Deterring Employee Fraud in Your Business

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Deterring Employee Fraud in Your Business

Employee Fraud


The construction business by its very nature involves large purchases of materials and equipment, as well as significant payments to subcontractors, so it is fraught with the opportunity for trusted employees to commit fraud.

While it is important to be alert to the risk of theft by strangers, the potential for theft by insiders cannot be ignored.  The loss from employee dishonesty can be appreciably greater, contributing to too many business bankruptcies.

Although employee fraud can take many forms, like purchasing personal supplies on the company account, taking kickbacks, or personal use of company assets, the overwhelming majority of fraud perpetrated by corrupt construction employees is accounts payable.  A few examples include:  the employee sets up a shell company that receives payment for fraudulent invoices for goods and services; they scheme with a legitimate vendor to mark up prices and split the difference; or, the employee takes a proper vendor invoice, marks it up, and pockets the difference.

There are some best practices you can employ to minimize losses due to employee dishonesty:

  1. Before you hire, perform criminal background and credit checks, especially if the employee will be handling finances.  Most perpetrators of fraud are unethical and/or have financial or lifestyle pressures.
  2. Promote a positive and honest work environment.  Appreciated employees are more satisfied and are less likely to commit fraud.  Younger, more technically proficient employees in particular seem to need regular appreciation of their efforts to feel content.
  3. Adopt a zero tolerance policy and establish a hotline so employees, clients and vendors can anonymously report suspected fraud without fear of retaliation.
  4. Accounting and internal controls cannot be underestimated in fraud prevention.  Systems like segregating access and duties (for example, compartmentalizing AR/AP duties from bank reconciliation), requiring dual signatures for checks, establishing approved vendor lists with your bank, and having your accounting firm be on the lookout for costs above the norm, will improve your chances of discovering any foul play and will discourage employees from even attempting it.  A combination of regular and random checks is most effective.
  5. Mandatory vacations of at least two weeks per year.  This opportunity for someone to fill in can expose fraudulent activity.  The unwillingness to take time off can be a signal that the employee does not want to expose their activities.
  6. Make sure the business owner/manager is not absentee.


As a safety net, it’s a good idea to protect your business with a Fidelity Bond.  This inexpensive bond covers losses resulting from your own employees’ dishonesty, including theft, embezzlement, and other dishonesty-related employee damages.  Give us a call at 407-786-7770 for assistance.

By | 2016-06-14T19:49:50+00:00 June 14th, 2016|Surety Blog|Comments Off on Deterring Employee Fraud in Your Business

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