17 Big Warning Signs of Embezzlement You Shouldn’t Ignore
17 Big Warning Signs of Embezzlement You Shouldn't Ignore
Faster embezzlement detection minimizes damage to your finances, customers and reputation.
Embezzlement can affect businesses of any size, in any industry. For example, a Georgia man was recently convicted of embezzling over $300,000 from his employer, a family-owned restaurant. He used his company issued debit card to pay for visits to adult entertainment venues in late 2020 through fall 2021, racking up enough charges to force the restaurant to apply for federal COVID relief to stay afloat.
But how do you find embezzlement? In 65 per cent of embezzlement cases, the scheme is uncovered when another employee detects that something is wrong. While audits are helpful for detecting fraud, you and your employees should also know the warning signs of embezzlement.
The faster you can detect employee embezzlement, the lower your risk of losing money, clients, customers, and your public reputation as an ethical company. Look for the warning signs of embezzlement listed below before it’s too late.
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Business-Level Warning Signs of Embezzlement
While many businesses, especially those smaller in size, can’t afford an external audit every month, looking for embezzlement red flags every day can reduce your risk. Train employees in your finance department to look for these as they complete their daily tasks so you can nip embezzlement schemes in the bud.
1. Missing Financial Documents
Financial records help you track payables and receivables in order to stick to a budget, adhere to regulations, and monitor the company’s performance.
If an employee embezzles funds, the lost money might be easy to spot in these records. To find anomalies early, conduct surprise audits or add a layer of review to your financial tasks.
However, embezzlers don’t want to leave evidence of their crimes. As a result, they may destroy or hide financial documents including invoices, receipts, or payroll records. Weekly or monthly file checks ensure you have all the records you need, and you can start an investigation if any are missing.
2. Vendors Complaining They Were Never Paid
One of the most common ways to embezzle funds involves overstating payments to vendors. Embezzlers may log a payment to a vendor but write the check for the amount owed to themselves.
If vendors request payment for bills that you paid long ago (according to your books), you may be a victim of embezzlement. They might also claim that they were paid less than your company owed them, or even that they were paid twice (the employee could have pocketed the refund for the second payment).
3. Customers Claiming They Already Paid a Bill
Similarly, look out for a pattern of late customer payments. Do many of your customers or clients regularly pay their bills late and/or require multiple notices?
An embezzler may be pocketing their payments, keeping their balance marked “unpaid” in your records. To uncover this type of scheme, see if any customers have recently changed their behavior. If they usually pay before their bill is due but have been late the past few months, this could be a red flag of employee fraud.
4. Payment Issues
In addition to missed payments, other payment irregularities can be warning signs of embezzlement. For example, does your financial department send out duplicate payments often?
A few instances could indicate a learning curve or bad day, especially for a new employee. However, a pattern of this behavior could indicate an employee who’s stealing payments.
5. Unusual Checks
Evidence of check tampering is a warning sign of check fraud. An employee may commit check fraud by:
- Forging/writing a company check to themselves or a fake vendor
- Altering the amount on a check to a lower number than in your records, then pocketing the difference
- Changing a check’s payee to their own name
- Writing company checks out to cash for themselves
6. Odd Transactions
Knowing what’s normal for your organization can help you detect embezzlement earlier.
- How often do you pay a certain vendor?
- What is their typical bill?
- How long does it usually take for checks to clear?
Keep track of this information in your records. Then, note transactions that look out of the ordinary. Sending an extra payment to a vendor might be a clerical error, but it could also indicate fraud, especially if it occurs often.
7. Shrinking Profits
Have your profits been shrinking? Embezzlement isn’t the most likely explanation for this, especially with inflation and other economic considerations, but do some data analysis to make sure.
Check that your accounts payable and receivable match up with your profits. In addition, make sure vendors you no longer work with or terminated employees aren’t still receiving payments; this could be another red flag.
8. Cash is Disappearing
Embezzlers who need money fast will take it from the easiest source. Swiping cash from safes, petty cash funds, and cash registers is a quick solution when the employee needs to pay off debts or fuel an addiction.
Missing cash is one of the most obvious warning signs of embezzlement. Reconcile cash balances every day to spot an issue before it gets out of hand.
Employee-Level Warning Signs of Embezzlement
Spotting red flags in your financial records reveals the potential problem but doesn’t tell you who’s responsible. Ask employees in every department to look out for the following behaviors in their colleagues, as they could indicate fraud, including embezzlement.
9. Strange or Long Working Hours
Have you noticed an employee who works off-peak hours nearly every day? When no one else is in the office, there’s less risk that they’ll be caught in their scheme.
While many industries require long working hours, keep an eye on employees who consistently work:
- Early in the morning
- Late at night
- Weekends (if your typical week is Monday-Friday)
- Holidays or other days your office is closed
- As much of their day as possible when they can be alone in the office
10. Never Taking Time Off
Similarly, embezzlers often refuse to take vacation, sick days, or any other paid time off.
Time spent away from the office is an opportunity for others to uncover their crimes. If a coworker or temporary worker takes over their tasks, they could discover evidence such as deleted or alternate versions of files.
11. Insisting on Working Alone
No embezzler wants to get caught. Therefore, employees who are stealing funds often insist on working alone. It’s easier to keep secrets under wraps (and to keep track of lies) when they’re the only ones with access to their programs and files.
If an employee refuses help or collaborative projects and/or never delegates tasks, they may be hiding a fraud scheme.
12. Possessive Attitude
In the same vein, embezzlers frequently act possessive toward their workspace, devices, and tasks. While most employees don’t enjoy an invasion of privacy, an embezzler may overreact if someone touches their computer or accesses their files.
Make sure your company policy makes it clear that employees’ workspaces belong to the organization, not to them. Perform random desk and device checks for compliance even if you don’t suspect wrongdoing, as you could uncover a scheme much earlier and save your company time and money.
13. Financial Distress
Some embezzlers are motivated by greed, but others turn to stealing company funds out of distress.
Managers should take note of employees experiencing financial hardships such as divorce, debt, or medical emergencies. Provide support as you can, including mental health resources, paycheck advance options, or even a simple offer to cover lunch.
Ultimately stick to your anti-fraud policies regardless of an employee’s financial situation but remember that they are human.
14. Living Above Their Means
As an employer, you know each employee’s salary. So, when someone who makes $50,000 a year rolls up in a new Tesla or takes a month-long vacation to Bali, you may want to investigate.
If an employee’s standard of living increases suddenly and to a degree that is noticeably above their means, they could be embezzling company funds.
But remember, don’t confront an employee before you have proof of misconduct. There can be legitimate reasons for an increase in standard of living, such as an inheritance, lottery win, or well-off spouse. Avoiding a potential wrongful termination lawsuit will be worth the wait.
15. Testing Fraud Controls
Embezzlers don’t want to get caught, so they will likely do some research before committing their crimes.
An employee may test your fraud prevention controls by moving a small amount of money between accounts (with intent to steal later) or make a minor error in a check to see if anyone notices. They might also steal a few dollars here and there to see if their scheme will work.
Pay attention to small discrepancies in financial records and to employees who have a sudden interest in your organization’s fraud controls.
16. Attempting To Access Restricted Areas or Information
While only a few employees have access to financial records, only about one third of embezzlers work in the finance or accounting departments. That means most embezzlers gain unauthorized access to financial systems to commit fraud.
Take note of failed login or access attempts on restricted programs, files, safes, and office areas. Notice:
- Is there a sudden, unexplained spike in the number of attempts?
- Were there a lot of failed attempts all at once?
- Can you tell who attempted to access them? If so, were there many attempts by one person?
- What were they trying to access? Was it money or data/information?
Before they orchestrate a complicated scheme, embezzlers may try to access restricted places to test your controls (as mentioned above), or to directly steal cash or inventory.
17. Signs of Addiction
This is one of the most sensitive warning signs of embezzlement. Not every employee with an addiction, whether it’s to drugs, alcohol, gambling, or something else, will steal from their employer. However, if they spend excessively to fuel their addiction, they may turn to embezzling to stay financially afloat.
To keep your employees healthy while protecting your company’s finances, provide mental health and addiction resources, including an employee assistance plan (EAP) and promote them widely and often.
Stopping fraud before it starts saves you money, stress, and workplace disruption.
Download our free cheat sheet to learn four simple steps to take toward workplace fraud prevention.
What to Do If You Suspect Embezzlement
Never assume an employee is guilty of embezzlement. Nearly all these red flags have other reasonable explanations. Launch an investigation, ensuring details are kept confidential to protect both you and the suspected embezzler.
This is also an ideal time to ramp up your anti-fraud controls. Try these measures to reduce your risk of fraud and theft:
- Refresh fraud training and require completion annually for all employees
- Separate duties in your finance department (i.e. one person can’t handle expenses from start to finish)
- Improve security on physical (petty cash safe) and digital (company accounts) sources of funds
How Case IQ Can Help
If you’re still simply reacting to fraud, theft, and corruption, you’re putting your organization, your employees, and your reputation at risk.
With Case IQ’s powerful case management software you can increase oversight, track and manage investigations, and report on results for better risk management and prevention.
Case IQ’s award-winning reporting tool highlights trends and hot spots in investigation data, helping you identify your areas of risk. Use this insight to focus preventive measures and improve your program.
Learn more about how Case IQ can improve your organization’s investigations here.