Depending on how quickly and effectively you deal with the situation and how well your solutions resonate with your boss's ideas, your job could be at stake. The first thing to do is to weigh your options. Then take action - decisive and possibly defensive action.
TAKE DECISIVE ACTION
Dealing with a Liar is a challenge, but the sooner you take action, the better. As soon you feel something fishy is happening, start documenting it. Keeping records heads off the problems that fuzzy or selective memory can cause later on.
If your knowledge of the situation is stronger that a mere hunch or unsubstantiated accusation from another subordinate, get your boss involved. Explain that you're documenting the situation and preparing to confront the Liar. Tell your boss you want the guidance of someone in human resources.
Appeal to the Liar's need to feel powerful. With your boss's blessing, give the Liar more power in your department. It's a risky move but could diminish the Liar's urge to be unethical. Make the new position conditional and probationary.
TAKE DEFENSIVE ACTION
If the Liar is your co-worker, don't get caught up in whatever is going on. If you yourself manage to steer clear, you still face the ethical dilemma of whether or not to expose the situation. This is a complex problem because doing the right thing may not produce the outcome you want. In business, it often happens that people report up the chain of command as dictated by company policy - only to find themselves ostracized or worse because of their actions. To avoid this situation, document what you have observed, including times, dates, people, and places; leave none of this to memory. Down the road, you may need to prove how you found out about the Liar's activities and how your knowledge expanded. The written record could help clear you name if you are accused of complicity.
EVALUATE THE SCOPE OF THE PROBLEM
It is not uncommon for ethical behavior to spread. Be aware that your boss could be aware of the situation and turning a blind eye or even participating. If you can, find out if this is the case before you ask for help. If that's not the case, ask your boss's permission to involve human resources. Then follow human resource's recommendations, even if you think you have a better plan. Remember that you are trying to clear the air so that you can get back to work. Weigh your options carefully.
Some Liars are beyond your control because they are above you on the organization chart, people you report to directly, or in an unrelated area of the company. You should think long and hard about what you're willing to risk in dealing with them. If you do want to take the high road, keep good records of what you suspect is going on. By documenting details, you show arbitrators that you have been seeking the truth. Stick to the facts, and don't add conjecture or conspiracy and theories. E-mails, memos, and official records and documents speak a lot louder than unsubstantiated speculation.
Discuss your next step with your family or someone outside the organization. You might be advised to let sleeping dogs lie; exposing a lie or breach of integrity may not be worth your job. However, if you are implicated by association or if you are the one being swindled, you need to do something, and the accuracy of your documentation will make a huge difference. If and when Liars are implicated, don't be surprised if false accusations start flying in your direction.
Be ready with Plan B. If the Liar has authority over you, go straight to human resources for help before confronting him. Then be prepared for the backlash. Human resources needs to give the Liar a fair hearing. Be prepared to be shunned, as whistle-blower often are. Expect to be targeted by the Liar's peers for ratting out their comrade.
Once you confront the situation, no matter how good your documentation or how strong the promises of support from human resources, there may be consequences. Be prepared.
Whether the Liar is a subordinate, peer, or superior, you must weigh the pros and cons of doing something or letting it go.