18 Types of Employee Fraud Companies Need to Know in 2025 (How to Prevent Them)
Introduction
Employee fraud takes many forms — from subtle policy abuse to outright theft. According to research by Teramind, internal fraud continues to rise, costing businesses billions every year.
At Deductions & Co., we help business owners protect every deduction and every dollar through proactive systems, ethical culture, and tax-smart risk management. Below are the 18 types of employee fraud you should watch for in 2025 — plus practical steps to prevent them.
🔹 1. Theft
What it is: Direct stealing of cash or merchandise (petty cash, register skimming).
Why it hurts: Creates immediate losses that often go unnoticed until they become significant.
🔹 2. Tax Evasion
What it is: Under-reporting income, requesting off-book payments, or misclassifying employment status.
Why it hurts: Exposes both the employee and company to IRS penalties and legal action.
🔹 3. Bribery & Kickbacks
What it is: Accepting payments or gifts in exchange for contracts or favorable treatment.
Why it hurts: Damages vendor relationships, inflates costs, and risks regulatory scrutiny.
🔹 4. Embezzlement
What it is: Misappropriating company funds or assets for personal use.
Why it hurts: Causes large-scale losses and erodes internal trust.
🔹 5. Expense Account Fraud
What it is: Inflating or falsifying travel, meal, or mileage reimbursements.
Why it hurts: Slowly drains profitability and undermines team integrity.
🔹 6. Asset Misappropriation
What it is: Misusing or stealing company assets such as tools, vehicles, or equipment.
Why it hurts: Skews accounting accuracy and creates hidden cash-flow issues.
🔹 7. Financial Statement Fraud
What it is: Manipulating records to hide losses or exaggerate profits.
Why it hurts: Misleads stakeholders and risks legal penalties.
🔹 8. Intellectual Property Theft
What it is: Taking trade secrets, designs, or client data.
Why it hurts: Causes lasting competitive and reputational damage.
🔹 9. Inventory Theft
What it is: Removing goods or materials for personal use.
Why it hurts: Leads to shrinkage and production delays.
🔹 10. Billing & Vendor Fraud
What it is: Fake purchase orders, duplicate invoices, or shell-vendor schemes.
Why it hurts: Redirects company funds and corrupts vendor management systems.
🔹 11. Forgery
What it is: Altering signatures or documents such as checks and contracts.
Why it hurts: Creates legal exposure and undermines audit credibility.
🔹 12. Skimming
What it is: Stealing cash before it’s recorded in accounting.
Why it hurts: Difficult to trace; small losses accumulate over time.
🔹 13. Pay Rate Alteration
What it is: Secretly increasing one’s own pay or adjusting payroll rates.
Why it hurts: Distorts payroll data and inflates costs.
🔹 14. Payroll Fraud
What it is: Ghost employees, inflated hours, or falsified timesheets.
Why it hurts: Directly drains cash flow and causes compliance issues.
🔹 15. Benefits Fraud
What it is: Abusing sick time, healthcare benefits, or dependent claims.
Why it hurts: Raises overhead costs and lowers morale.
🔹 16. Commission Fraud
What it is: Claiming commissions for fake or canceled sales.
Why it hurts: Distorts performance metrics and reduces profitability.
🔹 17. Ghost Employee Fraud
What it is: Keeping departed or fictitious employees on payroll.
Why it hurts: Creates recurring payroll losses and legal risk.
🛡 How to Prevent and Detect Employee Fraud
1. Strengthen Internal Controls
Segregate financial duties.
Conduct both scheduled and surprise audits.
Require dual approvals for major expenses or payroll updates.
2. Build Clear Policies & Open Communication
Update employee handbooks with defined fraud consequences.
Encourage transparent reporting and protect whistleblowers.
3. Use Monitoring & Data Analytics
Track irregular expense patterns.
Use accounting software or monitoring tools that flag anomalies.
Reconcile inventory and bank records regularly.
4. Audit Payroll & Benefits
Verify employee lists against payroll reports.
Review commission structures for accuracy.
Spot-check benefit usage and dependent claims.
5. Maintain Accurate Documentation
Keep receipts, approvals, and audit logs.
Back up all critical data securely.
Document any suspected incidents for insurance or legal review.
6. Foster an Ethical Culture
Provide regular fraud-awareness training.
Recognize ethical behavior and reinforce accountability.
💡 Why This Matters for Business Owners
Fraud isn’t just a financial issue — it’s a leadership issue. Even one internal breach can ripple outward, affecting reputation, client confidence, and tax compliance.
For tax-focused founders, undetected employee fraud can also distort deductions, create unreported liabilities, and trigger unwanted IRS attention.
A business that proactively safeguards its assets builds both profitability and credibility.
✅ Summary
Employee fraud is real — and preventable. With the right internal systems, cultural alignment, and ongoing audits, you can keep your company’s finances secure and compliant.
At Deductions & Co., we help entrepreneurs implement smart accounting, tax, and fraud-prevention frameworks that protect every deduction and every dollar.
💬 Ready to Protect Your Business?
Don’t wait for a red flag to act.
👉 Schedule Your Confidential Consultation with Deductions & Co. today to strengthen your systems and prevent fraud before it starts.
