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Employee fraud occurs when an employee of a company willingly and knowingly engages in deceitful activity, often for personal gain. Undetected, employee fraud can cause serious financial damage to a business, as well as possible public relations harm. There are many different types of employee fraud, including misuse of assets, corruption, embezzlement or financial fraud, and worker's compensation fraud.
Misuse of assets is one of the most common forms of employee fraud, partly because it can come in so many guises. Appropriating company supplies for personal use, such as stealing printer paper, cartridges, or pirating software, is one type of misuse of assets. Using a company car or expense account for personal use instead of business is another common version of this type of fraud. The most basic form of asset misuse is literal stealing, sometimes straight out of the cash register or tip jars. Employers can do a lot to protect against this type of fraud by ensuring redundant security systems, monitoring employees carefully, and reducing the opportunities for this type of crime.
Corruption may sound like a dirty crime reserved for shady politicians, but it can be a form of employee fraud as well. Corruption often occurs when an employee offers discounts, services, or preferential treatment in return for bribes or kickbacks from an outside individual or business. A manager who agrees to recommend a painting company for the building if they will paint her house for free is an example of employee fraud through corruption.
Financial fraud and embezzlement are similar to misuse of assets, but can be more subtle and difficult to track. This type of employee fraud is often reserved for workers with access to company funds and accounting and typically involves the false inflation or deflation of financial records. If a department head erases expenses from a budget statement in order to ensure higher bonuses thanks to decreased spending, this might be considered a type of financial employee fraud. Embezzlement typically occurs when a person entrusted with company funds steals them for personal use, while covering his or her tracks by falsifying financial information.
Employee fraud is a serious and costly problem throughout the business world, and can occur within any organization, large or small. According to some experts, the key factors that raise the risk of fraud are known as rationalization, opportunity, and motive. Called the fraud triangle, these three factors explain how and why employees commit fraud: either they can rationalize their behavior in some manner, are unafraid of security measures, or have a desperate need for the money. Employers can do a lot to prevent employee fraud by attempting to address the opportunity and rationalization components of the triangle by creating a thorough security system and taking steps to address disgruntled employees who may be able to rationalize fraud.