The Most Common (and Costly) Types of Employee Fraud

The financial industry is one of the most regulated industries in the United States, yet financial institutions are still being targeted with high rates of internal fraud. According to First Data, nearly one-quarter of all financial fraud cases come in at more than $1 million, and 25 percent of all financial fraud cases come from within the institution’s own walls.

While at some point every company will fall victim to employee theft of some form, dealing with internal theft of hefty dollar amounts isn’t something that can be completely prepared for. With technology, fraud has become easier in some ways, so banks should do what they can to limit exposure as well as financial fallout. This can be done through education and the right resources, such as bank crime insurance, like blanket bond insurance, offered through FGIB.

Here are the most common types of employee fraud to look out for.

Purchase Order Fraud

Purchase order fraud happens when an employee initiates purchase orders for goods that he or she diverts for personal use or when they set up a phantom vendor account. These benefit the employee’s own interests by getting paid fraudulent invoices with funds that eventually divert to the employee. It’s a long game plan for the employee who thinks they’re getting away with things more sneakily.

Company Credit Cards

Employees who have access to a company credit card may end up using them for illegitimate purposes to buy items for personal use. Or the employee may use it on things like entertainment, food, or travel. Some of the common types of fraudulent use of credit cards are fuel purchases, airfare, and meals that are not work-related.

Data Theft

Data theft is on the rise in practically every major industry in the world, but when it comes to the banking industry it poses a massive threat. With access to not only a bank’s information but all of its clients/customers, this kind of theft has the potential to ruin plenty of bank accounts.

Data theft involves an employee stealing vital company information, like trade secrets, personal identity information, client card numbers or client lists. The person who steals this information then turns around and sells it to a third party for a reward.

This kind of theft may be able to be detected by running regular tests to see if a database has been accessed by an employee without access privileges. Banks can also run tests to find out if any employees have sent e-mails with attachments that include information of a company that is considered sensitive.

Payroll Fraud

Payroll fraud can appear in a few ways. This inlcudes:

  • Setting up phantom employees, or fake employees, on a payroll system who end up getting paid like regular employees
  • Paying out more overtime than has taken place
  • Continuing to pay employees after they die or after they leave the company


About Financial Guaranty Insurance Brokers

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals.