International Fraud Awareness Week: Prevent Fraud at Your Organization

As an employer, you want to trust your employees. But unfortunately, employee theft and dishonesty are more common than you might think.

According to the Association of Certified Fraud Examiners’ (ACFE’s) “2024 Report to the Nations,” companies lose an average of 5% of their revenue to fraud each year. In 2024 alone, employee fraud resulted in $3.1 billion in losses. The average amount lost per fraud case: $1.5 million.

In response to this growing threat, the ACFE founded International Fraud Awareness Week in 2000. Fraud Awareness Week is celebrated every year in the third week of November. Its purpose is to raise awareness about fraud and encourage businesses to implement antifraud controls.

In this article, we’ll highlight common employee fraud schemes, red flags to look for and steps you can take to protect your company.

Common employee fraud schemes

According to the ACFE, these are the six most common types of employee fraud:

Asset misappropriation

Asset misappropriation is by far the most common employee fraud scheme, accounting for 89% of all cases. It involves anything from stealing office supplies to ordering excess inventory and selling it for personal profit. Companies face a median loss of $120,000 due to asset misappropriation.

Fraudulent billing

In this type of scheme, an employee causes the organization to pay for nonexistent or overpriced goods and services. They might fabricate an invoice and direct the payment to their own bank account. These schemes account for 22% of cases. The median loss is $100,000.

Falsified expense reimbursements

This is when an employee inflates or fabricates their expenses to receive a larger reimbursement. For example, they might expense client meals, travel or entertainment that never happened. This type of scheme accounts for 13% of fraud cases. The median loss is $50,000.

Payment manipulation

This is when an employee intercepts a payment so they can siphon off funds. For example, they might alter the payee or forge a signature on a check. Or they might use the company’s payment system to commit their fraud. Some employees abuse their legitimate access to the payment system, while others use social engineering to steal login credentials. Payment manipulation accounts for 11% of employee fraud and results in a median loss of $155,000.

Cash skimming

Cash skimming is when an employee removes cash from a company before it enters the accounting system. A common example is making a sale and pocketing the money without recording the transaction. Or the employee might record a lower amount and pocket the difference. Skimming is a preferred scheme among fraudsters because it’s relatively easy to hide. It accounts for 10% of employee fraud and results in a median loss of $43,000.

Payroll schemes

If a nefarious employee has access to a company’s payroll system, they can use it to steal money or other assets. A payroll scheme might involve creating fictitious time sheets, altering pay rates, or adjusting commissions and bonuses. Payroll schemes account for 10% of employee fraud cases, and result in a median loss of $50,000.

Red flags to look for

In 85% of the fraud cases the ACFE studied, the perpetrator displayed at least one behavioral red flag. Here are the top 10 red flags:

1. Living beyond means (39%)

2. Having financial problems (27%)

3. Having an unusually close relationship with a vendor or customer (20%)

4. Displaying control issues or being unwilling to share work responsibilities (13%)

5. Being irritable, defensive or suspicious (12%)

6. Being cunning and dishonest (12%)

7. Bullying or intimidating others (11%)

8. Complaining about pay (8%)

9. Having an addiction (7%)

10. Facing excessive pressure from within the organization (7%)

Only 5% of employee fraud perpetrators had a history of legal problems, so a background check wouldn’t expose them. And the typical fraud scheme lasted 12 months before it was detected. Behavioral red flags are often the best way to identify bad actors.

Steps to take to protect your company

While you can’t completely insulate your company, you can take steps to control your losses. The ACFE advises all organizations to use six antifraud controls:

• An anonymous hotline

• Management reviews

• External audits

• Internal audits

• Management certification of financial statements

• A code of conduct

In addition, your company culture can go a long way toward combating fraud. Foster an open and inclusive workplace. When your employees feel valued and respected, they are more likely to act as gatekeepers for your business. Over 50% of the fraud cases that were detected in the ACFE report came from employee tips.

Train your staff on fraud prevention and enlist their support in detection and reporting. Companies that provide fraud training for their employees reduce their fraud losses by 38%, according to the ACFE. (Visit the ACFE’s “Find an ACFE Member” webpage to find a certified fraud examiner in your area. They may be able to give a presentation at your organization.)

Fidelity and crime insurance

Fidelity bonds alone are different from fidelity and crime insurance. A fidelity bond protects against insider threats, like employee embezzlement or forgery. A fidelity and crime insurance policy offers broader protection. It also protects against employee fraud, but extends coverage to third-party crimes like hacking, forgery, or theft of money and securities

An insider crime versus a hybrid crime

Let’s say your restaurant does a lot of cash transactions. You discover a waiter is running a receipt scam, entering bogus items and pocketing the excess cash. You have a fidelity bond to protect against employee theft. It covers the lost cash.

Months later, you discover a bartender has been stealing credit card information. However, the bartender is just one of several in a sophisticated criminal network. They placed skimmers on your restaurant’s credit card readers. In addition, your bartender gave his criminal buddies access to the restaurant’s network. They created a back-end account that’s been harvesting sensitive information for months.

Your fidelity policy doesn’t cover the nonemployee criminal activity, which is the most significant part of the scam. Your cyber liability insurance policy won’t help because an employee was intentionally involved in criminal activity. If you had fidelity and crime insurance, it would have covered the entire incident.

Call your insurance agent

Call your agent for help assessing your organizational risk. Every business is at risk for employee theft, but each industry has different liability exposures. Your agent will advise you on a policy or combination of policies to keep your business afloat, even if a threat gets through.

This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.

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