How to Foster Trustworthy Employees and Spot Dishonest Ones

Trust is one of the most critical aspects of business for any type of organization — especially small businesses with fewer people involved. Trust is important for both employers and employees. Some of the reasons why trust matters in the workplace include:

  • Trust boosts morale and motivation;
  • Trust helps build teamwork and improves collaboration;
  • Trust improves speed and efficiency — in turn, lowering costs;
  • Trust enables ethical decision-making;
  • Trust improves loyalty which can decrease employee turnover;
  • Trust minimizes stress and hostility levels;
  • Trust decreases resistance to change;
  • Trust diminishes isolating behaviors and corporate silos;
  • Trust increases idea sharing and development;
  • Trust helps with coaching/mentoring and enhancing employee performance.

Without trust, you may have lingering doubts on whether or not your employees are working efficiently or taking advantage of you. A study done by Gallup on employee engagement in the U.S. found that only 34% of U.S. workers are engaged, 53% of workers are not engaged, and that 13% of workers are actively disengaged. This potentially means that only one-third of your employees are actually engaged at any given moment, and when your employees are not engaged you are losing money. The information below is meant to inform employers on how to create a trustworthy atmosphere and spot dishonesty within the workplace.

Common Types of Employee Fraud

If you do not hire trustworthy employees, you may be at risk for different types of employee fraud. Employee fraud can truly hurt an organization’s profit, effectiveness, and can create a toxic environment. Below are some examples of the most common types of employee fraud:

  • Asset Misappropriation: Asset misappropriation is when employees who are trusted to manage certain assets within an organization steal from that organization. This can include cash/cash equivalents, credit notes, vouchers, data, or intellectual property assets. For example, if you have an employee that is in charge of expense reports, and they submitting unauthorized, personal expenses, that is asset misappropriation;
  • Corruption: Corruption fraud is when resources within a business are tampered with, and profits are affected as a result. Corruption fraud in the workplace can take several forms including extortion, embezzlement, conflict of interest, and bribery. For example, if your talent acquisition manager hires a new, unqualified employee who is also a family member or friend of theirs, this could be an example of corruption;
  • Payroll Fraud: Payroll fraud is when employees manipulate an organization’s payroll system to receive some form of payment that they haven’t earned. For example, if an employee falsified their timesheet submission by getting a coworker to clock in for them when they are not working, that is payroll fraud. Other common payroll fraud examples include worker misclassification, pay rate alterations, large/unauthorized advances, and padding of work hours;
  • Benefits Fraud: Benefits fraud is when employees take advantage of the benefits that are offered by their employer. This can take the form of benefits abuse, entitlement/justification, and large-scale fraud. For example, if your employee makes up a medical emergency or injury to file a workers’ compensation claim, that is benefits fraud. There are common reasons for workers’ compensation denial that employees should be aware of to avoid this;
  • Data Theft: Employee data theft occurs when an insider steals information from corporate databases, devices, or servers. This can occur both directly or indirectly by employees. For example, if an employee takes client-specific data for business plans with malicious intent, this is data theft;
  • Vendor Fraud: Vendor fraud is when an employee manipulates an organization’s accounts payable or payment systems for personal gain. Vendor fraud can be broken down into three categories — billing schemes, check tampering schemes, and bribery/extortion schemes. For example, if an employee over-bills a vendor for services and then pockets the difference between the actual service price and what they charged, that is an example of vendor fraud;
  • Accounting Fraud: Accounting fraud is when an employee manipulates an organization’s accounts — this can be done by overstating assets or understating liabilities. If an employee has falsified financial reports to make it appear that the branch or department has turned a healthy profit, that is an example of accounting fraud.

Who Is Most At-Risk For Employee Fraud?

All organizations are at risk for fraud, but according to a 2018 Association of Certified Fraud Examiners (ACFE) report, small businesses — especially small businesses with under 100 employees — are more vulnerable to fraudulent activity within the workplace. Oftentimes this is because small businesses are unable to pay for comprehensive anti-fraud measures. The same ACFE study goes on to explain that the median loss for small businesses is $200,000 — this number doesn’t even include the costs of acquiring necessary legal help for taking care of any issues related to employee fraud. 

Tips on Spotting Dishonest Employees

One of the ways to avoid employee fraud and to improve organizational trust is to become aware of how to spot dishonest employees. Use the following tips for how to do so to the best of your ability:

  • Stay wary of secretive employees: Keep an eye on employees that are uninvolved, or employees that always keep to themselves. If they are unwilling to provide insight into their day-to-day processes, this should raise red flags;
  • Watch for inconsistencies: Stay on the lookout for erratic changes. These changes can be specific areas of business like accounts receivable, or simply an employee’s behavior. Measuring everything and identifying inconsistencies can help you detect and combat employee theft;
  • Keep an eye out for presumptuous behavior: Be wary of employees who are overconfident or take too many liberties. Presumptuous behavior may be indicative of employees overstepping boundaries;
  • Record complaints about employees: Keep a running list of any complaints made about employees. This should include complaints from management, coworkers/peers, references/past employers, and especially clients.

Lowering the Risks of Employee Fraud

The most important thing you can do as a business owner is to diminish the potential of employee fraud. Employee fraud may not have been part of your considerations when starting your business, but it should begin at the hiring process and be an ongoing process. Use the tips below to help lower the risk of employee fraud.

  • Foster a culture of accountability: In order to bolster accountability in the workplace, you need to incentivize it. Make the effects of employee fraud known, and how it can affect employees personally. Have an open-door policy, and encourage employees to speak out against it;
  • Practice strong leadership: It is important for business owners to practice strong leadership. Lead by example, be transparent, and be the “bad guy” when necessary;
  • Educate employees: Talk to your employees. You need to give employees guidelines on what is okay, what is not, and how to deal with situations where accountability is needed;
  • Perform background checks on new hires: Performing background checks doesn’t mean that you are getting rid of all potential fraud, but it can help you avoid risky applicants; 
  • Use access control and monitor protocols: Keep an eye on what your employees are doing and limit employee access to sensitive information or data. Let your employees know that you are monitoring what they are doing so that they aren’t caught off guard. It could incentivize professional behavior as well;
  • Take recommendations seriously: Employees want to be heard and if they feel like their ideas and recommendations are not taken seriously, they could react in spiteful ways; 
  • Have clearly defined policies and expectations: Create definitive roles. Let employees know what they are expected to do, and things that they are expected not to do. Communicate this clearly, and readdress this as any organizational changes are made.

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