Workplace Fraud: How to Detect It Early and What to Do When Employees Report It

The Association of Certified Fraud Examiners (ACFE) publishes the most comprehensive global study of workplace fraud every two years. Their 2024 findings contain a statistic that should focus every HR Director's attention: the median time from when a fraud scheme begins to when it is detected is 12 months.

In those 12 months, the median loss is $117,000. For cases that run longer — which they often do when detection systems are weak — losses multiply significantly. The ACFE found that frauds lasting more than five years produce median losses of $800,000.

The same report identifies the most common way frauds are detected: tips from employees. Not audits. Not management review. Not forensic accounting. Employee tips, in 43% of all cases. And when organizations have anonymous reporting channels, the tip rate is more than twice as high as organizations that don't.

Workplace fraud is a workplace reporting problem before it is an accounting problem. This guide covers what it looks like, how to catch it earlier, and what HR must do when an employee reports it.

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The Six Most Common Types of Workplace Fraud

1. Expense Reimbursement Fraud

Employees submit false or inflated expense claims — fictitious receipts, personal expenses claimed as business expenses, inflated mileage, duplicate claims for the same expense. This is the most widespread form of employee fraud and is frequently rationalized as victimless.

Red flags: Consistently round-number expenses, claims without required receipts, expenses submitted significantly after the claimed dates, expense patterns that do not match the employee's role or travel history.

2. Payroll Fraud

Manipulation of payroll records to extract unauthorized payments. Includes ghost employees (fictitious workers on the payroll with payments directed to the fraudster), falsified hours or overtime, unauthorized pay increases, or commission manipulation.

Red flags: Employees whose addresses or bank details match other employees, payroll changes made outside normal review cycles, overtime patterns inconsistent with workload, commissions paid on cancelled or non-existent sales.

3. Procurement and Vendor Fraud

Payments to fictitious vendors, inflated invoices from real vendors in exchange for kickbacks, bid rigging, unauthorized purchases for personal benefit, or conflicts of interest between purchasing staff and supplier relationships.

Red flags: Vendors with no physical address or verifiable history, single-source procurement decisions that bypass competitive process, invoice amounts that consistently fall just below approval thresholds, unusual payment terms or emergency payments outside normal cycles.

4. Financial Statement Fraud

Deliberate misrepresentation of financial records — revenue manipulation, improper asset valuation, off-balance-sheet financing, concealment of liabilities. This category has the lowest frequency but by far the highest median loss ($766,000 per case according to ACFE 2024).

Red flags: Revenue that spikes unusually at period ends, journal entries that lack supporting documentation, adjustments made after period close, management pressure to meet financial targets through unusual accounting treatment.

5. Data and Intellectual Property Theft

Unauthorized exfiltration of company data, customer lists, proprietary processes, or intellectual property — often in advance of resignation to benefit a competitor or a new venture. Increasingly common as remote work expands the perimeter of data access.

Red flags: Large file downloads or external email transfers in the weeks before resignation, access to systems not required for current role, printing or copying of customer lists, use of personal devices for work data.

6. Asset Misappropriation

Theft or misuse of physical company assets — equipment, inventory, materials, cash, or vehicles used for unauthorized purposes. The most common category of fraud (86% of all cases, ACFE) though typically lower in value than financial statement fraud.

Red flags: Inventory shrinkage that exceeds expected levels, equipment that cannot be accounted for, cash shortages in roles with cash handling responsibilities, excessive breakage or wastage claims.

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Why Workplace Fraud Goes Undetected for So Long

The 12-month median detection period is not a surprise. Fraud thrives in the gap between what management believes is happening and what is actually happening — and that gap is widest where employees who observe suspicious activity feel they cannot safely report it.

The ACFE consistently finds that employee tips generate more fraud detections than all formal detection controls combined. Yet in most organizations, the tip rate is dramatically lower than it could be because:

Employees fear being wrong. Reporting suspected fraud requires the reporter to make a judgment call about whether what they've observed actually constitutes misconduct. Getting it wrong — reporting something that has an innocent explanation — feels embarrassing and potentially career-damaging. Employees default to silence.

Employees fear the subject. In many fraud cases, the perpetrator holds a position of authority over the reporter. Reporting upward is always harder than reporting laterally or downward. Where the suspected fraudster is a manager, finance director, or business owner, the reporter's career risk calculation is acute.

Employees fear retaliation. This is the dominant concern across all types of misconduct reporting, and fraud is no exception. Employees who report fraud and then face career consequences — however unconnected the organization claims they are — confirm the fear that was suppressing reporting in the first place.

Employees don't know how. In organizations without a clear, accessible reporting channel, employees who suspect fraud may not know what to do with the information. Telling a colleague is not reporting. Staying silent feels like the only alternative.

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How Anonymous Reporting Changes Fraud Detection

The ACFE's own research demonstrates that organizations with anonymous reporting channels detect fraud faster and at lower cost than those without.

Specifically: organizations with anonymous hotlines detect fraud 24 months earlier on average than organizations relying solely on management review and audit. Twenty-four months of median loss at $117,000 is a prevention value of $234,000 — for a detection system that costs $100 per month for 100 employees.

The mechanism is straightforward. Employees who observe suspicious activity and cannot safely report it under their own name will report it when they can do so anonymously. The concern that was suppressed by identification risk is released when that risk is removed.

Two-way anonymous messaging allows investigators to gather the additional detail needed to assess whether the concern represents genuine fraud. The employee who noticed that their manager's expense claims include receipts from a restaurant that happens to be the same city as the manager's girlfriend's apartment is not certain of anything. They are providing a data point. Anonymous follow-up questioning can help establish whether it is a pattern.

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What HR Must Do When a Fraud Report Is Received

Fraud reports require a different initial response than harassment or conduct reports, because the evidence preservation risk is more acute and the external reporting obligations may be more immediate.

Step 1: Preserve evidence before the subject knows

For fraud involving financial records, digital data, or physical assets, evidence can be destroyed quickly once the subject knows they are under investigation. Before notifying the subject — and before taking any action that might signal to the subject that an investigation is underway — consult with legal counsel and take steps to preserve the relevant records.

This may include: placing a legal hold on email and financial records, securing access logs, taking images of relevant systems, and informing IT of the need for evidence preservation.

Step 2: Assess the scope

Initial triage should establish: what type of fraud is alleged, what the approximate potential value is, how long the alleged conduct may have been occurring, and whether external parties (customers, regulators, law enforcement) are implicated.

This assessment determines whether the investigation can be handled internally, whether external forensic or legal support is required, and whether there are immediate regulatory reporting obligations (for financial services organizations, data protection breaches, or listed companies).

Step 3: Determine reporting obligations

Some fraud types trigger mandatory external reporting obligations. Financial services firms in the UK are required to report certain types of fraud to the FCA. Listed companies have disclosure obligations for material losses. Data protection breaches must be reported to the ICO within 72 hours if they meet the threshold. Organizations with public contracts may have reporting obligations to contracting authorities.

Legal counsel should be consulted before any decision that the matter can be handled entirely internally.

Step 4: Follow the investigation process

Once evidence is preserved and the scope is assessed, the investigation follows the standard process covered in our workplace investigation guide — independent investigator, documented evidence gathering, subject interview with opportunity to respond, reasoned conclusion.

For fraud investigations, financial forensics may be required alongside the standard HR investigation process. External forensic accountants or specialist investigators are appropriate for complex cases.

Step 5: Communicate with the anonymous reporter

Keep the reporter informed throughout the process through the same anonymous channel. In fraud cases, the reporter is frequently the person with the closest view of the suspicious activity. Two-way communication allows investigators to ask follow-up questions that advance the case without breaking anonymity.

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Building a Fraud-Resistant Reporting Culture

Anonymous reporting is a detection tool, not a prevention tool by itself. The organizations that experience the least fraud combine anonymous reporting with:

Separation of duties — no single person controls end-to-end financial processes without oversight.

Regular audit — both scheduled and unannounced internal audit activity that demonstrates active scrutiny.

Clear expense and procurement policies — explicit rules reduce the gray areas that rationalize minor fraud.

Transparent consequence — visible, consistent enforcement when fraud is detected removes the sense that it is tolerated.

A reporting culture — when employees believe their concerns will be acted on and that they are protected for raising them, the tip rate increases and the detection window narrows.

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VoxWel for Fraud Detection

VoxWel's anonymous reporting platform is used by organizations to surface not just workplace harassment and safety concerns, but financial misconduct concerns that would otherwise never reach HR.

Employees who suspect procurement irregularities, expense fraud, or financial record manipulation can report anonymously, attach supporting documentation, and communicate with HR without any identification risk. The case moves through a documented investigation workflow with a timestamped audit trail.

For organizations that have experienced a fraud case that persisted longer than it should have, the question is always the same: did someone know? The answer is almost always yes. The question that follows is: why didn't they say anything? The answer is almost always: they didn't think it was safe to.

Change the infrastructure. Change the answer.

Start a 14-day free trial at voxwel.com.

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VoxWel is an anonymous employee reporting platform for HR and compliance teams. Learn more at voxwel.com.