Red flag flying: Tips for detecting employee embezzlement

Sadly, in the past 12 months, I have been hired to investigate or assist in investigating employee embezzlement more times than in the past 15 years combined. Embezzlement is the theft or misappropriation of funds or property placed in one’s trust, belonging to one’s employer. Employee theft costs are on the rise, and they are getting more sophisticated in their methods. They justify their actions by saying they aren’t hurting anyone.

Employee theft or embezzlement can come in many forms, not all of which are preventable. The key to reducing employee theft costs is early detection. Once detected, many employers comment that signs had been there all along. And if only they had “seen the signs sooner.” What are some of the forms of employee theft? What signs should you look for to detect employee theft?

Employee theft comes in many forms

Below is a list of some types of embezzlement by employees, many of which I have personally investigated over the years:

• Falsified expense reimbursement requests (either modifying the item purchased or purchase amount);
• Redemption of credit card or other reward programs for personal use;
• Skimming or fictitious bad debt (pocketing customer payment, and recording the account as a bad receivable);
• Larceny (stealing an incoming payment after a customer is given credit for payment); and
• Payroll fraud (creating a fictional employee—often a relative—and sending fake paychecks or claiming compensation for hours not worked).

Detecting employee theft