What You Can Do When You Discover Possible Employee Fraud

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Businesses, no matter the size, can never be a hundred percent safe from fraud. Yes, even with the highest standards for hiring and the strictest policies in place, there is still a possibility of an employee committing fraud against their employer. Of course, there are many ways businesses can minimize the chance of this happening, but they are never fool-proof.

That said, all business owners must know what to do in case they discover fraud occurring in their business. Even if you own a small business that may not seem worthwhile to scam, it pays to learn how to handle employee fraud correctly.

If you find evidence that points to employee fraud, here’s what you can do:

1. Refer to your HR procedures

Every business should have HR procedures in place for every possible type of employee fraud. Refer to these procedures first if you discover that an employee has been stealing from the company, has filed a fraudulent workers’ compensation claim, or has committed or is actively committing any type of fraud. This way, you can confront the employee and ask them to return what they have stolen without involving the authorities.

After you recover your losses, you can decide what to do with that employee. In most cases, it’s probably a good idea to fire them, but it’s completely up to you.

2. Contact your attorney

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If the fraudulent employee refuses to pay back what they have stolen, or if you do not want to risk the chance of them fleeing before you can recover your losses, you can consider taking legal action right away. Call your attorney and let them know what has happened. They can help you review the evidence against your employee and guide you through the legal proceedings. They can also help you gather evidence if the employee has not been caught red-handed, which is often necessary to avoid the employee filing a lawsuit against you.

Moreover, if your business has been wrongfully accused of violating employment law, your attorney may be able to provide employment law mediation services that can help keep the case outside of court.

3. Call your insurance company

Having coverage against employment fraud may not seem necessary at times, but you never know if one of your employees will turn out to be fraudulent. If you have an insurance policy that covers you for employee theft or fraud, contact them right away and inform them of what has happened.

You may be able to recover at least a portion of your losses this way, but keep in mind that the insurance company may raise your premiums in the future. If the amount lost isn’t worth the increased premiums, you may want to keep your insurance company out of it for now.

4. Report to the police


After you inform your attorney, you may want to call the police and report the incident. However, ask the police to remain discrete when they show up in your workplace; have them go straight to your private office if you must. Otherwise, their presence can disrupt operations and cause unnecessary delays.

But if the police have to conduct interviews with employees, make sure you have a private room ready for interviews. The last thing you want is to cause other people to stress for something that is the fault of only one or a few. And if your workplace receives clients frequently, the presence of police offers may not look good for your business.

5. Sit down with the employee

In some cases, you may not want to go straight to HR, the police, or the courts when you discover employee fraud, especially if it’s only a minor offense. Catching someone stealing an insignificant amount may not warrant the drama and stress, both for you and the employee in question.

If you want to avoid formal action and want to give the employee another chance, have a sit-down discussion with them and present all the evidence that you have discovered. Ask them why they’ve done it. In mild cases of stealing, their actions may not be born out of pure greed and instead a necessary means to survive. If you want to give them another chance, tell them that you will let it slide for now, but emphasize that you will be taking legal action the next time they are caught.

Just make sure that you consult with a lawyer first before having this discussion with your employee. If they feel accused, they could file a lawsuit against you.

Dealing with employee fraud is often an extremely tedious and uncomfortable process, but it has to be done as soon as possible to keep your losses at a minimum. More importantly, you must take it as a learning experience and find ways to prevent employee fraud in the future.

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