Top 10 warning signs of employee fraud.

In my previous employment capacities, I was in charge of recruitment, development and retention of employees among other staff matters for a number of years. This has enabled me to understand what determines the culture of the organisation.

On moral issues, I can say with confidence that majority of employees are quite honest and trustworthy provided an effective environment for prevention, detection and discovery of frauds is in existence.

The moral behavior of employees is impacted by tone of management on fraud issues.   In summary the moral behavior of employees will be affected positively or negative by the moral behavior of their leaders.

I have also come to learn in the process do not put too much trust in employees at the expense of effective internal control system. It is employees who are trusted who can easily commit frauds.

Without an effective internal control environment and a right tone on fraud from management some honest and trustworthy employees could easily start involving themselves in fraudulent activities.

You may not easily discover that trusted employees are involved in fraudulent activities unless you are able to identify the signs or red flags pointing to possible fraudulent activities.

There are many causes of frauds and the following are the most common;

  • Staff in financial difficulties

There are times when an employee is in financial difficulties. The employee would tend to borrow from many people in the organisation irrespective of grade. You can imagine of a senior staff who has borrowed from drivers, office attendants, managers and directors. The affected employee may also resort to borrow from moneylenders at exorbitant interest rates.  The employee in financial difficulties will often be followed by the creditors up to the office. There are instances when their family members will come to the office complaining of being neglected. Employees that are in financial difficulties can do anything including committing frauds in order to survive.

  • Ever complaining of poor pay

I have come across some employees who were ever complaining of poor pay from January to December despite the fact their remuneration compared well with remuneration of other employees in the organisation. Why then were they complaining of poor pay? Could be a cover up for something? In life I had two instances of two separate employees complaining of poor pay. One in fact lived as a poor person including walking to the office where he was a head of finance. I later came to learn that both staff were   involved in fraudulent activities. Therefore do not take staff complaining of poor pay on the face of it. Do some investigation to establish the cause.

  • Refusing to go on leave

I have come across a number of employees that never wanted to go on leave for a number of years because their office work was too much.  Why should a staff refuse to go on leave when he or she is entitled? Why should the employee become more concerned about the business more than the owners of the organisation? Some employees do not want to go on leave because they want to cover up their fraudulent or immoral activities. Immoral behaviours are normally discovered when the perpetrators are on leave.

  • Customer complaints

I highly recommend you to always listen to customers’ complaints about your staff and the quality of service. Some complaints may point to fraudulent behaviour by some staff. I was one time sat next to a wholesale trader of used bales of cloth from Hong Kong to Dubai. He complained of a lot of complaints from his customers about his staff and the quality of products. I asked him whether he had ever given his customers audience to explain the issues they were complaining about. He said he had never in person as his staff always listened to the customers when they are serving them. I advised him to have an audience with his customers which he did on return to his country.  His customers were complaining of poor quality of clothes in the bale. Many bales had torn and dirty clothes. When he listened to the customers he was shocked to see the samples of clothes found in the bales. He later confirmed that the bales were not the ones he imported. His staff had brought into the stores bales of their own which contained torn and dirty second clothes collected from the nearby second hard market for purposes of defrauding their employer. The owners finally came to learn that his staff were mixing the bad bales with good ones and had found a way of taking out the cash.

  • High labour turnover

You may find new employees do not stay in an organisation or a given department for long because of harassment from existing staff. Staff involved in fraudulent activities will not welcome any one they are not so sure to the organisation or department for fear the new employees will blow the whistle. The existing staff make life unbearable for the new staff until they resign and go.

  • Change of lifestyle

You may also have come across cases of staff that change their lifestyle within a short time. They buy posh houses and starting driving new and expensive cars.  Some even transfer their children to expensive schools. They dress most expensively. It is advisable to establish the source of funding for the luxurious life as it could be from fraudulent activities. You hear many stories about their wealth and please do not jump to conclusion.

  • Highly sensitive staff

I have come across staff that are highly sensitive on anything which might touch on their moral character. They will remind you how they come from religious families and they are religious in their own right. They will talk of being brought in good families, attended religious schools and having worked hard to reach where they are. You have to take some interest in staff that are highly sensitive as they could be using it as a cover of their hidden immoral behaviour. Some frauds are committed by staff that create an image of being upright. They will do anything to tell off any one whom they think is attempting to mess their good character.

  • Staff who is a darling of suppliers and customers

Some staff have wonderful relationships with customers and suppliers to the extent that some customers and suppliers will only insist of being served by those staff.  The staff may be a darling of customers and suppliers because of either quality service to the customers and suppliers or fraudulent activities between them and the customers and suppliers.  It is advisable to exactly find out why the staff are so popular.

  • Refusal of promotion

There are some employees who will refuse promotions or any transfers to other positions for a number of reasons. Some of them will openly admit that they do not have capacity to learn anything new or new ways of working and they should therefore be left alone until they retire. The reasons for staff refusing promotion could be that he or she is earning handsomely in the current position through   fraudulent activities. Alternatively the staff could be full of fear about what new position has to offer.

  • Behavioral changes

You may be faced with an abrupt behavior change of an employee. The employee may become either very talkative or withdrawn.  The staff may also start over drinking to the extent of being unable to deliver service in the office.  Any unexplained behaviour change should be investigated in order to establish the reasons for the change.


Generally staff in an organisation are honest and trustworthy provided the right moral culture and strong internal control system is in existence

John Muhaise Bikalemesa

Director: Big Drum Advisory Services Limited