I trust my employees. 

It will never happen to me. 

It happens all the time.

Employee fraud is more rampant than ever before.  Technology is making fraud more sophisticated and difficult to detect.  Stress in the workplace puts employees under time constraints so that internal controls designed to detect and prevent fraud are not being adhered to.  In small businesses, owners are part of the control system, and often their attention is focused on strategic growth and development of the business, not ensuring that their employees are not running away with their hard earned profit.

Small frauds do not exist.  Small frauds are only a symptom of a bigger organizational problem.

We’ve all witnessed a number of employee fraud schemes, some more sophisticated than others.  Typical fraud schemes are perpetrated due to a lack of segregation of duties or a lack of oversight over the disbursement process.  However, fraud can also be perpetrated through abuse of employee vacation and time reporting, theft of company property, or improper revenue recognition which may impact an employee’s bonus scheme.  Here are a few frauds that we have been witness to in various organizations:

Payroll Personnel

A payroll  supervisor changed her own withholdings on her final W-2 issued at the end of the year, borrowing withholdings from other employees to pad her W-2 for tax reporting purposes.

Expense Report Fraud

An employee submitted duplicate photocopied receipts for reimbursement repeatedly over the span of 2 years.

Inventory Theft

An employee slowly removed inventory from a warehouse to sell on his own without being detected by the Company over the course of multiple years.

These are not sophisticated frauds, yet these are frauds that are allowed to be perpetrated through a breakdown in internal controls.  Reevaluating the function, operation, and design of your internal controls can assist in preventing these and many other types of fraud.


On June 17, 2015 Sharkansky is hosting a Business Perspectives panel event on Employee Fraud, Internal Controls and Cyber Security.