Employee Fraud: How to Spot Internal Theft Before It Costs You Millions

Employee fraud affects businesses of all sizes and can lead to devastating financial losses. Employee fraud occurs when an employee, manager, or executive misuses the organization’s resources or position by theft, deception, or corruption. While external fraud happens when outside parties target a business, internal fraud involves trusted team members engaging in dishonest activities that harm the company financially.

Common Types of Employee Fraud

Internal theft takes many forms. Here are the most common types of employee fraud businesses should watch for:

Embezzlement

This happens when someone from a business steals money by manipulating records, such as creating fake vendors or writing checks to themselves.

Payroll Fraud

When an employee misrepresents timesheets, creates ghost employees and fake accounts to collect money, or gives unauthorized bonuses.

Expense Reimbursement Fraud

If an employee, manager, or executive creates fake business expense reports or inflates them, then expense reimbursement fraud may be at hand.

Inventory Theft

This is more common in small businesses and happens when someone steals physical goods or supplies from a business.

Accounting Fraud

If an employee muddies data and financial records to make the company appear to be doing better than it is, then accounting fraud is going on.

Procurement Fraud

This happens when an employee, manager or executive adds kickbacks to deals, exercises favoritism, or creates fake vendors for purchasing.

Data Theft

When someone inside a company steals intellectual property, trade secrets, or client lists, then data theft is happening.

Check and Payment Fraud

This type of fraud happens less often now with increasing tracing and technology but occurs when someone forges a signature on a check.

Corruption

This broad term includes situations when someone is engaging in bribery, conflicts of interest, or when an employee, manager, or executive takes favors in exchange for personal financial gain.

Examples of Employee Fraud in Action

Embezzlement

Embezzlement is when someone misappropriates business money for personal gain. This takes place when someone from a business transfers money from the company to a personal bank account.

Payroll Fraud

This happens when someone creates a fake payroll but redirects the fake employee’s money to their personal bank account. If there aren’t enough checks and balances in place, then the employee may get away with doing this for years.

Expense Reimbursement Fraud

When an employee, manager, or executive submits personal expenses as business expenses for the purpose of reimbursement, they are engaging in business fraud. Inflating costs could also happen in these cases.

Inventory Theft

Inventory theft happens when an employee steals from a company—usually in small amounts—and then covers the shortage by falsifying records.

Procurement Fraud

Procurement has to do with how a company buys things and involves particular steps. If an employee decides to choose a vendor because that particular vendor is offering a kickback, then the company may end up overpaying for materials by a certain percentage to cover the kickback.

Accounting Fraud

This happens when employees, managers, or executives are looking to make their business look financially sound. There are different ways to engage in accounting fraud, including inflating revenue, delaying the recording of expenses, or prematurely including future contracts as revenue.

Data Theft / IP Theft

An employee may quit or resign from one job and then copy certain business practices only to give them away to a new company later on. This type of IP theft could result in a lawsuit.

Is Scamming a Felony?

Is scamming a felony? It depends on several factors. Scamming may come in a number of forms, including fraud, theft by deception, mail fraud, identity theft, and wire fraud. Whether or not it is a felony depends on the amount of money that was stolen.

Depending on the extent of the fraud, penalties could range from a misdemeanor to a felony.

Misdemeanors include a property value that is less than $100, which is a second degree misdemeanor. A first degree misdemeanor is property value more than $100 but less than $750.

Grand theft, which is property that is valued over $750 is classified as a felony. A value between $750 and $20,000 is a first degree felony. A second degree felony includes property that is more than $20,000 but less than $100,000. A third degree felony includes property that is $100,000 or more.

Penalties for these classifications include 60 days in jail, 6 months of probation, and a fine of up to $500 for a second degree misdemeanor to a fine of $10,000 and 30 years in jail for a first degree felony. So when asking is scamming a felony, the answer hinges on the dollar amount involved.

Do I Need an Attorney for Employee Fraud?

You will likely need an attorney for employee fraud. An attorney can help you investigate the fraud, show you the best way to terminate the employee, and navigate the legal steps to take to file a lawsuit. While your case may not go to court, an attorney can help you negotiate and settle.

Dealing with business fraud with the help of an attorney can ensure that your business has the best chance for recovery. In order to maximize your potential settlement value, you should contact and consult with an attorney that specializes in dealing with business fraud lawsuits.

If your business has been affected by employee fraud, contact our legal team today for a consultation about your options and next steps.