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17 Big Warning Signs of Embezzlement

Faster embezzlement detection minimizes damage to your finances, customers and reputation

Posted by Ann Snook on February 5th, 2020

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 an embezzlement scheme in your workplace, the less likely you are to lose money, customers, clients and your good reputation. This article describes warning signs of embezzlement to look out for, no matter your organization’s size or industry.

 

Find out how case management software can help you conduct more effective embezzlement investigations in our free eBook.

 

Contents

Business-Level Warning Signs of Embezzlement

 

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.

Embezzlers won’t want to leave evidence of their crimes. As a result, they may destroy or hide financial documents including invoices, receipts or payroll records.

 

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 owed amount to themselves. If vendors request payment for bills that you paid long ago (according to your books), you may be a victim of embezzlement.

 

3. Customers Claiming They Already Paid a Bill

 

Similarly, look out for a pattern of late customer payments. Do a large number 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.

 

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, but a pattern of this behavior could indicate an employee who’s stealing payments.

 

RELATED: Employee Embezzlement: The Ultimate Guide

 

5. Unusual Checks

 

Evidence of check tampering is a warning sign of check fraud. An employee may commit check fraud by:

  • Forging 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

 

6. Odd Transactions

 

Knowing what’s normal for your organization can help you detect embezzlement earlier. For instance, how often do you pay a certain vendor? What is the typical bill? How long does it usually take for checks to clear?

Keep track of this data. 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.

 

7. Shrinking Profits

 

Have your profits been shrinking? Embezzlement isn’t the most likely explanation for this, but do some data analysis to make sure. Make sure 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, which 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 theft

Employee-Level Warning Signs of Embezzlement

 

9. Strange or Long Working Hours

 

Have you noticed an employee who works off-peak hours nearly every day? Embezzlers often work early in the morning, late at night and on the weekends. When no one else is in the office, there’s less risk that they’ll be caught in their scheme.

 

10. Never Taking Time Off

 

Similarly, embezzlers often refuse to take vacation or sick days. Any time spent away from the office is an opportunity for others to uncover their crimes, especially if a coworker or temporary worker takes over their tasks.

 

11. Insisting on Working Alone

 

No embezzler wants to get caught. Therefore, employees who are stealing funds often insist on working alone. 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 work area, 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’ work spaces belong to the organization, not to them, and perform desk and device checks if you suspect misconduct.

 

RELATED: 14 Tips for Effective Embezzlement Investigations

 

13. Financial Distress

 

Some embezzlers are motivated by greed, but others turn to stealing company funds out of distress. Take note of employees experiencing financial hardships such as divorce, debt or medical emergencies. Offer support as you can, but stick to your anti-fraud policies regardless of an employee’s financial situation.

 

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 avoid confronting 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.

 

15. Testing Fraud Controls

 

Embezzlers don’t want to get caught, so they will likely do some research before committing an actual crime. An employee may test your fraud prevention controls by moving an item (with intent to steal later) 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.

 

Download our free cheat sheet to learn four simple steps to take toward workplace fraud prevention.

 

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. Some embezzlers gain unauthorized access to financial systems to commit fraud.

Take note of failed login or access attempts on programs, files, safes and office areas. Is there a spike in the number? Were there a lot all at once? Can you tell who attempted to access them? Before they orchestrate a complicated scheme, embezzlers may try to access restricted places to straight-up steal.

 

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 or gambling, will steal from their employer. However, if they spend excessively to fuel their addiction, they may turn to embezzling as a way to stay financially afloat.

 

What to Do If You Spot These Warning Signs of Embezzlement

 

Never assume an employee is guilty of embezzlement. Nearly all of these red flags have other reasonable explanations. Launch an investigation, ensuring details are kept confidential to protect both you and the suspected embezzler.

 

Case management software makes it easy to track and manage embezzlement investigations and report on results for better prevention. Learn more here.

Ann Snook
Ann Snook

Marketing Writer

Ann is a marketing writer at i-Sight Software. She writes about issues related to investigations of fraud, employee misconduct, corporate security, Title IX, ethics & compliance and more.

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