56. Stopping Employee Fraud - Detect, Prevent & Protect
Safeguard Trust by Eliminating Theft and Scams
Imagine this - A loyal customer reports being overcharged by a staff member, or you discover that an employee has been secretly adding unauthorised charges to transactions. Worse still, you find out that -
Employees have been stealing money, goods, or customer information for personal gain.
Customers who realise they were scammed spread negative reviews online.
Your company’s reputation takes a hit, and legal consequences may follow.
Other employees lose trust in leadership, believing misconduct is tolerated.
Theft and scamming of customers—whether through unauthorised charges, fraud, or deception—can quickly spiral into major business and legal risks. Beyond financial losses, it destroys customer trust, damages brand reputation, and may result in lawsuits.
HR psychology tells us that employees are more likely to engage in theft or fraud when they feel underappreciated, underpaid, or believe leadership is unaware of their actions. Additionally, when ethical behaviour isn’t reinforced, even honest employees may rationalise dishonest acts as “acceptable”.
The challenge? How do you detect, address, and prevent employee theft or scamming customers before it harms your business?
The Solution – A Three-Part Approach - Detect, Address, and Prevent
Effectively managing customer theft and scams requires early detection, swift disciplinary action, and proactive prevention strategies. Here’s how to eliminate fraud while fostering a culture of honesty and accountability.
1. Detect Theft or Scams Before They Escalate
Since fraud often goes undetected until financial losses become severe, businesses must proactively identify warning signs.
A. Recognise Common Types of Employee Fraud
Overcharging customers and pocketing the difference.
Falsifying refunds and keeping the money.
Charging customers for products/services they didn’t purchase.
Stealing customer credit card details or personal information.
Giving unauthorised discounts or free items to friends or family.
Misrepresenting product details to make fraudulent sales.
Red Flag - If customers frequently complain about incorrect charges, review employee transaction records for discrepancies.
B. Identify Behavioural Warning Signs of Dishonest Employees
Employees engaging in theft or scams often display certain behaviours, such as -
Acting defensive when questioned about transactions.
Avoiding oversight or resisting audits.
Insisting on handling certain transactions alone.
Sudden unexplained lifestyle changes (e.g., expensive purchases beyond their salary).
Frequent complaints about pay or perceived mistreatment by management.
HR Psychology Insight - Employees who feel disconnected from the company’s success are more likely to justify stealing from it.
C. Use Audits and Customer Reports to Uncover Fraud
Conduct surprise cash drawer or transaction audits.
Review security footage if available.
Encourage customers to report suspicious behaviour.
Monitor refund and discount records for unusual activity.
Red Flag - If one employee is responsible for an abnormal number of refunds, price overrides, or chargebacks, further investigation is needed.
2. Address Employee Theft or Customer Fraud Swiftly and Professionally
If fraud is suspected or confirmed, a firm yet fair response is necessary to uphold company integrity.
A. Investigate the Allegation Thoroughly Before Taking Action
Gather evidence before making accusations.
Review transaction logs, security footage, and customer complaints.
Interview employees involved, allowing them to explain.
HR Best Practice - Avoid public accusations—handle investigations discreetly to prevent false allegations or workplace tension.
B. Take Immediate Disciplinary Action If Misconduct Is Confirmed
Consequences should match the severity of the violation -
Verbal or written warning – For minor or first-time policy violations (e.g., giving unauthorised discounts).
Formal suspension or dismissal – For direct theft or scamming behaviour.
Legal action or police involvement – If the fraud is severe (e.g., identity theft, embezzlement).
Red Flag - If leadership takes no action, employees may assume theft is tolerated, encouraging further fraud.
C. Communicate Policy Enforcement to Employees Without Creating Fear
Once action is taken, reaffirm the company’s commitment to honesty and ethics -
Clarify that customer fraud and theft will not be tolerated.
Encourage employees to report unethical behaviour confidentially.
Emphasise that disciplinary measures apply fairly to everyone.
HR Psychology Insight - Employees respect rules more when they see leadership consistently enforcing them without bias.
3. Prevent Employee Theft or Fraud Through Proactive Strategies
Once the immediate issue is addressed, long-term prevention measures are critical.
A. Strengthen Employee Screening and Onboarding
Hiring honest employees reduces fraud risks from the start -
Conduct background checks on all new hires.
Screen for integrity by asking ethical dilemma questions during interviews.
Clearly outline company policies on fraud during onboarding.
Red Flag - If a candidate has multiple short-term jobs or previous misconduct records, further screening is advised.
B. Implement Strong Internal Controls to Reduce Opportunity for Fraud
Require manager approval for refunds, discounts, and voided transactions.
Rotate employee roles to prevent individuals from controlling specific transactions.
Use security cameras in areas where money or customer data is handled.
HR Best Practice - The easier it is for employees to steal without detection, the more likely fraud is to occur—strong controls reduce temptation.
C. Foster a Workplace Culture of Honesty and Accountability
Many employees steal due to dissatisfaction, not financial need. To reduce temptation -
Recognise and reward employees for honesty and ethical behaviour.
Ensure employees feel valued and fairly compensated.
Encourage employees to report unethical behaviour anonymously.
Red Flag - If employees feel mistreated, overworked, or ignored, they may rationalise dishonest actions as “deserved compensation.”
HR Psychology Insight - Employees are less likely to steal from a workplace where they feel respected, engaged, and fairly treated.
Reflective Scenario – What Would You Do?
A customer reports unauthorised charges on their receipt, stating that an employee added extra fees without explanation. After investigating, you discover multiple customers have experienced similar issues with the same employee.
Using the strategies above, you might -
Review transaction records and security footage for proof of fraud.
Privately interview the employee, allowing them to respond to the allegations.
If confirmed, take disciplinary action based on the severity of the fraud.
Announce updated fraud prevention measures to the team.
Reinforce company policies and train employees on ethical conduct.
By acting quickly and reinforcing integrity, you protect customers while preventing further losses.
Golden Nugget - "Trust is the foundation of every business—protecting customers from fraud isn’t just ethical, it’s essential for long-term success."
By proactively detecting fraud, enforcing strict policies, and fostering a culture of honesty, SME leaders can safeguard their business, protect customers, and build a reputation for integrity and reliability.