Ways to Protect Your Business From Employee Fraud

Ways to Protect Your Business From Employee Fraud

Fraud is incredibly common in today’s corporate world. In fact, reports show about 51% of US companies have experienced fraud in the past two years. Undetected internal fraud can leave your business facing huge financial losses and reputation damage. Regardless of how much you trust your employees, unfortunately, no business is entirely immune from fraud risk.

However, you can put some measures in place to combat internal fraud in your company. This includes having a plan for fraud detection and prevention. And if you’re facing fraud charges, consider enlisting the services of an attorney from a trusted firm like Purser Law. A lawyer will help you navigate the complex legal process and ensure a favorable outcome. Here are a few effective tips to help protect your company from employee fraud:

Create a Culture of Ethics and Transparency

Fostering a culture of ethics and transparency is the first step to preventing employee fraud. Employ these tips to establish such a culture:

  • Lead by example and set the tone for ethical behavior at the top level of management.
  • Clearly communicate your company’s values, code of conduct, and anti-fraud policies to all employees.
  • Encourage open communication and make it safe for employees to report any suspected fraudulent activities.
  • Implement an anonymous reporting system to protect whistleblowers from retaliation.
  • Create a system for recognizing and rewarding employees who consistently demonstrate ethical behavior and adherence to company values.

Remember fostering such a culture is an ongoing process that requires dedication from all levels of your organization to ensure a fraud-resistant environment.

Implement Strong Internal Controls

Implementing strong internal controls is essential to prevent employee fraud. Here are some tips to help you establish effective internal controls:

  • Regularly review and update financial controls and procedures to adapt to changing circumstances.
  • Segregate duties to ensure that no single employee has complete control over financial transactions from start to finish.
  • Conduct surprise audits to detect irregularities and ensure company policy compliance.
  • Enforce strict password protocols and limit access to sensitive information to authorized personnel only.
  • Conduct a thorough risk assessment to identify potential vulnerability to fraud. Analyze processes, transactions, and access to sensitive information to understand where controls are most needed.

A combination of preventive and detective controls and a vigilant and ethical workforce is the most effective strategy for combating employee fraud. Regularly reassess and update your internal controls to adapt to changing circumstances and new risks.

Conduct Background Checks and Screenings

Combating fraud starts with hiring the right employees. Thus, before you bring new hires on board, ensure you conduct thorough background checks and screenings. Use the following tips to make sure you conduct background checks effectively:

  • Thoroughly check the references provided by job applicants to verify their employment history and qualifications.
  • Use reputable background check services to uncover any criminal records, financial issues, or past instances of dishonesty.
  • Verify the identity of potential employees to prevent identity fraud during the hiring process.
  • Implement a probationary period for new employees, during which their behavior and performance can be closely monitored.
  • Review the candidate’s social media profiles to gain additional insights into their character and behavior. However, be mindful of privacy laws and avoid making decisions based solely on social media activity.

Ensure you comply with local laws and regulations during the background checks. Additionally, maintain transparency and inform candidates you’ll be screening them in advance.

Educate Employees on Fraud Awareness

Educate your employees on fraud to establish a vigilant workforce capable of recognizing and reporting fraudulent activities. To achieve that, follow these tips:

  • Offer regular training sessions on fraud awareness, covering various types of fraud and how to identify warning signs.
  • Teach employees about the consequences of fraud for the company and their personal lives.
  • Encourage employees to question unusual or suspicious activities they encounter in their daily work.
  • Provide resources and contact information for reporting fraud, ensuring confidentiality and protection for whistleblowers.

Through awareness and accountability, your workforce can combat fraud before it causes your company significant harm.

Monitor Employee Behavior and Performance

Monitoring employee behavior and performance is a crucial aspect of. However, you should strike a balance between ensuring security and respecting employee privacy and rights. To effectively monitor your employee’s behavior and performance, consider following these strategies:

  • Monitor employee behavior, especially sudden changes in lifestyle or unexplained financial difficulties.
  • Pay attention to performance issues, as employees facing disciplinary action may resort to fraud to cover their tracks.
  • Implement random checks on financial transactions and review supporting documentation for legitimacy.
  • Watch for employees who are overly defensive or secretive about their work processes and tasks.
  • Use monitoring software and tools to track employee activities on company devices and networks. This can include monitoring internet usage, email communications, and file access.

Although monitoring is crucial for fraud prevention, you should do it within legal boundaries and with respect for employee privacy. Clearly communicate the monitoring practices to employees and ensure they understand the reasons behind them.

Create a Consequence Policy

Create a policy that clearly details the consequences that deter your employees from engaging in fraud. Develop a consequence policy by following these tips:

  • Define fraud: Clearly define what constitutes employee fraud within the context of your organization. Ensure that the definition covers various forms of fraud.
  • List prohibited actions: Detail the specific actions that are strictly prohibited, along with examples of each type of fraud, to ensure employees understand the boundaries.
  • Consequences: Outline the consequences of committing fraud, which may include disciplinary actions, termination, civil or criminal prosecution, and recovery of losses. Ensure the consequences are proportionate to the severity of the offense.
  • Employee acknowledgment: Require employees to acknowledge receipt and understanding of the consequence policy. This can be done through a signed acknowledgment form or an electronic process.

The goal of your consequence policy is not just punitive but also preventive. Your employees are less likely to engage in fraudulent activities when they know the repercussions of such actions.


Employee fraud can result in significant financial loss, legal issues, and ruined reputation. Preventing employee fraud is typically an ongoing process- It necessitates a combination of both preventive measures and continuous monitoring. Following these general steps will allow your business to protect against and recover from insider fraud.