Employee theft can occur at every type of business and in a variety of ways. From stealing cash from the petty cash drawer to inflating hours on time sheets, employee fraud can damage your company financially and damage its reputation.
Effectively preventing fraud involves a combination of internal controls, including segregating duties, monitoring POS activity and using video verification. Thorough pre-employment screening and background checks also help.
1. Embezzlement
One of the most common types of employee theft is embezzlement. Embezzlement is a type of fraud where an employee, often a trusted member of a company’s workforce, takes assets that they have been entrusted with and uses those assets for their own financial benefit. This can happen in a number of different ways, from small amounts such as a cashier taking a few dollars out of their register to large scale schemes like executives falsely expensing millions of dollars and transferring funds into personal accounts.
To be guilty of embezzlement, the defendant must have acted with specific intent to deprive another of the enjoyment of property. This is why it is a criminal offense, rather than a civil one, which means that the person cannot return the stolen item or money even if they later realize what they have done was wrong. The specific intent requirement makes embezzlement very different from larceny, which only requires that the thief take the property without the owner’s permission.
For example, imagine that you work in a factory where employees submit time cards to document their hours worked and receive payment for their labor. One day, you notice that a co-worker is falsifying the timecard to make it appear as though they have worked more than they actually have in order to steal overtime pay or other benefits. You confront them about the situation, but they deny any wrongdoing and ask that you help cover up their mistake.
The crime of embezzlement is a felony in Pennsylvania, punishable by lengthy jail sentences and steep fines. It is important for companies to have strong internal controls to prevent such instances of embezzlement, which may include vetting their employees and performing regular audits. It is also essential for businesses to have an attorney experienced in embezzlement law on their side if any accusations are made against them. Depending on the circumstances of the case, there are several potential defenses to embezzlement that your attorney may use to your advantage, including challenging the authenticity of evidence and highlighting inconsistencies or gaps in prosecutors’ case.
2. Payroll Fraud
Employees may try to steal company money using a variety of schemes. These often involve manipulating or falsifying expense reimbursements and payroll taxes. This type of fraud is most common for employees in accounting, sales, human resources and other administrative roles.
One way to prevent payroll fraud is to implement reliable time-tracking and rigorous audits. This helps ensure that employees are being paid only for hours they worked, not for longer breaks or buddy-punching. It also makes it much harder for employees to manipulate their paychecks by inflating work hours or claiming overtime they didn’t work.
Another form of payroll fraud involves inflating sales or commission. This can be done by inventing fake sales or overstating sales on internal reports, invoices or POS systems. This type of fraud can be difficult to detect, but it’s important to keep an eye out for unusual activity like increased revenue or unsubstantiated commission claims.
Other types of payroll fraud include creating fictitious expenses, padding paychecks, or stealing supplies. A real-life example of this is when an accountant padded his or her paycheck by submitting false travel receipts and unauthorized bonuses. This scheme lasted for months before it was uncovered.
Wage theft is a serious problem that costs American workers $50 billion per year. It can take many forms, including paying fewer than the minimum wage, failing to pay overtime, requiring off-the-clock work or making illegal deductions from employees’ salaries. Wage theft is most prevalent in low-wage industries and is a violation of federal, state and local laws.
3. Fraudulent Use of Credit Cards
Credit card fraud is one of the most common types of employee theft and can lead to a wide range of consequences. Credit card theft can include account takeover fraud, new-account fraud and cloned cards. This type of fraud can happen through physical theft or stealing credit card information online through techniques such as phishing, skimming devices and sharing of private information.
A credit card is a piece of plastic with a magnetic stripe on its back that stores data in machine-readable format, including: the card number (formally primary account number), the expiration date and a verification code. A credit card can be used to make a purchase or to withdraw cash from an ATM. When a credit card is stolen, the card can be used for illegal purchases until the owner notifies the card issuer and they place a block on the account. This is why it is important to monitor bank and credit card statements frequently and report unauthorized use as soon as possible.
In California, anyone who fraudulently uses a credit card is guilty of PC 484g. The law defines this as “any person who, with intent to defraud, obtains money, goods, services or anything of value by using an access card that is forged, altered, expired, revoked or otherwise not valid.”
If you are charged with credit card fraud, it is important to have experienced California criminal defense attorneys who can help you build your case. Depending on the amount of money, goods or services obtained in violation of this statute and other facts such as your intent to defraud, you could face a misdemeanor charge or a felony charge.
4. Payroll After Death
When an employee dies, it creates a tangle of legal, payroll and tax issues that are not covered in the average company handbook. From final paychecks and COBRA notices to PTO payouts and life insurance benefits, handling a deceased employee’s payroll is complicated and requires sensitivity and precision.
While it may be tempting to direct deposit an employee’s final wages, this can be a mistake. The bank account of a deceased person can be frozen, and there is no guarantee that the correct beneficiary or estate will receive the funds. A paper check should be issued instead.
If a payment for a deceased employee has already been deposited but the employee died before cashing it, the check should be canceled and reissued with the same net amount (based on the same withholding) to the deceased’s executor or personal representative. In addition, any other amounts owed to the deceased employee such as accrued vacation pay or sick time, fringe benefits or deferred compensation must be paid according to applicable state laws.
As a general rule, payments made within the year of death are not subject to federal employment taxes (FICA) but may be subject to state income and Social Security taxes. These are reported on Form 1099-Misc. If the payments are made in a year after an employee’s death, the gross amount must be reported on Form W-2. If an employee was employed in a year other than the one in which they died, any taxable earnings must be reported on the employee’s final tax return. The IRS provides guidance on this issue. This can be confusing, and it is important to consult with the appropriate state law experts and/or a tax attorney.
5. Client Data Theft
It’s a common misconception that employee theft only involves stealing money or products. While this type of counterproductive work behavior (CWB) is harmful, it’s also important to consider other types of theft that don’t involve tangible assets but are equally damaging in terms of company productivity and reputation. From scrolling social media during meetings to sharing confidential documents with third parties, petty theft can lead to larger problems down the road.
The most commonly overlooked petty theft type is information theft. This CWB involves employees misusing or leaking sensitive customer, employee, or business data for personal or third-party gain. This could include trade secrets, personally identifiable information, client lists, and more. Fortunately, there are certain red flags to look out for that can help you spot this kind of behavior, including unauthorized access to systems outside of regular work hours, excessive or unexplained changes in work habits, and resistance to oversight.
Payroll fraud is a costly and often hidden form of employee theft that can be difficult to detect without proper monitoring and safeguards in place. Some common payroll fraud tactics include inflating expense reports, creating ghost employees, and submitting false timecards. Red flags to watch out for include expense reports that don’t match time-tracking data, employees clocking in for coworkers, and extended breaks that eat into working hours.
Despite their best intentions, some employees will use company credit cards for illegitimate purposes like fuel purchases, airfares, home supplies, and entertainment. Other telltale signs of employee fraud include unauthorized voids, refunds, or discounts and reluctance to let others handle the till. This is why it’s vital to have systems in place to track employee spending and implement cash handling protocols, real-time point of sale (POS) monitoring, and surprise audits.