The Many Faces Of Employee Fraud

Corporate fraud comes in many colors, but for many businesses, the most unexpected threat is the one looming from within company walls.

This week, IBM announced a collaboration with Raw Seafoods to develop a blockchain solution to address supply chain fraud in the seafood industry, including cases of incomplete documentation and mislabeling. Distributed ledger technology (DLT) is also the tool of choice for Chainvine, which uses blockchain to mitigate against the risk of supply chain fraud in the wine industry, the Financial Times reported last week.

But among the most common types of internal employee fraud is expense fraud, in which workers deliberately inflate figures on an expense report to be reimbursed for more than they should receive from their employer. American Express recently pointed to this risk with its announcement last week of a new small business credit card product for Canadian SMBs, a tool that integrates Amex’s automated protection against employee misuse.

But it’s not the only way employees can steal company cash. Payroll fraud is another common occurrence, and this week’s Data Digest reveals not just cases of expense fraud, but also various methods of payroll fraud, including inflating overtime figures and stealing payroll checks.

As the latest cases reveal, key tactics to address this risk include employee background checks, stronger oversight of employee activity and migration away from paper checks and manual data entry toward electronic and automated platforms. Plus, this week’s Data Digest looks into an alleged money laundering ring, exposing the risks involved in multinational, multi-account corporate banking.

$32.36 million: This is the suspected value of a VAT fraud scam that Ireland’s Garda National Economic Crime Bureau is investigating, local reports said last week. Fraud investigators made an arrest in their investigation on suspicion of the tax scam, which involved the laundering of money through corporate bank accounts at a range of financial institutions across Ireland and Northern Ireland, with large sums of money transferred across borders. Law enforcement warned that the scam is complex, involving parties in multiple jurisdictions including supplier companies, VAT-registered corporates, corporate customers and others within the supply chain.

$146,800: This is the estimated value of fraudulent overtime charges that four Long Island Rail Road workers within New York’s Metropolitan Transportation Authority (MTA) reportedly filed with their employer. MTA’s inspector general dubbed the alleged fraudulent overtime as “excessive and unsubstantiated,” Newsday reports stated, explaining that the workers padded their overtime hours by inflating travel time to and from their assignments. In a letter, MTA Inspector General Carolyn Pokorny pointed to a lack of managerial oversight and a lack of reliable employee time and attendance documentation as key factors in the case.

$58,882.32: An Ohio couple was ordered to pay this amount in restitution after being convicted of grand theft and forgery. Prosecutors say the couple forged payroll checks to steal funds from their employer, posing those payments as legitimate payroll transactions to employees no longer with the company. According to WHIO.com reports, one of the convicted individuals had been convicted of wire fraud and mail fraud in another state, a case not only highlighting the risk of payroll fraud, but also the importance of employee background checks.

Fifty-three percent of U.K. businesses surveyed by Caxton say they don’t have an expense policy in place, which exposes businesses not only to the risk of wasteful employee spending, but of expense fraud as well. More than one-third of professionals surveyed said they feel they lack control over employee spending limits. “As our research shows,” said Caxton Chief Commercial Officer Jane-Emma Peerless in a statement, “automating expense management is unlikely to eliminate fraud and misuse completely, but it does shine a torch on it at an earlier stage.”