When the “Bad Guys” Are Your Own Employees: Tips for Spotting Employee Fraud

Written By Michael L. Rosten
As printed in the The Business Voice (Metro Chamber)

To a business owner, a trusted long-term employee can become like a member of the family. However, these employees may be your biggest threat: with that trust comes the relaxing of internal checks and balances designed to deter fraud.

Occupational fraud, or crime committed by an employee against their employer, is often perpetrated by some of the most dependable and experienced people within a company. Such trust violations leave owners feeling betrayed, since they had given the employee special access to sensitive information and financial documents.

How can you know if an employee may be involved in a fraud scheme? Here are some possible red flags to look out for:

•Employee does not take vacation. Ever. If an employee feels that they cannot leave work, and they resist taking a vacation even when losing accrued time off, they may be concealing something.

•Employee appears to be living beyond their means. Do you have an employee who makes an unexpected large purchase, such as a new luxury car? Are they wearing jewelry or clothing they shouldn’t be able to afford?

•Employee becomes territorial. If an employee becomes secretive, prefers to keep their office door closed all the time, or doesn’t allow visitors in their office anymore, they may be concealing something.

Other red flags may be more subtle. In a recent issue of Fraud Magazine, Paul M. Clikeman, PH.D., CFE provided some of the main behavioral and verbal red flags indicative of deception:

1. Lack of self-reference. Using the passive voice when describing events:
• “The key was signed out” instead of “I signed out the key.”

2. Verb Tense. Describing the actual past event as happening in the present:
• I locked the door to the office. As I walked away, a person hits me and grabs the money and runs away.

3. Answering questions with questions. Deceptive people prefer not to lie, and will try to avoid telling a lie by asking a question instead of answering directly:
• “Why would I steal from my boss?”

4. Equivocation. Statements filled with uncertainty, weak modifiers and vagueness such as: think, guess, maybe. Nothing seems to be definite.

5. Oaths. Using oaths to convince others that what they say is true, instead of offering up the simple truth:
• “I swear” or “Cross my heart”

6. Euphemisms. Using euphemisms to make their behavior appear more favorable:
• Use the word “missing” in lieu of “stolen” or “warned” instead of “threatened”

7. Alluding to actions. Alluding to having done something they did not actually do. Don’t assume that the action was performed just because they allude to it.
• I started to lock the door, when I realized that I needed to also lock the safe.

8. Lack of Detail. Using generalities to minimize the risk of someone using details to check out their story.
• “That afternoon” instead of “between 3:00 pm – 3:30 pm”

It is never a good experience when the “bad guys” are your own employees, but if you suspect an employee is being deceptive, it may be time to pull back the sheets and expose any concealment. A Certified Fraud Examiner knows what patterns to look for in order to find the fraud that your employee is trying so desperately to keep hidden.

Mike Rosten is a Principal at Piercy Bowler Taylor & Kern CPAs and Business Advisors. You can reach him at mrosten@pbtk.com or 702-384-1120


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