7 Warning Signs Of Employee Spending Fraud (And What You Can Do About It)

June 18, 2021
5 min read

Imagine this scenario: you're in the middle of an important meeting and your phone rings. It's your bookkeeper, and she has some troubling news about the company finances.

She tells you that there are some strange charges on the corporate credit card that she can't explain. Surprised, you ask her to double-check the charges.

A few minutes later she confirms what you were afraid of – one of your employees has been charging personal items to the company card. What if the fraud has been going on for a long time and you don't even know it?

This is the kind of thing that can really hurt your business. Not only do you have to deal with the financial consequences, but also the trust issues that come along with employee theft.

Stop and think about all the times you've trusted your employees implicitly and not questioned their spending habits -- chances are, you're not the only business owner who's been burned by employee fraud.

Here are some of the common signs of employee spending fraud you need to look out for:

Unexplained or unauthorized changes to company financial records

If your employee is suddenly making changes to the company's financial records, it could be a sign of fraud. This could include falsifying information on documents such as invoices or expense reports, or creating fictitious accounts.

For example, an employee could inflate the cost of a particular purchase or claim expenses that were never incurred. If your records suddenly don't match up, it's time to investigate.

Sudden changes in spending habits

If an employee who has always been frugal with their spending all of a sudden starts charging large items to the company credit card, it's time to take a closer look -- this might include lavish dinners, entertainment, or expensive items that have nothing to do with work.

Employee is uncooperative or defensive when questioned about financial discrepancies

If an employee is acting strange or defensive when questioned about discrepancies in the company finances, it could be a sign of fraud. This includes stonewalling inquiries, making up excuses, or becoming hostile. If your gut tells you something is up, it's worth pursuing the matter further.

Employee is secretive about their work

If an employee is being unusually secretive about their work, it could be a sign of fraudulent behavior. This includes refusing to share information with coworkers, or hiding activities from supervisors. If you notice that an employee is suddenly keeping to themselves, it might be worth investigating why.

Suspicious or inflated invoices

If you receive invoices that don't seem to match up with your records, it could be a sign of fraud. This could include bills for services or products that were never delivered or invoices for much more than the actual cost of the product or service. If you see anything that looks fishy, ask for more information before signing off.

For example, an employee could create a fake vendor and bill the company for services that were never rendered. This is a common tactic among employees who are trying to commit fraud.

Constant reimbursements

If you notice that an employee is constantly asking to be reimbursed for things like meals or travel expenses, but they never seem to have any documentation, it could be a sign of fraud. They might also ask for reimbursement for expenses they never incurred in the first place.

If you see a pattern of this behavior, it's time to start asking questions.

Employees with financial difficulties

Financial difficulties often drive employees to theft, so it's important to be aware of employees who are having problems making ends meet. This includes someone who is chronically late on bills or struggling to pay their rent or mortgage.

If you notice that an otherwise responsible and hard-working employee suddenly starts acting in a way that suggests financial difficulties -- such as badgering co-workers for loans, taking excessive sick days, asking for raises, or constantly asking for time off from work -- be sympathetic, but also take a closer look at your accounting books.

How to prevent employee fraud

Employee theft is a widespread problem, but fortunately, there are steps business owners can take to prevent it from happening in their organization, and they include:

Routinely checking financial records

You need to be vigilant about checking your financial records regularly, so you can catch any discrepancies early. This includes reviewing invoices, bank statements, and other documents.

Creating a system of checks and balances

If more than one person has access to the company's finances, it's less likely that fraud will go undetected. This also includes having a system in place for tracking expenses and verifying that they match up with actual receipts.

Making sure employees understand the consequences of fraud

It's important to make sure employees know what will happen if they're caught committing fraud. This includes disciplinary action, such as termination, and possible legal action.

Since a company must be able to show that they have taken all possible precautions to prevent fraud, it's important to have a comprehensive understanding of the best practices for preventing employee fraud.

Taking regular audits of company accounts

Regular audits will help you catch any fraudulent behavior that might have slipped through the cracks. This includes reviewing bank statements, invoices, and other financial records.

Implementing clear policies on company spending

Contact a professional for help

That said, if you suspect that someone on your staff could be committing fraud, don't hesitate to contact a professional for help. There's no sense in putting yourself and your business at risk by trying to handle the situation on your own.

By being vigilant and looking out for certain key signs of employee fraud -- such as sudden changes in spending habits or secretive behavior -- small business owners can avoid becoming victims of this costly crime.

Prevent fraud with Penny Cards 

Penny Inc is an expense management platform that gives you real-time visibility into your employee’s spending. It allows you to see exactly how much money your employee has spent on a purchase – instantly after the transaction is completed. With Penny, you can also request as many virtual cards as you’d like, and set limits on them, so you can always remain on budget. Sign up for a free account today.

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