| Type of Fraud | Percentage of Cases | Description | Example | Solutions |
| Check Tampering | 29.1% | Any scheme in which a person steals his/her employer’s funds by forging or altering a check on one of the organization’s bank accounts, or steals a check the organization has legitimately issued to another payee. | Employee steals blank company checks, makes them out to himself/herself or an accomplice. |
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| Skimming | 27.6% | Any scheme in which cash is stolen from an organization before it is recorded on the organization’s books and records. | Employee accepts payment from a customer but does not record the sale. |
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| Billing | 24.7% | Any scheme in which a person causes his/her employer to issue a payment by submitting invoices for fictitious goods or services, inflated invoices or invoices for personal purchases. |
Employee creates a shell company and bills employer for nonexistent services. Employee purchases personal items, submits invoice for payment. |
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| Expense Reimbursement | 23.1% | Any scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expenses. | Employee files fraudulent expense report, claiming personal travel, nonexistent meals, etc. |
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| Cash Larceny | 19.7% | Any scheme in which cash is stolen from an organization after it has been recorded on the organization’s books and records. |
Employee steals cash and checks from daily receipts before they can be deposited in the bank. (These may or may not have been recorded on the organization’s books at this point.) Employee steals outgoing check to a vendor, deposits it into his or her own bank account. (Not nearly as likely as the shell company scheme, because the vendor will call to inquire.) |
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| Payroll | 17.8% | Any scheme in which an employee causes his/her employer to issue a payment by making false claims for compensation. |
Employee claims overtime for unworked hours. Employee adds ghost employees to the payroll. |
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| Non-Cash | 17.6% | Any scheme involving theft or misappropriation of non-cash assets such as inventory, information or securities. |
Employee steals merchandise from warehouse or sales floor. Employee diverts incoming inventory for personal use. |
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Corruption
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22.8% | Conflict of Interest: An employee, manager or executive has an undisclosed economic or personal interest in a transaction that adversely affects the company results. |
Conflict of Interes: An employee owns an undisclosed interest in a supplier. The employee negotiates a contract between his employer and the supplier, purchasing materials at an inflated price. |
Conflict of Interest:
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Bribery: A person offers, gives, receives or solicits something of value for the purpose of influencing an official act or a business decision without the knowledge or consent of the principal. |
Bribery: An employee accepts payment from a vendor in return for providing confidential information about a competitor’s bid on a project. |
Bribery:
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Illegal Gratuities: A person offers, gives, receives or solicits something of value for, or because of, an official act or business decision without the knowledge or consent of the principal. |
Illegal Gratuities: An official negotiates an agreement with a contractor, and in appreciation the contractor provides the official with a gift such as a free vacation. |
See NOTE at bottom. | |
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Extortion: The coercion of another to enter into a transaction or deliver a property based on wrongful use of actual or threatened force, fear or economic duress. |
Extortion: An employee refuses to purchase goods or services from a vendor unless the vendor hires one of the employee’s relatives. |
See NOTE at bottom. | |
| Other | 21.7% | Financial statement fraud (12.1%), wire transfers (7.6%) and register disbursements (1.6%). |
NOTE: It is extremely difficult, if not impossible, to prevent fraud in which collusion is involved. Also, some of the above scenarios (extortion, bribery, kickbacks, etc.) are less tangible than others and therefore more difficult to detect. It is important to look for unusual changes in an employee’s lifestyle or standard of living. For example, is he/she driving a more expensive car than he/she can afford or than he/she has in the past? Has he/she started buying more expensive clothes or exhibited “affluence” that appears to be beyond what would be expected based on his/her pay? Has he/she been on what seems like an unusually exotic/expensive vacation? Has he/she recently moved his/her children from public to private schools? While certainly not an all-inclusive list, these are all things to watch for if an employee is suspected of wrongdoing.
General practices that can help prevent or detect fraud in the workplace are quality background checks (not the $10 online kind), as well as establishment of a fraud hotline that gives employees a telephone number to call anonymously if they suspect a co-worker. Finally, every employee who works with cash and/or financial records should be required to take at least a one-week vacation each year; countless schemes have been uncovered when the guilty employee was away and unable to continue covering up his/her crimes.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
D.L. Perkins, LLC is solely responsible for this content.
