The phrase “employee fraud” sounds scary, as the destruction caused by employee fraud can be quite substantial. Even worse, no company is immune. Employees entrusted with company resources can turn on the organization and do immense damage from within.
Corrupt workers may steal then cover their tracks. It’s not just money or physical products; they can also steal or expose data. And as everyone knows, in the digital economy, data is the lifeblood of business. Lost data will expose companies to fines and lost business, severely undermining the entire organization.
If you think employee fraud is uncommon, think again. Nearly all companies are victims of employee theft. And, on average, it takes two years for employee fraud to be found out. Some forms of fraud have subtle effects, while others can rack up more than a million dollars in losses.
In total, the costs of employee theft add up to around 7% of annual revenues, driving many businesses into bankruptcy. When it comes to technology companies, more than a fifth of employees steal. What’s more, new types of international fraud present growing risks.
So, how can you defend against employee fraud? Cloud technology from SAP helps. It can detect suspicious patterns and alert you to potential fraud before the damage gets out of control. If you need assistance deploying anti-fraud measures, you can rely on Approyo, the leading full SAP service provider.
What is Employee Fraud?
Employee fraud is the use of deceit by a worker to take financial or other resources from the company. This is commonly known as an “inside job.” For instance, employee fraud occurs when a worker produces false financial reports and extracts money from the organization.
There are many categories of employee fraud, and not all of them involve theft for personal gain. Some other examples include accepting or giving bribes, taking company data, and abusing one’s official authority. Other than direct financial gain, motivations include fear, envy, or assisting someone else.
Types of Fraud
Many types of employee fraud involve financial transactions, for the obvious reason of adding to the employee’s own wallet. The criminal may make fraudulent payments or modify payments, or they may intercept payments to or from the company. In some cases, this may go as far as creating entirely new accounts in the company’s system.
Fraud can also occur during procurement—the acquisition of products and services. Normally, this procedure is carefully designed to prevent unfair practices, but unscrupulous people attempt to circumvent such controls.
For example, someone may cheat the system to select the winning bidder unfairly. Another fraudster tactic is to arrange procurement for overpriced or non-existent products. In some cases, the insider works in collusion with someone at a vendor to break the system.
Any type of deliberately inaccurate claim constitutes fraud, such as an employee who makes a claim for travel expenses without traveling. This also covers claims larger than the amounts spent as well as falsified authorizations.
Regardless of the rationale and the specific offense, employee fraud can have devastating effects on a business. Most companies lack the necessary controls to detect and prevent fraud. The costs can tally up to immense sums of money, in addition to a damaged reputation and lost customers.
How Employee Fraud Affects Tech Companies
Technology companies can be left exposed by the fraudulent use of their data. For example, employees may take advantage of their access to confidential information for personal gain. They may sell customers’ personal data or the company’s trade secrets. What’s more, the exploited assets don’t have to be digital. Employees may also abuse hardware or any other company resource for their own ends.
Another category of employee fraud affecting tech companies involves personnel management. For instance, employees may falsify the amount of work they’ve done, which is more of a risk with offshore workers. They may also take sick leave while not sick or abuse other policies.
Accounting fraud and payroll fraud are two relevant categories in which the company’s accounts or the employee’s billable hours are falsified. One such risk for American companies working with outside help is that there may be fake payroll for employees who don’t even exist.
Common Warning Signs of Employee Fraud
The sooner you spot employee fraud, the less impact to your organization. Here’s a list of key warning signs. While they don’t necessarily show a crime is being committed, they at least deserve your attention.
- If international workers aren’t online or answering calls when they should, there may be a problem.
- When an employee seems to live a lavish lifestyle well above what you’re paying, this is the most common red flag. For example, fancy cars that aren’t normally affordable for a person with that job should raise eyebrows.
- The opposite situation is also a signal, as an employee in financial trouble may resort to fraud. This is the second most common warning sign.
- Addiction often feeds the financial issues that lead to occupational crime. Other personal problems such as broken marriages can also spur fraudulent behavior.
- An employee who becomes more secretive and controlling about their work may have started committing crimes against your organization.
- Hearing reports about an employee should tip you off. Fraud is often found through complaints made by others.
- A sudden or unexpected change in your business’ financial activity should trigger a warning. If you’re seeing more transactions recently, it’s worth investigating.
- An employee who consistently disregards the rules is circumventing important controls. This indicates possible ill intent. Even a broadly “shrewd” attitude can reveal criminal acts.
- If an employee performs actions without the appropriate logging, they may be attempting to manipulate the system or avoid detection. Transactions should have evidence in case an investigation becomes necessary.
These are just some of the warning signs. There are other suspicious behaviors you may notice, and no warning sign on its own necessarily means an employee is committing fraud. Rather, these signs point to anomalies that may have ordinary explanations but deserve further consideration.
Other Warning Signs of Employee Fraud
Dealing with overseas workers adds to the challenge of finding fraud. For instance, they may regularly have to access the company’s online resources at odd hours. This behavior would be a warning sign for local employees, which complicates the matter for international employees. Watch for these additional red flags:
- Lying about actions or using logins other than their own should ring alarm bells. A dishonest employee is not one you would want anyway, but this may indicate more serious fraud.
- Talking or writing negatively about the company can hint at problems. Many fraudsters feel aggrieved, for example, if they didn’t get a promotion they expected. Employees who genuinely like the company are far less likely to commit fraud against it.
- Asking for access to sensitive resources is another red flag. People who seem abnormally interested in having access to data or authority may be planning an attack. Employees should only have access to the data they need for work.
- Unusual transactions should have a valid justification. If an employee wants to modify transactions or accounts, there should be a specific defensible reason.
- Having too close of a relationship with suppliers is suspicious. Conflicts of interest can result in poor deals that cost your company. An employee’s tight personal ties with third-party vendors should be out in the open and minimized.
- Mood problems can also give away fraud. Often enough, the criminal will feel worry over the misdeeds. This can result in the person acting defensive or irritable.
An effective anti-fraud system finds signals before, during, and after a crime. Approyo can help you establish practical controls to detect evidence of employee fraud. With a policy for risk management and appropriate staff education, you can mitigate the tolls of this serious problem.
Detect Employee Fraud Sooner
Employees are entrusted with certain privileges that are essential to accomplishing their work. However, these privileges also expose the company to fraud risks. Your own workers know the system better than anyone else, and they are ideally placed to commit a crime then conceal the evidence.
The frequency with which inside jobs are reported in the media testifies to these risks. In a sense, just being an employee is already a warning sign. However, it’s important to use more specific indicators to focus on the higher-risk elements within your organization.
If you identify fraud early, you can often handle the problem. But if it goes unnoticed for months or years, the damage may become unrecoverable. It costs a lot less to remedy fraud if you detect it through IT controls rather than only finding out when the police tell you.
Most organizations notice at least one warning sign before a fraud is found. In some cases, there are multiple warning signs. Ignore these red flags at your own peril.
The Demographics of Employee Fraud
While there are common warning signs of employee fraud, it’s also useful to develop a general profile of a fraudster. For instance, the people who commit employee fraud are on average 48 years old, with men more likely than women to offend.
Most perpetrators don’t have any previous conviction, which can make them harder to find in advance. In addition, they usually haven’t been previously fired or disciplined for fraud, even if they have committed prior fraud.
Around half of fraudsters work alone, while 18% work with a partner and 33% work in larger groups. The more people who are involved in a crime, the larger the fraud’s costs tend to be. Also, older criminals and those who have been with the company longer cause larger losses on average.
Fraudsters often have other troubles at work, too. In general, they aren’t the most stable people. Bullying is common enough, as well as showing up late or failing to go to work. Nearly half of offenders have had work issues such as negative evaluations, pay cuts, and the threat of losing a job.
Employee fraud is more likely when there are easy opportunities. For example, an individual given excessive access to company resources or not enough supervision poses more of a risk. Similarly, American companies with overseas workers may be less able to supervise these employees and therefore become susceptible to fraud risks.
How to Avoid Hiring Potential Fraudsters
While there’s no surefire way to detect all fraudsters, the right tools and techniques can decrease the risk. Of course, it’s best to deter and prevent fraud even before the offender joins your company.
Publicize Your Policies
Having a clear policy can deter some frauds. If people see the risks they face, they will more likely reconsider before ripping off the company.
Get Fraud Insurance
Fidelity bonds offer insurance payments if the policy-holder is affected by fraud. Tech companies can purchase fidelity bonds to protect themselves against risks including computer theft. If an employee abuses company resources for personal gain, the policy covers those losses.
Audit Employees’ Work
Random audits are another way to find and prevent frauds. You can do this on your own or work with an external partner. The goal is to sample transactions and ensure they’re valid. This doesn’t entail micromanaging every aspect of employees’ behavior, but rather selectively and fairly ensuring processes are working as they should.
Require Regular Breaks and Vacations
An unusual technique to decrease the risk of fraud is to encourage or require employees to take breaks from work. Taking leave usually involves someone else handling the same duties, which may uncover fraud. Some guilty employees attempt to work year-round to cover their tracks.
Also, those who work without pause become overly focused on money and may lose sight of the reasons not to cheat. So, increasing people’s days off can actively discourage fraud. Furthermore, people with good morale and a positive attitude toward the company are less likely to offend.
Offer Good Employee Benefits
Other ways to improve employee morale include providing opportunities for career development and offering benefits such as insurance or retirement packages. When people feel valued, they’re more committed to the company. Many cases of fraud occur when employees feel disrespected.
Technological and Financial Methods to Prevent Employee Fraud
Automating your payment systems is an effective way to eliminate some processes where fraud could happen. For instance, if an employee has the opportunity to intervene in a payment manually, that’s a risk of fraud. On the other hand, if the entire process runs on its own, then the employee is denied this opportunity.
Reconcile your balance sheet regularly—say, every quarter—to find and prevent problems. Undetected fraud will probably grow fast, so it’s important to keep tabs on financial activity. When it comes to employee time sheets, you should have a manager who approves these and also examines them afterward for accuracy.
American technology businesses have a duty to deploy access controls so sensitive information is only available for authorized employees. Cloud solutions from Approyo-managed SAP can help you control who has access to what data.
Another way to use technology to prevent employee fraud is to automatically detect large file transfers. These transfers may signal an employee is exfiltrating company data or installing risky software on the organization’s equipment. It’s smart to have an alert sent on suspicious transfers.
Using generally recommended computer security practices will also contribute to fraud prevention. For example, enforce strong passwords that are regularly updated. And, employees should only work with their own credentials.
Finally, while business has become mainly digital, don’t forget to deal with paper documents. After their retention period, you should ensure paperwork is disposed of properly. Crimes can still be committed by modifying or improperly using paper documents.
Managing Employee Fraud
The three stages of dealing with employee fraud are prevention, detection, and response. Ideally, you want to institute systems that prevent fraud from occurring in the first place. In practice, when fraud does occur, it’s important to notice it as soon as possible. Then, a firm response deals with the perpetrator and deters future offenses.
To manage the potential problems of employee fraud, your organization should implement controls then monitor behavior. This isn’t a one-and-done, but rather an ongoing process to watch and manage risks.
Deterrence is an important component of managing fraud. It may involve internal disciplinary methods as well as litigation or criminal proceedings. Depending on the size of an attack, it can result in fines reaching thousands of dollars or prison terms of several years.
If an employee has sole authority to process financial transactions, this increases the risk of fraud. So, it’s generally advised to have at least two people involved in any financial duties. An employee acting alone may manipulate accounts and payments. Use a system of checks and balances to protect the organization.
Defend Yourself with a Managed Service Provider
Using a managed service provider (MSP) will improve your risk management capabilities while lowering costs and aiding in your digital transformation. And when it comes to SAP products—which support innovation but are complex to use—an MSP is even more valuable.
With a reliable technology partner, you’ll have the industry’s best security and performance, no matter how complex your environment. For American companies working with overseas employees, an MSP is an important asset that can help protect you against employee fraud.
Essentially, the MSP handles technical needs for you. For example, Approyo can manage your enterprise resource planning (ERP) software and IT infrastructure, along with associated services built for the cloud. The efficiency of using professional support quickly delivers your return on investment (ROI).
Any company will encounter difficulties, but a company using an MSP will have access to time-tested solutions. Whether fighting against employee fraud or striving for better regulatory compliance, you can see precisely which steps would serve the purpose and how long they will take.
Approyo works on projects that must comply with regulations for the financial and medical industries among others. Unique monitoring technology protects your data 24/7 against threats, whether they’re internal or external.
Approyo Supports SAP HANA
Approyo offers expert support for SAP HANA, the fast new database. This in-memory database enhances decision-making with its functionality designed for business intelligence. SAP HANA unites your data in a safe and cost-effective store.
Whether you want to run SAP HANA in the cloud or on-premises, Approyo can develop a solution that meets your needs. The solution will grow to keep pace with your business and includes numerous features like real-time analytics and integration with other SAP products.
SAP HANA includes tools to detect and prevent employee fraud. The database analyzes transactions and reports to root out problems. It uses automation to strengthen investigative efforts, which has become practically necessary. Criminals continuously devise new methods to penetrate digital companies, and these tools let you keep pace.
For organizations already using SAP products, it’s smarter to keep data within the HANA database rather than using another tool. HANA makes searches faster and uses live information, improving data governance. You can accurately examine current and past evidence and even conduct predictive assessments of potential fraud.
Mitigate Employee Fraud With Approyo
Employee fraud is a serious problem when it happens, but you don’t have to stand by defenselessly. Noticing the common warning signs is often enough to defuse a situation before it explodes. Avoiding hiring fraudsters is even better.
Cloud technology can now help you identify and stop fraud before it becomes a serious problem. Approyo is the trusted provider for SAP solutions that require a focus on security. Contact Approyo today to increase your protection against employee fraud.
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