Internal fraud is fraud committed by one or more of your own employees. The number of internal fraud cases and the resulting losses increase every year. What are the most common fraud practices?

A report from the ACFE (Association of Certified Fraud Examiners) in 2018 shows that a company loses 5% of its annual income as a result of internal fraud. Moreover, 23% of the fraud committed by employees involves a loss of at least € 850,000.

Internal fraud can therefore cause a great deal of damage to your company. Internal controls and clear procedures undoubtedly limit the risk of internal fraud, but these systems are not always able to cope with employee conspiracy. A good fraud insurance is an excellent tool to protect you against internal fraud.

Types of internal fraud

Employees use different practices to commit fraud. The most common forms of internal fraud are embezzlement of cash and fraudulent payments.

1. Embezzlement of cash

Fraud involving the misappropriation of cash receipts falls into two categories. Depending on the timing, we distinguish skimming and theft.


Skimming is a form of theft where the perpetrator steals money before it is registered in the accounting system. This form of theft is difficult to detect because the offender leaves no traces behind in the accounting system that internal controls can reveal. Employees who collect payments can easily withhold money in this way.

One of the most common skimming systems is the sale of goods or services to a customer where an employee collects the payment from the customer and then retains the money himself without actually registering the sale. Signs of this type of fraud are a loss of gross margin and a shortage of stock.


We speak of theft when the money is already registered in the accounting system. In that case, the perpetrator steals money from the cash register immediately after he processes the sales transactions. Effective internal controls and procedures can detect this form of fraud.

2. Fraudulent payments

In the case of fraudulent payments, offenders pay out company money to themselves or to accomplice third parties who are controlled or have a relationship with the employee. The three most common fraudulent scams are invoice fraud, wage fraud and expense fraud.


In the case of invoice fraud, the perpetrator draws up fraudulent invoices and processes them in the supplier system. Also personal purchases with a business credit or debit card or transfers for personal use through business bank accounts fall under this form of fraud.


In the case of payroll fraud, the fraudster forges invoices in order to induce the company to pay a salary to third parties. The most common form involves so-called ghost employees. These people who do not really work for the company are included in the system as someone who provides services. That third party can be a fictional person, but also a real person with bad intentions. Also common is a malicious employee who creates a ghost employee with a name that closely resembles that of a real employee and then collects the salary himself.


In the case of fraud involving the reimbursement of expenses, the offender manipulates the certificates of expenses in order to be reimbursed for non-commercial expenditure. Forgery of declarations by overestimating expenses or the production of false invoices are also common practices.

Fraud insurance by Euler Hermes

Do you fear damage and losses due to internal fraud? A fraud insurance can be your safety net. The fraud insurance of Euler Hermes covers not only financial losses due to fraud by third parties from outside the company, but also losses and damages resulting from actions of employees. Think of embezzlement or misuse with company credit cards.

Would you like more information about fraud insurance? Feel free to contact us for advice. We are happy to help you.Look at some extra information about our policy here. You can also read more about what you can do if you suspect internal fraud.

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