Employee theft is the single most important crime affecting businesses, with an estimated cost of $20 billion to $50 billion per year. According to the National Federation of Independent Businesses (NFIB), 44 percent of all losses at stores are the result of theft at the hands of employees.
Employee theft can take many forms, from larceny, or outright theft, to a process known as “skimming,” the diverting of company funds into an employee’s personal account. There’s also embezzlement, or theft by employees entrusted with certain duties, taking place most commonly in departments where money passes through or where supplies are stored. Stealing a company’s business opportunities, like misappropriating customer mailing lists, is another form of employee theft. Supplies and inventory are also the target of sticky-fingered workers.
Small and mid-size companies tend to suffer more employee theft—and they suffer more because of it. In fact, the U.S. Department of Commerce reports that nearly a third of all business failures are related to employee theft.
Insurers and other business risk experts encourage owners to be vigilant toward the prospect of employee theft, and recommend staying on the lookout for signs like:
- An employee who insists on working overtime, even when it’s not required, or who works on site at unusual times.
- Petty cash, inventory or supplies going missing.
- An employee who refuses to take a vacation. While there are any number of reasons why this situation is problematic, it could mean the employee is wary of his or her replacement finding out what’s going on.
- Strong objections to any change in procedure related to the company’s finances or inventory.
The good news is, there are measures most businesses can take to discourage or counteract employee theft. Protect your business from employee theft with these seven tips:
1. Know your employees’ histories.
NFIB recommends running background checks on all potential hires. This starts with checking the references. For positions entrusted with handling money, a full background check is definitely in order. Be sure to create a policy about background checks so that your company either consistently checks or checks for certain jobs—otherwise it can be discriminatory.
2. Clearly state policies regarding employee theft.
Include an employee theft policy in your employee handbook. Make sure you clearly define the scope of the policy and who it pertains to—temp workers all the way to leadership. A strong employee theft policy will also outline protocols for reporting suspicious activity, investigating claims and responding to them.
According to reports from the American Society of Employers, 20 percent of employees are aware theft is being perpetrated by one or more of their colleagues.
An HR business partner can help you create these policies, advising you on the best ways to carry them out in your workplace.
3. Separate the financial duties of employees.
Companies may not want the employee who writes the checks to be in charge of also reconciling the bank statements. Payment, receipt and preparation of purchase orders should all be separate functions fulfilled by different people. Providing checks and balances is also one of the many benefits of using outsourced accounting services.
4. Run an unscheduled internal audit.
For companies of a certain size or circumstance, an annual audit by an outside firm is considered a best practice, but this is often considered overkill for many smaller businesses. When it comes to detecting theft, an unannounced internal audit can be a surprisingly effective and low-cost alternative.
5. Be present and tuned in to your employees’ needs.
It should come as no surprise that instances of employee theft are higher in cases where supervision is lax and morale is low. Boost loyalty and employee engagement by investing in your HR—taking steps like curbing workplace incivility, regularly rewarding employees and creating pathways for employee growth.
One last thing to keep in mind: Before accusing an employee of theft or fraud, consult with an expert like your XMI Business Partner or an employment attorney—someone who knows the ins and outs of dealing with suspected theft and the right steps to take next.