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How To Handle Fraudulent Employees


Business fraud is a more common problem than a lot of people want to admit. One of the areas where there’s the most internal fraud within many businesses and corporations is expense management.

There are quite a few different ways employees might commit expense fraud.

Some patterns that might show up when expense management fraud happens include duplicate submissions for the same expenses coming from different employees, cash as a payment type, and segmenting expenses across multiple days.

In some cases, it’s not just one employee responsible for fraudulent behavior. There can be much larger and more organized schemes going on.

There are some safeguards companies can put in place to prevent fraud, including having a formal expense reimbursement process, and using software to monitor and track all expenses. Businesses can also limit personal credit card use, and ensure multiple layers of control are in place. No one person should be the final source of approval either.

While proactively preventing fraud is undoubtedly the best option, what about businesses that haven’t done that and discover fraud?

How do you deal with an employee who’s committing fraud? It’s difficult in these situations because there’s always the looming fear of a lawsuit, or making a potentially expensive mistake in dealing with an employee, even when they were doing fraudulent things at work.

Keep Information To A Minimum

When a business leader first begins to suspect fraud could be occurring, it’s important to make sure that they keep what they know under wraps. The fewest people possible should be aware of what’s going on while an investigation takes place. This is important first because employees might go through a lot of effort to destroy evidence, but also because it can be problematic for productivity and corporate culture if something scandalous is going on.

As an employer, your focus should be on making sure you’re securing and maintaining as many records as possible. You should also think about minimizing potential destroying of evidence.

This can be an important learning experience for a company who’s never had to deal with something like this before. It can be a time to start creating official policies for how these investigations are handled and how evidence is gathered.

How Is the Employee Dealt With Internally?

Not all cases of fraud are the same in magnitude or intent, and this has to be recognized during the disciplinary process.

If an employee does something that could be considered minor fraud, or maybe they were unaware what they were doing constituted fraud, a written warning may be sufficient. However, some discipline has to be taken to show other employees that it’s not a workplace where fraud is tolerated.

For gross fraud and misconduct, there may have to be not only a full investigation but police may need to be called, as well as outside legal counsel.

With that being said, just because fraud is suspected or even somewhat obvious, employers can’t usually fire the employee right away without an investigation. An investigation is important before issuing any punishment.

You may need to be able to show that you made a fair and reasonable decision at some point, and proof of an investigation can help with that.

Wrongful Termination

Many employers have fears about wrongful termination, even if they know an employee is guilty of wrongdoing. An employer can be taken to court, and the former employee can try to prove they were fired based on something illegal, such as their age or race.

An employer is going to have to have the records and proof showing that they had a real, legitimate business reason for firing the person. You’re also going to have to think about your record of consistency here. If you fire one employee for fraud and not another, that could be problematic if you were to face a lawsuit.

Going forward, if you’ve ever dealt with a fraudulent employee, you’ve likely discovered how important it is to keep meticulous records. When it comes to expense management, a good software system can be the best way to do this. In addition to this general spending information, you should document all incidents that happen in the workplace, no matter how small they may seem.

Documentation should focus on behaviors and not the person, and there should never be exaggerations in these records.

Finally, businesses should have formal warning and disciplinary procedures in place, and all policies regarding expenses and everything else should be included in an employee handbook. During onboarding employees should be thoroughly trained on the handbook and asked to sign that they agree with what’s included in it. This handbook can be another important element of documentation if someone is fired for fraud.