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    Protect Your Business
    male and female employees in office, working from laptops. Fraud and embezzlement.

    The risk of fraud and embezzlement when employees work from home

    Industry Spotlight | Thought-leadership
    By:
    Doug Karpp

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    With many employees working from home due to COVID-19, it’s much more challenging to monitor workers’ activities. This can create a higher risk for fraud and embezzlement. According to the 2020 ACFE (Association of Certified Fraud Examiners) Report to the Nations, companies lose an estimated 5% of their revenue annually to fraud. Here’s what you can do to make sure this doesn’t happen to your business. 

    Related: New cyber risks to small businesses working remotely 

    Know what an embezzler looks like

    Most of us get our ideas about fraud and embezzlement from the movies – shady characters in dimly lit rooms who are falsifying statements and writing phony checks. In fact, many fraudsters are surprisingly ordinary, yet they share some common characteristics. Watch out for these warning signs. 

    • An embezzler may be an employee on the brink of a financial crisis – perhaps because of a personal financial crisis or a spouse who lost their job. 
    • Is an employee’s lifestyle out of proportion to their salary? They may overspend on clothes, vacations, or cars. 
    • Inquisitive employees who want to learn how everything in the company works, even if it doesn’t relate to their job, may be gathering information for an embezzlement scheme. 
    • An employee who is the first one in each morning, the last to leave at night and never takes a vacation may not simply be dedicated – they may be trying to ensure they don’t get caught committing fraud. 
    • Those who are willing to risk their job for money may also be risk takers in other areas of their lives – getting speeding tickets or eschewing rules. 
    • A disgruntled employee who may have been passed over for a promotion or feel underappreciated may try to even the score by helping themselves to company funds. 
    • Don’t assume an embezzler is working alone. According to the 2018 Hiscox Embezzlement Study, 79% of embezzlement cases included more than one perpetrator, and 85% of fraud was committed by those at the manager level or above. 

    Protect your business from embezzlers 

    Maintain as many controls as you can, even when employees are working from home. Make sure you continue to do these things:

    • Have bank statements mailed to the business owner’s home, not the business address or the bookkeeper’s address. 
    • Continue to require two signatures on checks if that has been your policy in the past. 
    • Divide the responsibility for processing and reconciling transactions between two employees. Don’t let a single employee be responsible for end-to-end payroll or accounts payable functions. 
    • Continue to perform rigorous background checks on new employees where state laws allow, especially if they will have access to cash or accounting systems. 
    • Consider insuring your business against fraud. Only a tiny fraction of embezzled funds are ever recovered, so insurance can make your company whole again. 

    Related: What kind of business insurance do I need?

    What to do if you fall victim to embezzlement 

    Despite your best efforts, it’s possible that your company could become a victim of embezzlement. If you discover an employee has defrauded your company, stay calm. Put together a team you trust to investigate, keeping information among those who need to know. Consider bringing in outside counsel or consultants if the investigation is likely to be complex. 

    Restrict the access of the suspected employee so they cannot continue to steal. Review the company’s records discretely, including financial, payroll, and personnel files. 

    If you determine that a crime has been committed, report it to law enforcement and your insurance company. Talk to a lawyer. 

    At the appropriate time, notify your employees about what has happened. If someone in your company spoke up to management about the fraud, praise them for doing so, and be clear that embezzlement will not be tolerated. 

    Fraud and embezzlement are crimes, made that much worse when the perpetrator is a trusted employee. Being prepared can help you prevent fraud from happening, detect it early if it does, and mitigate the damage. 

    Protecting your business is an on-going effort, but to make it easier for business owners to stay on top of evolving risks, we have resources, articles, tools, and more on our Protect Your Business page.


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