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Employee Fraud: Prevention & Impact

The answer is d) Misuse of assets

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Raghu.G
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110 views26 pages

Employee Fraud: Prevention & Impact

The answer is d) Misuse of assets

Uploaded by

Raghu.G
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FRAUDS AND CRIMES

LMS MODULE
What is Employee Fraud
• Employee fraud is when an employee
knowingly lies, deceives or steals from a
company with the intent to obtain benefits
or compensation of some type.
• There are many different types of employee
fraud, including misuse of assets, corruption,
embezzlement or financial fraud and worker's
compensation fraud.
Ways of Fraud
• Misuse of assets is one of the most common forms of
employee fraud, partly because it can come in so many
guises.
• Appropriating company supplies for personal use, such
as stealing printer paper, cartridges, or pirating
software, is one type of misuse of assets.
• Using a company car or expense account for personal
use instead of business is another common version of
this type of fraud.
• The most basic form of asset misuse is literal stealing,
sometimes straight out of the cash register or tip jars.
What is the impact of fraud ?

• Employee fraud will only cause problems to


companies, as it will
•  affect operations,
• opportunity cost of missing sales,
• losses of stock and
• decreased employee morale.
• Financial and reputational loss to the
company
What are some examples of intentional employee fraud?

- Personal use of Customer gold /Cash


- Stealing Gold Jewellery
- Substitution of Gold Jewellery with spurious
- Pilferage of ornaments either fully or partially
• Expense report fraud.
• Payroll fraud - Fake TA claims, .
• Bribery/ Taking commissions.
• Data theft.
• Mis use of petty cash/ Assets
• Accounting Frauds.
How does a gold smelter prevent e
mployees from stealing their gold
- No pockets in their clothing
- Searched when leaving
- Nothing that could be used to conceal gold
is permitted in work areas
- Background checks – Profile verfication through
Police
- Observers, Surveillance camera and
presence of auditors
• Employee fraud  is conducted by non management employees. This usually means that an employee steals cash or assets for
personal gain. While there are many different kinds of employee fraud, some of the most common are as follows:

• Inventory theft. Inventory can be stolen or misdirected. This could be merchandise, raw materials, supplies, or finished
goods inventory.

• Cash receipts theft. This occurs when an employee steals cash from the company. An example would be the theft of checks
collected from customers.

• Accounts payable fraud. Here, the employee may submit a false invoice, create a fictitious vendor, or collect kickbacks from a
vendor.

• A kickback is a cash payment that the vendor gives the employee in exchange for the sale; it is like a business bribe.

• Payroll fraud. This occurs when an employee submits a false or inflated time card.
• Expense account fraud. This occurs when an employee submits false travel or entertainment expenses, or charges an expense
ledger account to cover the theft of cash.

• Cash receipts theft is the most common type of employee fraud. It is often pulled off through a technique known
as skimming, where the organization's cash is stolen before it is entered into the accounting records. This type of theft is
the most difficult to discover, since there is no internal record of the cash. For example, consider the case of a ticket agent in a
movie theater who accepts cash from customers and permits those customers ...
Can a company file case against employee?

• The employer can file a case in


- a civil court or Labour Court against an
employee who fails to perform their duties
and acts against an employer's interest.
- A Criminal case under IPC
Civil case is for recovery of loss amount
through property attachments
Criminal case is for punishments
Can we get salary if terminated?
• In case of financial loss, Not elgibile for salary, it will be
adjusted towards loss. otherwise the employee is eligible
for severance pay

One month's salary must be paid to employees who have


worked for a year or more.

For mass termination in protected sectors, 3 months of


wages must be offered to employees.

Payment of Gratuity Act, 1972 entitles employees to


gratuity payment after five years of continuous service.
Under the Indian labour laws, an employee can be lawfully
terminated from an organization for one of the following
reasons:

• 1. Disobedience or will full insubordination


• 2. Fraud, Dishonesty, or Theft
• 3. Loss or Damage to the employer’s goods wilfully.
• 4. Taking bribes or illegal gratifications.
• 5. Absence without applying for leave for more than
10 days.
• 6. Late Attendance.
• 7. Disorderly behavior during work.
• 8. Negligence of work.
COURSE OF ACTION

• In case of any report or suspicion arises , Management will either transfer the
employee or will suspend with immediate effect.
• If misappropriation or theft is proven
• Suspension will continue along with legal actions such as
• Lodge the Police complaint under Indian Penal Code for punishments
• lodge the civil suit for recovery of financial loss or property
• Collect the FIR copy from Police Station

• If the employee has reiumbursed /surrendered the misappropriated amount or asset


with fine/penalty
• Petition will have to be filed to court for withdrawal of civil proceedings.
• Even though company can file withdrawal petition for criminal case, it is the discretion
of the court whether should grant or not.
• Normally criminal and civil proceedings will last for a minimum 7 to 10 years

• For the company Public Prosecutor will appear for Criminal case and for the accused
he himself have to appoint the advocate by paying high fees.  
EMPLOYEE TERMINATION
• Consult Your Company’s HR Policies:

• Before serving a notice of termination to any employee, you must take a look at your company’s 
HR rules and policies. Every company has a specific set of procedures for dealing with different
scenarios.

• Refer to The Employee Agreement:


• The employee agreement will contain provisions relating to the notice period, severance pay,
compensation and so on that must be offered to the employee upon termination. This agreement is
often signed at the beginning, and it serves as an important reference that holds up in a court of law.

• Serve a Notice:
• Serving a notice is a crucial part of employee termination. The severance notice must be given 30 to
90 days before termination. This notice must be given in writing, stating a clear reason as to why the
employee is being terminated

 
EMPLOYEE TERMINATION

Settle The Severance Pay:


• Severance pay is offered to employees who retire, are laid off, or reach the
end of the contractual agreements. One month’s salary must be paid to
employees who have worked for a year or more. For mass termination in
protected sectors, 3 months of wages must be offered to employees. 
Payment of Gratuity Act entitles employees to gratuity payment after 5 years
of continuous service.
• The Industrial disputes Act of 1972, also states that retrenched ( involuntarily
dismissed) workmen must be given 15 days of severance pay for each year of
service that they have completed.

• Conduct An Exit Interview:


• Exit interviews help an organization to gain feedback and evaluate their work
culture, environment, ethics etc. It also helps organizations to narrow down
their areas of improvement when it comes to enhancing employee experience
in the office.
Impacts of Fraud
• Withholding gratuity amount ,
• Civil case
• Criminal case
• Suspension
• Domestic enquiry
• Termination
• Attachment of properies through civil suit
• Ban on work experience, Relieving letter
• Cessation / ineligible for ESI, Gratuity, Provident Fund
contribution , Labour Fund , Medi Claim , Security Amount
Criminal Proceedings
• Criminal breach of trust imprisonment of up to three
years, a fine, or both (section 405). Cheating:
imprisonment of up to one year, a fine, or both
(section 415).
• Fraud against creditors imprisonment of up to two
years, a fine, or both (sections 421 to 422).
• Under section 408 of IPC , Criminal breach of trust
by clerk or servant.
• Criminal breach of trust under section 408, one can
get imprisonment upto 7 years + fine.
Employee Protection & Court Jurisdiction in Case of Disputes 

• An employee who has been dismissed has a legal right to appeal to his/her 
jurisdictional authority. Your employee could appeal to a court for one of the
following reasons-
 
• 1. The employer has terminated an employee without stating a specific reason.
• 2. The employee has not been proven to be guilty of misconduct and pleads
innocence.
• 3. The employee feels that their dismissal was based on unfair grounds.
•  
• When an employee seeks redressal of any of the following grievances, they have
to first establish a case and seek the approval of their local labour authorities.
Once the approval is granted, the case may be overseen by jurisdictional
conciliation officers, industrial tribunals or labour courts. The Indian Industrial Act
of 1947 seeks to address grievances for workmen in an industrial workforce.
• Most workforce disputes in India take anywhere between 6 months to 2 years to
get resolved.
ASSESSMENT
Q1 ) ____ is when an employee knowingly lies,
deceives or steals from a company with the
intent to obtain benefits or compensation of
some type.
a) Employment b) Employee Fraud c) Killing
Ans. B) Employee Fraud
ASSESSMENT
Q2 ) Misuse of assets is one of the most
common forms of employee fraud, partly
because it can come in so many guises.

A) Cheating Customer B) Bank


Misappropriation
c) Puchase of assets d) Misuse of assets
Ans. D) Misuse of assets
ASSESSMENT
Q3 ) Company can make Criminal proceeding
and Civil case against employee in case of
Financial fraud
True or False

Ans. True
ASSESSMENT
Q4) Company can redeem the security
deposit amount of the employee towards
the financial loss arised due to the fraud .
True or False

Ans . True
ASSESSMENT
Q5 ) Court will punish the employee in ____

a) Labour case b) Criminal Case c) Civil case

Ans b) Criminal case


ASSESSMENT
Q6 ) Company can forfeit the gratuity amount
of the employee in case fraud is proven

True or False

Ans. True
ASSESSMENT
Q7 ) Criminal breach of trust imprisonment of
up to ___ years, a fine, or both (section 405).
a) 10 years b) 5 years c) 3 years d) 1 year

Ans. 3 years
ASSESSMENT
Q8) Cheating: imprisonment of up to ___ year, a
fine, or both (section 415).

A) 2 Year b) 1 Year c) 4 year d) 5 year

Ans. 1 Year
ASSESSMENT
Q9 ) On termination of employment due to
fraud it is very hard to get a new job due to
a) No experience letter
b) No relieving letter
c) Discontinuation of PF account
d) Police case

Ans. All of the above


ASSESSMENT
Q10) Employee fraud will result in
a) Financial loss
b) Reputation loss
c) High Litigation expenses

Ans. All of the above.

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