Do You Know the Red Flags to Spot Employee Fraud?

John Krautzel
Posted by

In 2015, employee fraud was responsible for around a $50 billion total loss to U.S. businesses. Unfortunately, small businesses are disproportionately hit, often due to fewer precautionary measures and a greater sense of trust in a smaller workforce. Keep an eye out for these five red flags to help you recognize where to investigate to beat employee fraud and keep your business financially strong.

Complaints or Tips

According to the Association of Certified Fraud Examiners, most employee fraud at small businesses is exposed by tips from co-workers. Take the time to investigate all tips, including anonymous ones, and also listen for informal complaints about specific workers. Complaints may just be gossip, but there is always a chance that they are founded on a real issue, so look into everything.

Sudden Lifestyle Changes

Keep an eye out for employees who suddenly make large purchases that seem out of the ordinary or living a higher lifestyle than seems possible from their salary. These employees may have other sources of income, but if there is a sudden change, it could also be a sign of increased income from employee fraud.

Putting in Lots of Hours

A staff member who's resistant to taking paid time off and also frequently stays late, arrives early or works weekend may be hiding something. Watch for other signs that this type of employee is doing something underhanded. Does he balk at sharing his computer for a few moments or letting someone else take a glance at his files? All these behaviors are red flags of possible employee fraud.

Account Inconsistencies

An occasional account inconsistency is normal in any business, but sudden changes or new patterns are more likely to be fraud evidence. Watch for mostly inactive accounts getting busier, more cash transactions than usual and steep increases in expenses. If bank accounts won't reconcile month after month, it's time to take a closer look at employees who have access to your funds or products to see if employee fraud is the cause of the confusion.

Rule Breakers

Employees who engage in fraud are often the type of employees who regularly let rules slide. Pay attention to anyone who seems to think they are above the guidelines to which most employees adhere. There's a chance that renegade workers are simply individuals who like to do things their own way, but careful attention on your part may prevent or stop fraud, saving your business money and helping it move strongly into the future.

Fraud not only causes financial losses, but it also leads to a loss of trust between owners and employees, managers and their teams, and co-workers. Act on every red flag, routing out each case of employee fraud at the early stages before mistrust has a chance to grow. Let your employees know that fraud of any type is not tolerated, but that team work and fair play are rewarded for long-term success.

Photo courtesy of Stuart Miles at


Become a member to take advantage of more features, like commenting and voting.

Jobs to Watch