Forensic Friday: The Warning Signs of Employee Misfeasance

One of the most common areas in which forensic accountants are engaged by their corporate clients is to investigate misfeasance by one of the corporations employees.  Such misfeasance can be deceptively simple and can also be ridiculously complicated. Not all cases of employee fraud end up on the pages of the newspapers (like the recent O’Carrigan case in Queensland for example) but all present serious issues for the corporation effected.

What follows are some commonly identified signs of employee fraud found by forensic accountants when they investigate matters such as this:

  1. Working excessive hours for no clear reason.
  2. Avoiding taking holidays.
  3. Expensive lifestyles or living beyond their means.
  4. Very close relationships with clients and/or suppliers.
  5. Unexpected resignations or leaving without good reason.
  6. Character changes in employees.
  7. Unusual protectiveness/reluctance to delegate.

Now it goes without saying that just because an employee is displaying these traits, either alone or together, that they are certain to be undertaking some form of misfeasance.  Equally, these are also matters that an employer should consider, both in creating a risk management plan for reducing the risk of employee misfeasance and in the actual identification of such misfeasance.

I have had cause over the years to be involved in interviews and litigation involving employees who have conducted themselves in a less than exemplary fashion and, without fail, the bulk of these indicia were present.  The other thing that was oft present was a sense of relief at ultimate capture.

Employers must be vigilant, particularly in moderately tight financial times, and ensure that they have a plan in place for reducing the risk of employee misfeasance and, when they suspect such conduct, employers must be ready to act decisively to investigate and confirm whether such conduct has taken place.  To not act in this way will only, inevitably in my view, lead to the employer losing money and, potentially, reputation as a result.

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