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Employee fraud: Avoiding employees ‘supplementing their pay’

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There have been recent reports of businesses being defrauded by their employees.  The employment relationship is one built on trust and confidence in which it is important for an employer to place trust in their employees while implementing appropriate procedures to prevent or uncover instances of employee fraud.

Two cases of employee fraud have recently hit the headlines and are poignant examples of how much damage employee fraud can do to a business.

A Sydney Australia Post employee was recently arrested and charged with fraud whereby the employee sold stamps to customers while retaining the proceeds.  Over a 10 year period, the employee defrauded Australia Post an amount of approximately $4.2 million.

A more publicised example of employee fraud was that of a senior financial accountant of Clive Peters who defrauded the retailer an amount of $20 million over an 18 month period.  The amount of the fraud in fact exceeded the profit of the company for the period.

In this case, the employee falsified payroll records to divert funds which were used to purchase 43 properties and 3 cars over the 18 month period of the fraud.

Warning signs

There are a number of warning signs which may indicate that your business is being affected by employee fraud.  In the case of Clive Peters, the advent of employee fraud became clear when it was determined that the businesses’ gross profit margin had fallen below the industry average but the business had remained profitable overall.

Warning signs that a particular employee may be engaging in dishonest conduct include:

  • Retail employees only wanting to use a particular cash register
  • Employees appearing wealthier than they should be with respect to their remuneration
  • Employees who make lots of “mistakes” that require correcting entries
  • Employees who engage in frequent gambling
  • Employees who resist a change in position or the delegation of their duties
  • Where there is more cash in the business when a particular employee goes on holiday, or an employee refuses to take holidays for this reason

Steps to prevent or uncover employee fraud

A Federal Police check will uncover any previous convictions for dishonesty offences and should be required from any job applicant applying for a position which involves access to financial information.  An applicant who refuses to provide consent for such a check should be considered seriously.

Pre-employment credit checks may also be considered for job applicants to have access to financial information to indicate whether the applicant has an unfavourable history of managing finances.

Other tips to consider include:

  • Not providing a single employee complete control over a single process. In particular, not having the same employee reconciling bank and payables.
  • Ensuring that only senior managers have the ability to change creditor bank account numbers
  • Implementation of thorough auditing practices
  • If your business uses a cash register:
    • Balancing registers daily
    • Changing your rosters regularly
    • Not permitting employees to leave their bags near a register
    • Tracking sales back to each employee
    • Implementing a strict internal process for refunds
  • Using a computer system which records employee login details
  • Implementing processes that foster accountability
  • Implementing a whistleblower policy to provide employees with confidence in reporting suspected fraud being conducted by a colleague

All procedures adopted should be implemented openly and transparently.  As well as making employees aware of the steps being taken to uncover employee fraud, taking covert action minimises any honest employees feeling that they are not trusted.

Where fraud is suspected, it may be appropriate to engage a private investigator or forensic accountant before involving police.  This provides the possibility of re-instating the defrauded funds as opposed to potential delay caused by an overworked police force. If you suspect employee fraud speak to a Workplace Relations lawyer to discuss your course of action.

Author:  Katrina Sweatman