Protect your business from internal fraud

Internal fraud: more common than you think

• A recent study found that 43% of businesses surveyed face some form of internal fraud.
• It typically takes 12 months before internal fraud is detected. 

The most common types of internal fraud

Every organization is different, but certain behaviours keep occurring. Knowing them is the first step to prevention.

Stealing company time

The Act Respecting Labour Standards and the Civil Code are clear: employees must perform their work loyally. Seems obvious enough! And yet, time theft is more frequent than many realize, and often underestimated.

We’re not talking about leaving 10 minutes early once in a while.  We mean:

• “Adjusted” time sheets
• Early departures
• Extended breaks
• Repeated, unexplained absences
• Long periods of inactivity at the office
• Unexplained lost time on a daily basis

When these habits become systematic, the costs start to pile up quickly.

Financial fraud

Financial fraud involves direct manipulation of money flows or accounting records.

Typical schemes include:

• Issuing fake cheques or transfers to personal accounts
• Inflated or fake invoices
• Creating fake suppliers or employees
• Diverting payments meant for the company
• Falsifying supporting documents (dates, amounts, signatures)
• Altering accounting records to hide theft
• Kickbacks or under-the-table payments

Surprisingly, these irregularities rarely come from a “suspicious new hire.” They often involve long-standing employees who know the system well, especially its weaknesses.

Operational fraud

This type targets physical assets or day-to-day operations:

• Theft of inventory or supplies
• Misappropriation of equipment
• Using company resources for personal purposes
• Abuse of expense allowances (meals, travel, supplies)

This type of fraud can be more difficult to quantify, but the losses add up and weigh heavily on operating costs.

Consequences for the business… and the fraudsters

Financial impact tops the list. This includes stolen funds, investigation costs, legal fees and lost productivity.

But internal fraud also:

• Damages the company’s reputation
• Erodes team trust
• Lowers employee morale
• Creates a tense work environment
• Consumes significant time for investigations and corrective measures

What about fraudsters? 

Honesty is the basis on which the employee-employer relationship is based on. And those who abuse it expose themselves to real consequences. When a staff member is dishonest, an organization can absolutely:

• Fire the person
• File a complaint with the police
• Take legal action in court

In all cases, it’s a stain on the record that can follow the person for the rest of their career.

A multi-front approach to prevention

It’s not realistic to think you can catch everything. Fraudsters are clever, their methods are subtle and, of course, they have no interest in being exposed.

For many organizations, managing the risk of internal fraud is still new, but it remains one of the most effective ways to reduce damage—or better yet, prevent irregularities.

1. Clarify rules and expectations

The basics often start with a clear framework:

• Up-to-date internal policies
• A code of ethics explained, reviewed and signed annually
• Precise rules on access, authorizations and handling of funds
• Annual training
• Clear consequences in case of abuse

The more transparent the expectations, the fewer grey areas for risky behaviours to exploit.

2. Reduce opportunities for fraud

Generally, fraud occurs when too much power is given to one person,

Make sure to:

• Separate roles: purchasing, approvals, payment and accounting
• Control physical and digital access and review it regularly
• Conduct background checks for positions involving fund handling
• Oversee supplier management: calls for tenders, dual validation, reference checks
• Plan regular audits, even light ones 

3. Leverage technology

Combined with a solid risk management framework, these tools help detect, and even prevent, fraudulent acts:

• Biometrics
• Automated transaction monitoring
• Artificial intelligence to spot anomalies

4. Make reporting easy 

Most internal fraud is discovered by colleagues. But they need a safe way to speak up. An anonymous, simple, secure and accessible reporting line allows employees to report a situation without fear of retaliation.

It’s also a strong signal: it fosters a culture where ethics are shared by the whole team, not just enforced by management.

5. Know how to react at the first doubt

As soon as a reasonable doubt arises, action is needed, but without rushing. The right reflexes include:

• Documenting facts (dates, behaviours, amounts, screenshots, etc.)
• Avoiding premature confrontation to prevent destruction of evidence
• Securing access and data
• Consulting specialists (lawyers, forensic accountants) before intervening
• Assessing the need for temporary suspension
• Avoiding rumours until facts are established

Trust, but stay vigilant

Honesty, transparency and moral integrity are precious strengths in a team. They should be recognized and encouraged. But even in a healthy environment, the risk of fraud never disappears completely.

By staying alert and adopting preventive measures, you protect your business and maintain the trust that unites your teams.