In many occupational fraud incidents, the perpetrator is a long-tenured, well-liked, and high-performing employee. In part, that’s because many organizations ignore red flags when employees have impeccable records — which makes it easier for them to commit illegal activities. In such situations, misplaced trust becomes a vulnerability. How can you rely on your employees, yet prevent theft and other crimes?

Correlation Between Tenure & Losses

Employees who’ve been with an organization for years often develop strong relationships and may have earned performance and service awards. The trust they’ve built over time generally means they’re granted more autonomy than newer employees, and their actions are questioned less frequently. This can cause coworkers and supervisors to overlook warning signs.

Unfortunately, this level of trust can make it easier for fraud schemes to go undetected. And the longer they go undetected, the more likely losses will be heavy. According to the Association of Certified Fraud Examiners, employees with tenures of less than a year are responsible for a median fraud loss of $50,000. Those with tenures of more than 10 years cause median losses of $250,000.

Why They Do It

In many fraud incidents involving long-term employees, warning signs are present but ignored. For example, long-tenured employees engaged in fraud often hesitate to take vacations or delegate tasks. Sometimes, they control multiple steps in a process that should involve more than one person. They may be protective of their work and resist audits or procedural changes. Of course, these can also be innocent signs of over-dedicated workers, which is why you should investigate red flags discreetly.

Some employees are inherently dishonest. But they typically make up a small minority among those who commit fraud. Instead, long-term employees who perform illegal acts may feel entitled, frustrated, or resentful about how they’re treated or compensated. They may live beyond their means or have a substance abuse or gambling problem. Some commit fraud simply because the opportunity presents itself. Others do so believing no one will suspect them.

A Balancing Act

Because sudden scrutiny of long-tenured workers can generate resentment and mistrust, apply your business’ antifraud policies fairly and consistently. Your oversight should emphasize that no one’s immune to suspicion. Here are several ways to improve oversight:

Implement job rotation and mandatory vacations. Cross-training employees in certain departments (such as accounting and shipping) makes it possible to mandate vacations without losing productivity. Workers who must take time off have a harder time perpetrating fraud.

Segregate duties. Never allow even long-term, trusted employees to control multiple parts of a financial or accounting process. If you don’t have enough staff to spread responsibilities around, consider outsourcing some of them.

Maintain a culture of accountability. All employees must understand that trust is earned through words and actions, not tenure. You and your executives must model ethical behavior and hold employees to the same high standards. Provide a confidential hotline for any stakeholder to report fraud suspicions.

Valuable Assets

Long-term employees can be your organization’s most valuable assets. However, they aren’t immune to the pressures, temptations, or rationalizations that can lead workers to commit fraud. By recognizing the risks of misplaced trust and applying internal controls fairly, your organization can help protect itself. Contact us with questions.