Warning Signs of Employee Fraud

Warning Signs of Employee Fraud


Employee fraud is a hot topic in the Perth media at the moment, what with the $1.2 million dollar fraud committed by Perth socialite, Annabelle Martincic over a two year period. Martincic was granted access to the company’s (M3 Residential) bank accounts, conducting “voluntary” financial work as she was in a relationship with one of the co-directors. The fraud was only realised when another director started getting phone calls from creditors whose invoices were not being paid, and by that time it was too late. M3 Residental was unable to recover, the courts stating the fraud was the catalyst for its demise.

If you have fewer than 100 employees, there is a real risk of employee fraud. In fact, the Association of Certified Fraud Examiners states that 30% of all fraud takes place in small businesses, and up to 60% of fraud victims were unable to recover their losses.

This article is here to help you spot the warning signs of employee fraud in your business, providing you with the knowledge to prevent employee fraud from going unnoticed.


#1. Employee Fraud: High-Risk Employees

Identify employees who act suspiciously. When someone has something to hide, say if they are stealing from the company, their demeanour may be closed off, secretive and they may act defensively.

Another common identifying factor is an employee who does not take his/her contracted holiday period. Generally, this will be because they don’t want someone covering their work whilst away, potentially leading to the discovery of the fraud they’ve committed.

Think critically about employee’s spending outside of the office. Did someone just buy an expensive new car, designer handbag or boat? Does it make sense? How does the employee explain the additional disposable cash? With stories of lotto wins, windfall gains via an inheritance or something else? The majority of the time employees will be doing the right thing and telling the truth, but it can’t hurt to think critically about an employee’s financial circumstances as they relate to your business and keeping it safe.

High-risk employees might also include those who:

  • are struggling with debt
  • are dealing with mounting bills due to unforeseen circumstances such as a divorce or an illness in the family
  • have a history of drug abuse
  • are involved in high-risk activities (such as gambling or risky investments)

If an employee seems to have a motive for fraud and is acting suspiciously it might be time to take a closer look at his/her conduct.

#2. Employee Fraud: Access & Opportunity

Of course, among those who are high-risk are employees are those who are in trusted financial services roles such as a CFO, Accountant, Bookkeeper and those in charge of Accounts Receivable/Payable.

For an employee to commit fraud they must have two things: access and opportunity. Access to bank accounts, records, accounting information and the opportunity to use that access, for example, someone who can cut and sign cheques or manages accounts payable as well as reconciles the books.

#3. Employee Fraud: Employee Control

Control also has a part to play when identifying warning signs. Do you have an employee who exerts a little too much control, or is a little too interested in certain aspects of their role?

For example:

  • do you have an employee working unnecessarily long hours?
  • or is someone working outside of regular business hours?
  • is there an employee who is a little too protective of their duties or refuses to share tasks?
  • OR, and this is a common one, is there an employee who only deals with one or a few very specific suppliers or vendors? A common type of employee fraud is “purchasing fraud” where a supplier or vendor inflates an invoice, the employee writes a cheque for that amount, and they split the difference.

What are some “red flag scenarios”

Remember to monitor and control. Put checks and balances in place, make sure there isn’t one person in charge of various financial roles who has both access and opportunity to commit fraud. Finally, investigate if you come across the following:

1. if the name on a ledger does not match the name on the cashed cheque
2. there are two of the exact same payments to different vendors in the same date range
3. suppliers or vendors with suspicions or unprofessional invoices

Finally, a few thoughts…

Spotting employee fraud is one thing, but prevention is best. Make sure to segregate financial roles, limit access, opportunity and control and ensure you have up to date and accurate bookkeeping so that any red flags can be dealt with sooner rather than much later when it may be too late.


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This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.