Employee theft is a harsh reality especially for small businesses, and it happens more often than you think. According to the National Federation of Independent Business (NFIB), an employee is 15 times more likely than a non-employee to steal from an employer, and employees account for an estimated 44 percent of theft losses at stores.
Employees who steal typically have worked at a business for several years before starting to steal and continue for an average of three years before they get caught. That’s a lot of time to generate losses for the business.
According to the Association of Certified Fraud Examiners, among the motivations for employees to steal are:
- Motive: Greed, financial strife, unexpected bills, addictions
- Opportunity: Weak financial controls, cash management processes
- Rationalisation: Employee has internal excuses, such as “the business won’t notice”, “I deserve a raise”, or “other people do it”.
The 10-80-10 rule proposes that as many as 80% of employee could potentially steal from the company:
- 10 percent of people will never commit crime against their employer
- 80 percent might commit a crime through a combination of opportunity, pressure, and rationalisation
- 10 percent actively seek out ways to steal from their employer
Employee theft is a serious problem for companies that can lead to huge financial losses, and even folding up of the company. Here are some strategies you can practice to curtail employee theft in your company.
1. Improve job screening
Thoroughly vet all job candidates by checking references, performing background checks and conducting your own research through online searches. Background checks can let you know if someone has been charged with a crime. It’s important, though, to make sure you’re complying with the law while carrying out your background checks. Some cases of employee theft are never reported to the police, however, so it’s a good idea to call all references to find out about any past issues or reasons for concern.
2. Know your employees
Be alert to key indicators of potential theft such as:
- Sudden, apparent devotion to work and working late.
- Lifestyles well above salary levels.
- Strong objections to procedural changes related to financial, inventory or supply matters.
- Drugs and alcohol abuse.
- Moonlighting with materials available at the business.
- Evidence of compulsive gambling, persistent borrowing, or bad check writing.
NFIB recommends that small business employers perform background checks on potential hires. Checking references is one important step. But for employees entrusted with handling your money or financial records, a background check is better.
3. Supervise employees closely
Not surprisingly, studies show that when supervision is lax, theft and fraud rates go up. This doesn’t mean looking over their shoulder every minute. But it does mean checking what they do. It’s also wise to have more than one person looking out for your money.
4. Set checks and balances
While employees need a certain level of trust and authority to do their jobs, you can implement checks and balances to help detect (and hopefully deter) fraudulent activity. For instance, make it mandatory for all new accounts to be reviewed and approved by somebody at a higher level than the person who can create them. Only allow cashiers to do a refund up to a certain limit, and above that [limit] a manager must do it. Assume that every position has the ability to kill your business, so put controls and measures in place to keep that from happening.
Use purchase orders. The payment, receipt, and preparation of purchase orders should be separate functions and handled by different individuals. Use serially pre-numbered purchase orders and always verify incoming orders.
Control cash receipts. Use serially pre-numbered sales slips and conduct weekly audits. Balancing of sales slips and register receipts should be done by someone other than the sales clerk.
Use informal audits. Make unannounced internal audits and have a yearly audit performed by an outside firm.
Track your business checks. Always use pre-numbered checks, with amounts and payees typed or written in permanent ink.
Install computer security measures. Understand your computer systems and software, and how they might be used to divert money or inventory. Restrict access to computer terminals and records. Periodically change entry codes and check regularly to ensure that security procedures are in effect.
5. Use video surveillance
Consider installing security cameras to keep a watchful eye on your business. Cameras should be placed in blind spots, however, avoid placing cameras in areas where privacy is expected, such as bathrooms and break rooms. If you use cameras that are paired with a mobile app, you can monitor your business when you’re offsite, and those with motion detection can alert you if someone is inside the premises when the business is closed.
6. Create an anti-theft policy
Work with your attorney to include an anti-theft policy in your employee agreement to make it clear that stealing from your business will not be tolerated. Provide examples of prohibited behaviors and let employees know that they could face serious consequences if they’re caught in violation of the policy. For example, you will immediately terminate the employee’s contract, file a police report and potentially seek legal action for restitution for any damages.
7. Create an employee tip hotline
Oftentimes, your best information on fraud in the workplace can come from your employees. Consider setting up an employee tip hotline where workers can report ethical issues. Make the hotline anonymous so employees can report issues and concerns without the fear of punishment or retaliation. This needs to be done carefully to avoid signaling you don’t trust employees.
- Be extremely careful about making accusations and conducting investigations – a false accusation can result in a lawsuit against you.
- Verify suspicions by investigation, and determine the extent of fraud and methods used. If you can identify the responsible employee, terminate their employment and consider further legal action.
- If it is a large or complex issue, consider involving legal counsel who can assist with finding additional experts such as forensic accountants or investigators.