Is Your Business at Risk of Employee Fraud?

One of the costliest financial crimes could be happening in the office right next to you.

According to the Association of Certified Fraud Examiners (ACFE) 2024 study, occupational fraud — committed by employees against their employers — causes $3.1 billion in annual losses globally. These industry experts estimate that organizations lose five percent of their revenue to internal scams every year.

This is a shocking number that applies to business owners and executives in every sector, from large multinationals to small nonprofits. No employer is exempt. But the more you know about who commits these crimes — and how they are committed — the more likely you are to stop employee fraud before it damages your company’s reputation and bottom line.

Misappropriation, corruption and financial statement fraud are pervasive and costly.

Stealing or improperly dispersing corporate funds or trade secrets is asset misappropriation, which is 89% of employee crime. Though it’s the most common occupational fraud, median losses are only $120,00 for misappropriation cases, which are usually non-cash asset theft and billing/payment schemes (22%). Check and payment tampering and billing schemes are the costliest, with losses of $155,000 and $100,000 respectively.

Conversely, statement fraud or “cooking the books” is less common (5%) but much more damaging, with median losses of $766,000.

Corruption is an element of 48% of reported occupational fraud cases.

Is your organization at risk?

Corruption, misappropriation and financial statement fraud are the most common occupational crimes across all industries. Corruption is especially high in the energy, technology, manufacturing and information fields. However, some industries are more susceptible to certain schemes than others. For example, healthcare and construction are rife with billing schemes, as well as corruption.

Understanding the employee theft specific to your organization will help to implement standards and processes for fraud prevention.

Employees who commit fraud come from specific demographics.

It’s also important to recognize who’s most likely to commit employee fraud. The ACFE has studied the crimes in numerous organizations for many years. Over time they've noticed distinct characteristics among employees who steal and there is usually more than one perpetrator.

• Most perpetrators are men.

  Seventy-four percent of perpetrators in the ACFE study were men, and men caused higher median losses ($158,000) than women ($100,000).

• Losses increase with age and education level.

  Most fraudsters (54%) are between the ages of 36 and 40, but the older the perpetrator, the greater the loss. For example, only three percent of fraudsters are older than 60, but they caused median losses far higher ($675,000) than any other age group.
  
  Fifty-two percent of perpetrators have a college degree. Those with postgraduate degrees (15%) cause the highest median losses — $250,000. This likely occurs because people with more education usually hold higher positions of authority and might have greater technical ability to commit fraud.

• Owners and executives cause the largest losses.

  Owners and executives are responsible for only 19% of fraud, but they cause the largest median losses ($500,000), more than seven times that of employees. People with higher levels of authority can often override anti-fraud controls and have easier access to company assets.

• Tenured employees do the most damage.

  The longer a perpetrator works at a company, the more damage he can cause. The 23% of employees who worked at the victim organization for at least 10 years stole a median of $250,000. That’s five times greater than employees who have worked for a company less than a year. This may be due to familiarity with gaps in internal controls and an increased level of trust in longer-term employees.

• Perpetrators usually work in operations, accounting, sales, customer service and upper management.

  Corruption was the most frequent crime across all departments, even in groups that weren’t usually involved in occupational fraud. For example, purchasing staff committed most corruption cases at 79% and upper management followed at 65%.

• Most are first-time fraudsters – or are they?

  You would think most perpetrators are first-time offenders as only 12% have a fraud-related charge or conviction, and 87% say they’ve committed no previous crimes. However, 43% of occupational fraud wasn’t reported to law enforcement, which could indicate that the percentage of repeat offenders is higher than reported. The top reasons for not reporting the fraud include sufficient internal discipline (49%), fear of negative publicity (35%), private settlement (24%) and expenses related to reporting (21%) among others.

Certain lifestyle and personality changes can indicate likelihood to commit employee fraud.

Employees who commit employee theft tend to also exhibit some common behavioral patterns. According to the ACFE, 84% of perpetrators display at least one of these prevailing red flags.

• Living beyond their means
  Are employees buying very expensive new cars or second homes? Taking extravagant vacations? Living beyond their means is the most common red flag and is shared by 39% of internal fraudsters.


• Financial difficulties
  Twenty-seven percent of employees are having financial problems. It’s no surprise they would steal to fix them.


• Unusually close association with a vendor or customer
  Employees with overly friendly vendor and customer relationships account for 20% of occupational fraud.


• Control issues, including unwillingness to share duties
  Hiding criminal behavior requires concealment. Tightly controlling job duties is a hallmark of 13% of occupational fraudsters.


• Irritability, suspicion or defensiveness
  Dishonest employees are under a lot of pressure from financial problems and attempting to hide their behavior from colleagues and families. Irritability, being suspicious, defensiveness, or bullying is common in 12% of office fraudsters.


• “Wheeler-dealer” personality
  These employees (12%) may be overly confident in their negotiation abilities. They cause as much as $350,000 in median losses.


• Engage in bullying or intimidation
  Eleven percent of employees bully others or engage in other aggressive behavior. These employees cost companies $300,000 in median losses.


• Divorce or family problems
  Employees with relational problems may also commit fraud. For example, 10% are divorcing or experiencing other family issues.

Though excessive organizational pressure (7%) and past legal troubles (5%) aren’t among the most popular indicators, staff members with these experiences cause the highest median fraud losses — $617,000 and $500,000, respectively.  

The ACFE also points out a correlation between fraud and other workplace issues, including poor performance evaluations (14%), fear of job loss (12%) and denied raises or promotions (11%).

Build a transparent culture with tight controls to prevent employee fraud.

How can your organization stop occupational fraud? The first step is to establish a strong culture of honesty, integrity and transparency with leadership by example. Consistent fraud prevention training and zero-tolerance policies are also critical. Encourage employees to report suspicious activities through dedicated communication channels.

The ACFE recommends tighter controls to prevent incidents before they happen. These might include:

• Conducting pre-employment background checks.
• Implementing strong security measures, including surveillance.
• Restricting access to sensitive areas and data through physical controls and user permissions.
• Establishing payment fraud prevention measures, such as segregating payables and receivables duties. Also consider periodic staff rotations.

The ACFE offers a variety of fraud tools, including analytics tests, scorecards and templates, on their site.

What should you do if you suspect employee theft?

If you suspect that your company is a victim of employee theft, act quickly. Consult legal counsel or human resources for assistance conducting and managing an investigation. They can advise you on what records to collect, questions to ask and how to preserve an employee's rights. Carefully follow their instructions on documentation and evidence to protect your rights, too. They can also help decide when to involve law enforcement and act as your advocate.

Employees who are found guilty of theft can face criminal prosecution and prison time, as well as civil suits. In both cases, the court may order reimbursement.

Vigilance and effective fraud prevention curbs employee theft.

Employee fraud can occur at any company and organizational level. Identifying and preventing the risks is key to protecting your business. Seek professional guidance to limit potential losses and preserve your reputation.

Synovus is committed to helping protect your business’ assets. For more details on fraud prevention solutions, simply complete a short form and a Synovus Treasury & Payment Solutions Consultant will contact you with more details. You can also stop by one of our local branches.