‘Fraud buster’ series – Managing the complexities of employee frauds

employee fraud 2-1Our last post on ‘Fraud buster series – Dealing with employee frauds’ covered some of the reasons for employees to be involved in fraudulent activities. In continuation with the same theme, the focus will now be on how companies are increasingly getting exposed to such fraud risks.

If you think that an employee is a fraudster with a track record of scams behind them or joins a company with the sole intention of defrauding them; that may not really be true.

employee fraud revised infographic


It is not that the conduct of employees is causing loss to the employer only in the recent past. What keeps evolving is their enhanced capabilities and adoption of unconventional methods in committing frauds. While companies continue to improve their internal control systems, the automation of business processes and overreliance on technology have given new avenues for employees to commit fraud.

Take the case of the Biometric Attendance System. Many companies have started introducing this technology for monitoring attendance of their employees and contract staff. A few corporates even link the biometric system with their payroll software to enable partial or near full automation of salary disbursements. The fingerprint recognition system is one such biometric modality which records attendance by recognizing the individuals’ finger impression when placed on the biometric device.

While the system maps the finger impressions against the individual’s user ID, an unscrupulous employee who is aware of system’s design, can create fake user IDs and register their finger impressions against these IDs. Fraudsters can generally register different finger impressions against each of the IDs. This is in order to override the system’s inbuilt control which prevents the same finger impression from being registered more than once.  The salary amount payable to the created ghost employees is then siphoned off by the perpetrator with the support of employees in payroll / human resources department.

employee fraud 2-2Similarly, e-recruitment technology is being introduced by many companies in the recruitment process. It not only helps companies to attract talent and shortlist suitable candidate profiles, but also encourages candidates to share their résumés directly with the company. However in certain cases, company employees that have access to the e-recruitment portal can deliberately forward the shortlisted résumés to external recruitment agencies. The agency then sends back the résumés to the company as their referral and claim consultancy charges based on successful onboarding of candidates. The employee is then paid a kickback, which is generally a share of the consultancy charges received by the agency.

While such opportunities to commit fraud keep coming up, organizations must create a work environment that reinforces anti-fraud behavior. With the advancement of technology and introduction of automated systems & processes, internal controls must be frequently assessed to identify potential fraud risks and appropriate steps should be initiated to mitigate such risks. Companies should respond to early indicators of possible employee frauds with proactive assessment of the processes. Any suspicious behavior and lifestyle changes of employees may also be monitored when required. Increasing the perception of detection together with effective internal controls will act as a strong deterrence to fraud.

Follow @EY_India and track #EYForensic for regular updates

(The above is second in the series of blogposts which will deal with different fraud scenarios and highlight measures that could be used as ‘fraud busters’)

One thought on “‘Fraud buster’ series – Managing the complexities of employee frauds

  1. Very interesting and useful article.. thanks for sharing
    till now I always skipped the process of fraudulent figure print entry while working on to find ghost employee. Also the resume sharing point is crucial
    Thanks again

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