It’s every business owner’s nightmare: a long-time trusted employee, who has access to the finances and the bookkeeping processes, is diverting funds into another account for personal use. And nobody knows it, or even suspects it, yet.
Many employees, especially those in smaller companies and in senior positions, get away with stealing from their employers for years before they are caught.
Here are some common warning signs of potential fraud and theft:
1. Living beyond their means.
You know what you pay your staff: if an employee earns a modest salary, but suddenly takes expensive trips, buys a flashy new car or wears designer clothing, it might be time to take a closer look. Check out stories of an inheritance, a lottery win, or a partner’s promotion - many people come up with a cover story for why they are suddenly big spenders.
2. One person has signing rights and balances the books.
This often happens in smaller companies. Different staff members should be doing these tasks and it should be rotated. It also places unnecessary temptation in someone’s way if they know they can easily get away with pocketing some cash. Business owners feel reluctant to check up on a long-time trusted employee as it could insult them. Fraudsters can abuse this reluctance.
3. The employee never takes annual leave.
Someone who is busy stealing money (whether with false invoices, company EFTs into their account, or payroll fraud) cannot afford to go away, and possibly let someone else check their records or files. The company won’t get someone to fill in for them if they are away for a day or two, but if they go away for three weeks, their job will have to be taken over by someone else. They cannot take this risk for fear of being found out.
4. An employee is having a financial crisis.
A messy divorce, medical bills, debt, or a partner who was retrenched are all reasons why a trusted employee may look at the company’s cash differently. Personal financial pressure can lower someone’s standards – and everyone who steals from their employers start off thinking they are going to pay it back. Over time, it just becomes too much for this to be a reality. However, this certainly doesn’t mean that everyone who is having a crisis is a thief.
5. First in, last out.
Someone who is there before everyone else and leaves last in the evenings may not just be diligent. They may need time alone to fiddle invoices, make phone calls to a partner in crime, or do transfers they don’t want others to observe. Someone who is hiding something can also be very defensive about their ‘territory’ and be unwilling to share task and responsibilities with other employees in what they consider to be their department.
6. Constant shortages.
Mistakes happen – but they happen in both directions. All waiters, for instance, sometimes have too little, and sometimes too much cash at the end of the day. Look out for the one who is always short. The same goes for stock shortages, so it is a good idea to compare the patterns of shortages between different employees. Also check incoming supplies/orders to see if there is excessive spending on certain things, such as office supplies.
7. Someone who feels hard done by.
Being overseen for a promotion, or not getting the raise they wanted, could make someone feel resentful. This increases their temptation to steal from the company, as they feel the money is rightly theirs.
8. Very close to certain clients.
If an employee is friends with a supplier or vendor, it might be a red flag. If they see each other after hours, or the client always asks to speak to that particular person, they might just be friends, but they could also be colluding in some way. Double check the invoices coming from that particular client, and see if they are inflated, or if the sales slips have been voided more often than usual. Be vigilant if a supplier or client is a family member of the employee.
9. Missing documentation.
Things can and do go missing, computer files can be wiped out and invoices can disappear. But if it seems to happen to the same person all the time, there could be a problem. Check if there is a pattern here.
10. The business is losing cash.
You think the business is doing well, but the income remains low. Maybe your observations about how the business is doing are incorrect, or perhaps one of the employees is siphoning off the profits.