Employee fraud: the motives behind the actions

By benjamin stone | 4 March 2016

Many would say that the most important asset any company has is its employees, the people whose time and talent make success possible. Unfortunately, some employees may not prove to be assets at all. With employee fraud being a growing concern for businesses everywhere, they can be among the most dangerous threats a company might ever have to face.

A study by the US Department of Commerce shows that employee theft plays a role in 95 percent of business failures, and nearly one-third of all business bankruptcies can be pinned on theft by employees. The bottom line, according to the Commerce Department figures, is a $40 billion loss to businesses each year.

The threat looms particularly large in the financial sector, where the same knowledge and talent that qualifies a person for employment can become tools for fraud when put in the wrong hands. Nobody wants to view employees as untrustworthy, of course - and most certainly are not - but sound principles of risk management make it clear that the diplomats have it right when they say “trust, but verify.”

Why employee fraud?

To understand how to mitigate the risks of employee fraud, it's useful to understand how and why it can happen, yet it’s not always as clear-cut as one might think. Obviously, many employees who commit fraud are motivated by the chance for personal gain, whether through outright embezzlement or misappropriation of non-cash assets, or through more roundabout actions. An employee working toward a bonus, for example, might be tempted to falsify sales records in order to meet a target. In the same vein, an employee who's expected to meet very high, or even unreasonable, productivity goals may pad the records, ultimately costing the company money by causing decision-makers to act on faulty information. In other instances, employee fraud may not be about personal gain at all, but rather to help a third party. This happens when an employee selects a friend or relative as a vendor, for example, despite inflated prices for goods or services.

High-level managers, too, can commit fraud in any number of ways, and often for no reason more than that they feel they can get away with it. Often, their authority goes unquestioned, and they may even be exempt from the checks and balances in place for junior staff members. In some instances, the guidance a senior executive gives to subordinates can even involve others in fraud, perhaps unknowingly. 

The combination of considerable power and unchecked opportunity can be the downfall of some. At any occupational level, in fact, opportunity is one of the driving factors behind employee fraud, along with pressing personal issues that might range from gambling debts to medical bills.

Employers need to be aware of those external factors that can lead employees to fraud, but even more so they need to take every possible step to minimize opportunity and take the temptation off the table.

Trust, but verify

While financial crime and employee fraud are on the rise, there are technological solutions to offset the problem at hand. One such company, NICE Actimize, has developed an internal threat detection solution that has been able to combat employee fraud. Robust internal procedures and a comprehensive system of checks and balances remain the bedrock of managing the risk of employee fraud, of course, but the new technologies deliver a previously unattainable level of security.

As the cornerstone of an aggressive program to manage the risk of employee fraud, numerous technological solutions have proven to reduce internal threats significantly, both by identifying a wide range of violations and by delivering the investigative tools to build effective cases when fraud is detected. For businesses operating in today’s high-risk environment, the net impact of such a comprehensive fraud detection system obviously includes minimizing loss due to fraud and the reputational damage that accompanies it.

By Benjamin Stone, Freelance Journalist, klogic ltd.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development