Detecting And Preventing Employee Theft And Embezzlement

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Many organizations and individuals face employee theft and embezzlement each year. Embezzlement is theft or misappropriation of funds by employees. According to a 2012 report from the Association of Certified Fraud Examiners (ACFE), “the typical U.S. business loses 7% of its annual revenues to employee fraud”. Small businesses have the most cases and the highest losses. Risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view.

Warning signs:

  1. The employee is working extra hours.
  2. Petty cash and supplies are decreasing rapidly.
  3. The employee is frequently taking work home.
  4. The employee has an unusually close relationship with vendors.
  5. Employee is obviously spending more than they are earning.

How to Prevent Theft of Physical Assets:

Random and surprise audit system:

Along with annual and quarterly audits of assets, a system for uninformed audits should also be developed. Under pressure of unexpected audits, employees are normally more likely to avoid stealing and fraud.

Segregation of duties:

Duties of the inventory management staff should be clearly delegated to prevent fraud. Purchase order issuance and receiving of stocks should be done by two different individuals.

Security cameras:

In inventory storage areas, CCTV cameras should be installed to prevent employee theft.

Limited access to inventory storage areas:

Only authorized personnel are allowed to enter areas where there is a lot of inventory or financial information.  It should also be kept locked during off hours. Keys should be issued to specified individuals only.

How to  Prevent Check Tampering:

Security of blank checks:

Blank checks are not accessible to anyone and should be locked until required for bookkeeping.

Check bank statement of  business:

Review of monthly bank statements helps in detecting fraud in the form of tampered checks.

How to Prevent Expense Reimbursement Schemes:

Receipts of expenses:

For reimbursing random employee expenses, demand a receipt of those expenses which the employee is claiming.

Policy for expense reimbursement:

A company must have a documented expense reimbursement policy. A clear segregation of reimbursable expenses should be defined in that policy and every employee must receive a copy of reimbursement policy.

Comparison of expense reports:

A comparison of the expense reports submitted by different employees should be made to evaluate the legality of expenses.

How  to Prevent a Billing Scheme:

List of approved vendors:

To prevent fraud at this level, maintain a list of approved vendors and do research to ensure the legality of the vendors. If you don’t practice this simple plan, then you may be paying fake companies.

List of approved price:

The approved price list should also be maintained to avoid payment at higher rates.

Signed receipts.

Sign a check only if a signed receiving of the product is attached.

How to Prevent Theft of Cash:

Manager’s approval:

Sensitive transactions should always be accomplished after approval of a manager.

Monthly account statements:

Regular updates of customer account statements prevent fraud at this level.

Rotation of duties:

Rotation of duties and sending the employee on annual leaves and vacation prevents employee theft because the employee has the terror of easy detection by others.

Bank lockers:

Cash and payment handling by employees should be minimized to prevent cash theft. Payments should be received directly into a bank account of the company.

Surprise audit of cash:

Discrepancies in cash can be detected easily by counting the cash and comparing it with receipts.

Video cameras:

Install video cameras in sensitive areas where cash is handled to prevent stealing.


Fraud prevention and fraud handling are very essential to secure your business. Following the above shortcuts in an organized manner will lead to an anti-fraud policy that actually works and strong internal controls.

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