a gut feeling something isn’t right?
Personal Issues
If your employee or business partner is facing personal issues, it doesn’t mean they are engaged in fraudulent behaviors, but these can, in some cases contribute to workplace fraud.
For example, maybe your employee or business partner is having relationship problems and going through a divorce, or perhaps they have a history of substance abuse. Maybe there are certain financial pressures from elsewhere that could lead them to behave differently than they might otherwise.
You don’t want to accuse an employee of something they aren’t doing just because they are facing changes or challenges in their life, but it is worth monitoring if this is going on, and you’re aware of it.
Along with personal issues that may be happening in an employee’s life, other factors that can increase the risk of someone engaging in fraudulent activity in the workplace include:
- Having unmanaged control. This could include being the only person who deals with accounting or finances or only dealing with certain vendors or suppliers.
- Being in financial services at all can make someone more likely to be part of fraudulent activity simply because they have more opportunity and access.
- Someone who has multiple roles and a great deal of trust within a business may be more likely to engage in fraud.
Living Beyond One’s Means
Do you have an employee who seems to be living beyond their means based on what you know their salary is? Maybe your business partner seems to be living a much better lifestyle than you, even though you theoretically have the same earnings.
Are there big purchases going on, such as a new car or something that might seem outside of what they can afford?
Again, you don’t want to jump to conclusions, but you also want to keep an eye out and be discerning if you notice these things.
Refusing to Take Time Off
This is a classic red flag of employee fraud, but not taking time off is also a sign of a diligent, hardworking employee, so it can be tough to tell the difference.
If you have an employee or partner who’s suddenly shifting to the point that they’re never willing to take time off, never have sick days, and consistently come in earlier and stay later than everyone else, it could be a red flag of fraud.
At many large investment firms and banks, employees are required to take their vacation time every year so that fraud can be more easily detected.
So what’s the reason that people who are committing fraud don’t want to take time off? They may have a way of doing things that allow their fraud to go undetected as long as they’re there, and if they leave, their cover can be blown.
Financial Record Red Flags
Along with behavioral red flags, you may be able to spot fraud occurring in your business by looking at your financial records.
For example, are there mismatched payees? This means the name on a check that’s been cashed doesn’t match the name that was put in the ledger. Identical payments are another red flag in which two checks for the same amount clear, but they were made to different vendors.
Another financial red flag is a supplier or vendor that has an unprofessional invoice—for example, not having a website or having no address on the invoice.
Working Alone
Some people just tend to like working alone more, or they may be more introverted, but if there is a change in an employee and that person suddenly wants to work alone more often, it could be a fraud red flag.
Of course, none of these red flags mean for sure fraud is occurring, but they can give you something to think about, and then you can go from there and decide the next steps to take.