Employee Embezzlement: 7 Warning Signs you Need to Know

As an employer, no matter how strong your security measures are, the truth is that you will always be at risk of employee embezzlement. It matters little whether an employee is a friend, long-term worker or someone you’ve fully trusted your company finances with – embezzlers can be anyone, and it’s important to not let your guard down. Employee embezzlement is a type of workplace fraud known as ‘white-dollar crime’ and refers to when trusted employees steal property from an employer before they have gained possession of it.

It can be extremely detrimental to the financial health of the workplace – data shows that companies lose 20% of every dollar they earn to workplace fraud. These crimes are most commonly committed by employees who are higher in authority and have access to financial departments within the organisation. In some cases, employee embezzlement is not undertaken by a single employee but rather a group of them that have decided to work together in order to steal money and other valuable resources from a company.

Whilst employee embezzlement can appear very similar to workplace theft, it has a few fundamental differences that distinguish it and make it of even greater consequence. An employee who engages in embezzlement is in a position where they have been trusted with important company resources or funds and have the authority to handle them on the employer’s behalf. Because they already have the power to handle assets, it differs from theft, where resources or money are stolen after they’ve already been passed onto the employer.

There are many different examples of employee embezzlement, with some common ones including:

• Misusage of funds from company accounts for purposes unrelated to the organisation
• Taking money from the cash register and keeping it
• Creating fake invoices or other financial records for goods or services that were never actually pruchased
• Stealing physical goods that belong to the company
• Using money from investors on personal purchases instead of company ones

Warning signs of employee embezzlement

An employee’s decision to be fraudulent and engage in employee embezzlement can throw the entire company’s health into danger and cause long-term consequences that are very difficult to recover from. There are many ways embezzlement can occur, and the signals vary in each case depending on contextual influences. However, there are some common warning signs of employee embezzlement that you can look out for:

1. Changes in your financial statement metrics that do not add up or are left unexplained. For example, increased due amounts, financial sheet imbalances, unpaid expenses or any signs that show transactions are fishy.
2. An employee, or a group of them, that have near sole authority over their work and suddenly become very protective of it. For example, they could refuse to work with a team, be unwilling to explain inconsistencies with their work, refuse to show evidence of their work and/or react negatively to any enquiries made about their work.
3. An employee that may be under financial duress due to personal problems is more likely to engage in embezzlement, particularly if this stress is a recent introduction into their lives. An unpaid debt, an ill family member or substance abuse can all be changes to their circumstances that increase their potential to be fraudulent and dishonest.
4. Missing financial statements are a major sign that something is not right. Financial records should always be secure and thorough, with any discrepancies having good explanations. If certain statements, such as receipts or the payroll, seem to disappear into thin air and leave no traces, it’s important to follow this up to ensure that any suspicious activity is not pointing towards employee embezzlement.
5. External stakeholders, suppliers or vendors that point out issues with payment or missing payments that they were owed but never received. This is particularly concerning if the company’s own record books mark the payments as completed. External transactions are a common target for embezzlers. When issues arise in that department, it’s important to make sure that all records are checked for inconsistencies, and any issues are clarified with the employees who handled the task.
6. Unhappy or dissatisfied employees are also more likely to engage in embezzlement, especially if they feel they are underpaid and owed more money. They may also feel frustrated for other reasons, including company culture or issues with their coworkers that increase their sense of dissatisfaction- for certain employees, this can lead to them justifying embezzlement.
7. An increase in issues that are typically perceived as regular and common troubles dealt with regularly. Individuals that try to embezzle will often try to hide their fraud under the disguise of other issues so that any discrepancies are not examined too thoroughly because they are mistaken for ‘regular’ problems.

When looking at these signs individually, they can point to several different issues and do not necessarily have to be a sign of employee embezzlement. For this reason, try not to make judgements based on one sign alone but look at all the clues together to understand the bigger picture. One helpful tip in this regard to note is that a change in an employee’s standard behaviour or work is far more telling than a sign that, whilst indeed something that may need to be addressed, has always been there.

What to do if you suspect employee embezzlement?

If you have reason to suspect employee embezzlement is occurring, then it’s important to take action immediately and start a workplace investigation to prevent any further potential damage to the workplace.  The following are some helpful steps that you can take to protect your workplace when dealing with such fraud:

• Inform your lawyers and seek legal advice before making any decisions. The laws in each country and state differ, and having a person make sure you have everything you legally need to take action and do not make decisions that can be used against you later will be very important. If you have insurance, it might also be a good idea to let them in on the situation so that any expertise or advice they have can help guide your path forward.
• Gather all the evidence you can find in as discreet a manner as possible. An investigation can’t reach a satisfactory conclusion if there is insufficient evidence to lawfully accuse an individual of employee embezzlement. If you don’t have a particular suspect in mind, then try to create a list of individuals who could have been responsible in accordance with their responsibilities, access to company finances and recent behaviour at work.
• Do not inform your staff and keep the information to as limited people as you can for the time being until a plan of action has been decided upon. This can give the employee(s) time to cover their tracks or hide important evidence, which will make any investigation more difficult.
• Be very careful in everything that you state regarding the case because your words (verbal or via communication means like emails, reports etc.) may be used in the proceedings, particularly if the case goes to court. Failing to do so can open you up to a potential lawsuit which will create a further drain on your time, money, and resources and further risk your reputation.
• Avoid being rash in your behaviour or getting outwardly angry or upset. Whilst the situation may be difficult to manage, and you may feel betrayed, this could result in bad decisions being made in other aspects of the company or the embezzler picking up on the fact that something is wrong. Whilst the case is ongoing, the company needs to keep operating or otherwise compromise the business and create more problematic issues for later.
• Don’t rush to make changes to your banking, vendors or systems because whilst you may be worried and seeking to prevent further loss, this will tip off the embezzling staff member(s), and they can take measures to protect themselves, making them more difficult to catch. Wait until after you have completed the investigation, taken action against the employee, and identified any control failures, before you make changes to your systems.

All employers are susceptible to employee embezzlement, making it crucial to be aware of methods that fraudulent employees use, how you can spot it in your workplaces and what you can do to protect if it does occur.

Being knowledgeable about employee embezzlement is important not only for employers but also for employees so that they can report suspicious incidents or behaviour they may have noticed in their coworkers.

Including employee embezzlement awareness in your induction and other training can help improve the entire workplace’s understanding of embezzlement and dissuade employees from being fraudulent in the future.