5 Types of Employee Fraud

A couple of months ago, one of the biggest IT firms in the country Tata Consultancy Services (TCS) was rocked by a bribes-for-jobs scandal. A few senior personnel at the company were accepting bribes from staffing firms to give jobs to their candidates, for years and if reports are to believed miscreants may have made over Rs 100 crore. Well, this was one major example that showed that it is essential to talk about employment frauds in today’s time. And there are many more, we will be talking about, next. Whether it is a small business or a big firm, there have been incidents of employee frauds with everyone in the business.

In simple terms, employee fraud refers to the act of an employee deceiving their employer or organization for personal gain, typically through dishonest or illegal means. This can encompass a wide range of activities that involve misappropriation of company resources, financial manipulation, theft, embezzlement, or other unethical actions.

Here are 5 different types of employee frauds you must be aware of:

Embezzlement

This type of fraud involves an employee misappropriating funds or assets belonging to the company for their personal use. This can be done through schemes like creating fake vendors, altering financial records or diverting funds into personal accounts. This white-collar crime is seen as a form of property theft. Examples of embezzlement can be overbilling of customers, forging of cheques, refusal of the conductor to issue tickets to customers after collecting the fare etc.

Data and Intellectual Property Theft

So, not only money, employees can engage in stealing data and intellectual property of the company. Sudhakar Raja, CEO and Founder, TRST Score believes that many unique start-ups and innovative companies end up in positions where employees steal their intellectual property. “In such cases, how are the next companies that work with this person or investors who invest in their idea supposed to know that they are investing in stolen intellectual property? Employees and external consultants who work on projects can also steal data or inadvertently use confidential information while moonlighting. Salespeople who carry forward customer data while they transition to another company is also intellectual property theft,” he said.

Expense Reimbursement Fraud

Claiming fraudulent or higher expenses than what was incurred after business trips and events is almost a rite of passage in many organisations. Seniors will actually guide newer employees on how to skillfully dodge any checks that may be in place. Such practices cause great losses to companies and are an indicator of the fact that these employees will surely be willing to engage in much bigger frauds if they think the consequences do not matter. Claiming a personal expense as a company expense is another classic.

Forgery

Employees might forge signatures or manipulate documents to gain access to sensitive information or to authorize financial transactions. In this type of fraud, employees simply indulge in altering real documents or replacing real information with fake information either to get a job, steal data or money, or just for their ease. A recent scam that has become popular during the pandemic is that online interviews are attended by a competent candidate secretly on behalf of a less competent person. When the person joins the organisation and spends some time working with them is when the get to know that they have been scammed.

Breach of Contract and Absconding Without Intimation

Companies may sign hundreds of contracts with their employees. They can also institute strong terms of notice for resignations, some companies even going up to 3 months. After all this, if an employee chooses to leave, they just abscond. Though this causes huge losses to organisations, there are no real legal grounds for employers to take action in such situations. Raja shares another example of contract breach of recruitment agencies where thy collects fees of 8.33% after on boarding the employee but the contract mandates a 3-month replacement guarantee. When the new joiner quits within the 3 months the recruitment company will neither provide a replacement nor return the payment.

Tips to avoid employee scams : Stay vigilant while hiring new employees

It is important to conduct thorough background checks, reference checks, and verify educational and professional qualifications before hiring new employees. Puneet Ahuja, a Delhi-based Chartered Accountant who owns his own business said, “Over the years, I have experienced that it is important to not only know about professional background of the employees but to understand their behaviour patterns and how they react in different situations. And these things impact the entire work culture overall when the person is hired. Hence, I feel like it is very important to carefully make a choice than to regret later.”

Organise Constant Audits

Raja suggests that it is important to organize regular surprise audits to make sure you are well aware of everything that is happening in your company. “External third parties need to be appointed to conduct such audits on the organisation. Mystery shoppers need to be hired to test the integrity of the team at regular intervals to understand the willingness of employees to participate in unethical activities,” he said.

Share limited access with employees

It is important to limit access to sensitive systems, data, and physical areas only to authorized personnel. Use strong authentication methods like two-factor authentication, if required. Gaurav Tomar, founder of a lifestyle website Godofsmallthing, shared his personal experience and said, “I think it is very important to make sure not everyone has all types of access in the company. When we started, we had an incident of an intern hacking our social media account. Similarly, there was an incident recently when an intern tried to misuse their access to the website backend. These all incidents came like learnings over the years. And hence I feel it is very important to trust only those who are worthy of your trust and this can be done by judging their performance and attitude over time.”

Leverage technology to ensure that employees are monitored

Use mobile apps and create systems and paper trails that ensure sales staff are monitored regularly. Bring in apps that can monitor screen activity and usage of devices by employees on a regular basis. Employees need to be made aware of the existence of such systems and should be regularly trained on the policies and regulations that they need to keep up with.

Use Risk Mitigation Platforms

Human Risk mitigation platforms act like cameras. If cameras are installed at traffic signals, people will not violate traffic rules. Such platforms can help you ensure employees, consultants, gig workers etc. stay behind the line of ethics in the employment world and help you create a perceived ramification for any mistakes that they commit and dissuade unethical behaviour. They can also be used as a rating engine for recruiters, vendors, part-time workers, contractors etc.

(Sudhakar Raja, CEO and founder of TRST Score and Gaurav Tomar, founder of lifestyle website GODOFSMALLTHING)