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Tips To Prevent Employee Fraud and Theft

- May 5, 2014

One of the dangers businesses face is fraud. Fraud mostly comes from internal sources. Fraud and theft, whether in the form of accounting fraud, pilfering of inventory or manipulation of expense reports, is a serious problem for business owners.


Fraud and theft can have adverse effects on our bottom line. Employees know the business very well and they are key risks in the business. It is therefore necessary to manage them well in order to prevent fraud and theft.

The following tips would help employers prevent employee theft and fraud.


The first step in reducing employee fraud is in the recruitment process. As an employer, it is not enough to interview employees properly and assess their technical competencies; you must ensure you recruit employees with a high level of integrity. In your interviews, pose practical scenarios that test the candidate’s level of honesty to the candidate and watch his/her reactions.

A proper pre-employment background check is important if you want honest employees. This is especially important if the employee would be handling financial or other sensitive data. By using background checks, you can gather information about the candidate’s history and assess his/her level of integrity.

Also, you should always check the candidate’s references as this would help you in making sound recruitment decisions.


Employers must prepare a code of conduct that clearly states what is and what is not allowed in the work place. This document can help you if any legal issues arise in dealings with your employees. You would be able to use the document to set standards for employee behavior and promote integrity in the workplace.


In order to prevent fraud, employers must look out for signs that precede fraudulent acts in the work place. There are certain red flags that could hint that a certain employee is a risk and should be watched closely.

The signs include:

  • Employee becomes secretive and withdrawn
  • Employee works consistently late without valid reason
  • Employee has not gone on vacation for a while
  • Employee has debt problems
  • Employee has personal issues with family

The signs above do not necessarily mean the employee is going to commit theft. However, presence of one or more of the above red flags is a sign that such an employee should be monitored.


Make regular audits part of your business culture. A honest internal audit unit can help you in that regard. Audits should be done on high risk areas of the business: expense reports, inventory e.t.c. By doing audits on a regular basis, you will reduce the likelihood of fraud and theft.

As the employer, you should take a lead role in fighting fraud in your business by building a control function to monitor key areas of the business.

Follow these tips and you would have laid the groundwork for the reduction of fraud and theft in your business.

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