Hiring a new employee can be a leap of faith. Will they steal from you? It’s an unwelcome worry that might keep you up at night — and your concern is valid.

Occupational fraud — fraud committed by an organization’s own officers, directors or employees — threatens organizations of all types and sizes. The Association of Certified Fraud Examiners’ (ACFE’s) “Occupational Fraud 2022: A Report to the Nations” found that:

  • Fraudsters with 10 years of tenure at their jobs caused median losses of $250,000, more than their less tenured counterparts.
  • Most perpetrators (62%) were in positions of authority.
  • Operations, accounting, sales and upper management departments committed the most fraud.
  • Small businesses (under 100 employees) had the highest median losses, at $150,000.
  • Large corporations (over 10,000 employees) came in second, with median losses at $138,000.

If you’ve been counting on your insurance to cover occupational fraud, think again. Business owners policies do not protect against employee crimes, leaving you without help.

For some small business owners, a fraud operation could even mean bankruptcy.

Types of occupational fraud

There are three main categories of occupational fraud:

  • Asset misappropriation is when an employee steals or misuses employer resources. It’s the most common but least costly at $100,000 per incident.
  • Corruption involves bribery, conflicts of interest and extortion. It lands in the middle for frequency and losses, costing businesses $150,000 per incident.
  • Financial statement fraud is when an employee intentionally causes a material misstatement or an omission on a financial statement (like fake accounting or invoicing). It’s the least common but results in the greatest losses, at $593,000 per incident.

Industries that had the highest median losses were:


Median losses per incident

Real estate


Wholesale trade


Transportation and warehousing






You can take steps to minimize fraud, like instituting background checks, training programs and fraud reporting protocols.

Follow hiring procedures

It may be tempting to skip the verification process to fast-track a hire, especially in a labor shortage. Even though background checks aren’t foolproof, they can weed out unsuitable candidates. Always confirm work references, including criminal records, credit, identity and education. If you run a business with seasonal highs and lows, keep a staffing database that you can tap the following year. Consider offering bonuses to workers with positive records to encourage them to return.

Heed the signs

Weeding out candidates with previous convictions is a good business practice, but it isn’t enough to prevent fraud. The ACFE report noted that only 6% of perpetrators had a previous fraud-related conviction, and nearly 42% of fraud goes unreported.

But there are red flags you can look out for. The report found that 85% of fraudsters displayed at least one red flag that a fraud reduction procedure could have discovered. For example:

  • 39% were living beyond their means.
  • 25% had financial difficulties.
  • 20% had an unusually close association with a vendor or customer.
  • 13% had control issues or an unwillingness to share their work duties.
  • 12% showed irritability, suspiciousness or defensiveness.
  • 12% were bullying or intimidating.
  • 11% were experiencing a divorce or family problems.
  • 10% presented a “wheeler-dealer” attitude.

Even so, 15% of fraudsters showed no red flags at all. That’s why it’s important to create an anti-fraud program to catch a problem early and reduce long-term losses.

Establish and reinforce anti-fraud measures

Here are some ways to manage fraud risk in your business:

  • Establish internal accounting controls supported by data analysis and monitoring.
  • Implement an auditing system that includes multiple employees and departments and external fraud assessors. Having several levels of checks and balances increases accountability and transparency.
  • Limit employees’ exposure to sensitive information and financial processes.
  • Establish a zero tolerance stance on fraud.
  • Vet the companies in your supply chain. Ensure they understand (and agree to) your zero tolerance policy.
  • Investigate all allegations of fraud.
  • Create a code of conduct and train your employees on it.

Putting a few simple measures in place can go a long way toward deterring occupational fraud and crime.

Promote a positive ethos

Foster an open and inclusive workplace where your employees feel valued and respected. That way, they'll be more likely to act as gatekeepers for your business.

  • Train employees on anti-corruption practices, including how to spot and report suspected fraud. Offer refresher training every year.
  • Ensure your training and messaging programs are consistent across all business operations, including seasonal, volunteer, part-time and full-time employees.
  • Maintain strong whistleblower protections to empower employees to speak out about fraudulent activity.
  • Encourage employees to report suspected fraud. Organizations with multichannel hotlines (email, online, phone, mail, etc.) detect fraud quicker, resulting in fewer losses than those without formalized reporting.

Even if you can’t prevent an incident, anti-fraud protocols are your best line of defense for early detection.

Stop fraud early

The ACFE report found that the longer a scheme went undetected, the greater the financial loss. The typical fraud case went on for 12 months before it was detected, costing businesses around $100,000. Fraud operations that lasted more than five years cost businesses around $800,000.

By making it safe and easy for your employees to speak up, you can stop fraud early. According to the report, internal hotlines exposed 42% of fraud cases, and half the tips came from employees.

Your employees can be a secret weapon in your fight against occupational fraud.

Call your insurance agent

No matter how rigorous your protocols are, there is always a risk your company will fall victim to fraud. Add commercial crime (aka employee crime) or fidelity guarantee insurance to your risk prevention program. Give us a call and we'll be happy to help you get the coverage that you need.

Blue Ridge Risk Partners is a top 75 independent insurance agency in the United States. With 22 offices and counting throughout Maryland, Pennsylvania, and West Virginia and access to hundreds of carriers, we are able to meet your unique insurance needs.