Before you start considering your options about how to deal with your coworker, it's important for you to understand your workplace's policies. Some companies have detailed instructions on how to handle problems in the work environment. If your workplace has an employee manual, check to see what it says about ethical behavior in the workplace. You should do your best to follow those rules if you want to address the problem without getting yourself into trouble.
If your workplace doesn't have an official policy or the instructions are meant to deal with serious cases of fraud, embezzlement or other major crimes, you'll need to use your own judgment. Sometimes you can correct a problem through a simple discussion. In other cases, you may need to go to your manager, your coworker's manager or a human relations (HR) representative.
One option you might have if the coworker's behavior doesn't directly impact your job or the way the workplace functions is to limit your interaction with the other employee as much as possible. You shouldn't ignore any behavior that could lead to bigger problems, but if it's just a matter of hearing one fish story after another, removing yourself from the conversation may be your best option.
But if you can't ignore or avoid the dishonest coworker, you may have to decide upon a course of action. Next, we'll look at when you should confront your coworker directly.