It may be the most wonderful time of the year for sales and profits, but if you are not on the lookout for fraud-minded employees, your business may end the holiday season with far less silver and gold in its stocking.
The holidays, in fact, are a prime time for employee-related theft, with fraud attempts spiking as much as 20 percent between Thanksgiving and New Year’s Day, according to data collected by the Association of Certified Fraud Examiners (ACFE).
Worrying about workplace theft is not a sign that you are channeling your inner Ebeneezer. Employee theft is a critical problem for businesses, with occupational fraud leaching 5 cents out of every dollar of revenue earned, ACFE data shows. For retailers alone, the average dollar loss per dishonest employee is $1551.66, according to a 2021 survey by the National Retail Federation.
With those Grinch-like statistics in mind, let’s consider the reasons why employee fraud increases during the holiday season and a few ways you and your business can fight back.
THE ‘FRAUD TRIANGLE’
Occupational fraud is usually motivated by one or more of the following factors. These three factors are commonly referred to as the fraud triangle.
- Opportunity: Does the employee see a chance to commit fraud and get away with it?
- Need or Greed: Is the employee seeing incentives or feeling pressure to commit fraud?
- Rationalization: Has the employee found a way to justify their behaviors to themselves?
In our experience, two of these factors take a sharp turn for the worse during the holiday season. Need or greed increases as people feel the pressure to spend beyond their means. And the opportunity to steal rises because of holiday-related changes in the way business is running.
For instance, more people may be in and out of the office or on vacation, giving a fraudster more time without oversight. Regular processes and procedures may become more relaxed. Security efforts may slip because of a large increase in holiday business or a scramble to finish projects before the close of the year.
Consider the following random acts of unkindness recently committed by workplace fraudsters. In each, holiday-specific changes in the workplace routine—less oversight, a greater volume of sales and inventory, temporary or contract employment—appear to have helped create conditions that allowed for fraud.
- In January 2022, a University of Kentucky employee was arrested after allegedly using the winter break to roll a large cart around the residence halls and clear more than 850 dorm rooms of money, clothes, jewelry, electronics, and other items.
- During the 2021 pre-Christmas rush, a woman working at a distribution warehouse in Tennessee duplicated shipping labels and used them to send as much as $60,000 worth of unpurchased Nike products to various addresses.
- During the holidays last year, two Oklahoma contract drivers for Amazon and an accomplice were charged with possession of stolen property and embezzlement after making off with hundreds of packages that were being transferred to the U.S. Post Office for delivery by Christmas.
As these incidents show, even the largest or most tech-savvy of organizations can face significant losses when motivated fraudsters take advantage of weaknesses created by holiday work conditions.
SPOTTING AND PREVENTING FRAUD
The good news is that employers can take steps to root out fraud and prevent it. First, they need to pay close attention to employee behavior. Fraudsters, like poker players, usually have tells. You might want to take a closer look at employees who display any of the following red flags:
Living beyond their means.
Does the employee drive extravagant cars, wear designer clothes or expensive jewelry, or take elaborate family vacations? During the holidays, do they appear to be spending a lot of money even when they earn salaries insufficient to fund such purchases?
Engaging in risky behaviors.
Do they frequently engage in activities such as gambling that can trigger serious financial issues?
Behaving in ways that seem too good to be true.
Is the employee refusing to take a time off to spend with family? Are they coming in to work before everyone else or staying after hours by themselves? Do they refuse to relinquish control of company books and records?
Spotting red flags is just one step in the fraud detection and prevention process. During the holidays, employers should also consider taking the following steps:
- Let Employees Know You’re Watching. Employees are far less likely to commit fraud if they fear detection. Business owners should be present, and aware of what is going on the work environment and let employees know they are keeping a close eye on fraud-related issues.
- Create and implement strong fraud-prevention controls. Where possible, ensure that various duties—particularly ones with a financial impact—are segregated so that more than one person is handling various tasks. If duties can’t be divvied up, then ensure that controls are in place to compensate for this fact (such as a method of routinely reviewing work).
- Review Everything. Do not allow employees to check and approve their own work. Review company credit card statements for personal expenditures. Require timely requests and original receipts for employee reimbursements. Pay close attention to bank statements and canceled checks. The disbursement cycle is vulnerable to fraud.
- Remain Vigilant—Especially During the Holidays. This is no time to sit back and relax. Review your anti-fraud programs and controls, and tighten up where necessary. And make sure your employees know and understand your organization’s stance on occupational fraud.
While workplace fraud may be on the rise during the holiday season, employers who take proactive steps and stay alert to employee behaviors are far less likely to end up—with apologies to Mr. Dickens—royally Scrooged.
Forensic Strategic Solutions has substantial experience working with attorneys and clients to detect and prevent workplace fraud. To learn more about our work, contact us for a consultation.