WORKPLACE LAW - Dealing with Employee Theft

Question:

Our small company seems to have a problem with employee theft. The thefts include missing office supplies, inventory, and sometimes cash. We have adopted some prevention strategies, but lately the problem seems worse. We cannot afford this type of loss in the current economy. Can you provide ideas for controlling the problem?

Answer:

Employee theft is a national problem that has worsened during the current economic recession. According to the University of Florida’s annual Retail Security Survey, total retail losses nationwide amounted to a whopping $36.5 billion in 2008, increased from $34.8 billion the previous year. Employee theft accounted for 44 percent of those losses. Another recent survey of 392 employers by the Institute for Corporate Productivity found that a significant number of respondents reported increased employee theft since the economic downturn began.

Small companies often suffer disproportionate losses because they do not have the resources to implement expensive control measures. Often smaller businesses fail to implement the accounting controls necessary to minimize theft. According to experts, it is typically the long-trusted employee, especially the one-person accounting department, who may be most likely to steal from a small business.

Employee theft can include outright stealing, diverting business funds, inflated expense reports, embezzlement of raw materials or inventory, and billing schemes, among other possibilities. Security experts advise employers to use a multi-faceted approach to stemming employee theft.

Although some of the measures discussed here are effective in detecting theft after the fact, the best strategy is always prevention. It is much easier and more cost effective for an employer to prevent rather than detect theft. Some measures to consider include:

  1. Screen before hiring. Conducting a background check is a fundamental and cost effective way to try to prevent employee theft. The applicant must consent to the background check, which may include checking criminal conviction records, conducting a credit check, talking to past employers, checking references, and verifying the applicant’s education or licenses. The background check may reveal unsatisfactory qualifications or discrepancies in the job application.
  2. Educate employees and management about theft and fraud. This can be done in a variety of ways, from employee orientations to periodic memos. An educated workforce can detect problems that upper level management might miss. Also, a clearly expressed and strictly enforced zero-tolerance theft policy can be an effective deterrent.
  3. Track all inventory, office supplies, and cash. Use serially numbered purchase orders, invoices and checks, and regularly check for missing documents. Conduct surprise audits. Employees should be advised that periodic unannounced audits will occur.
  4. Consider job rotation and mandatory vacations. Requiring employees to be absent from their normal job positions for an extended period may reveal theft.
  5. Divide accounting and money handling functions to avoid a single person being responsible for all aspects of any single transaction. Similarly, receiving, storekeeping, and shipping functions should be separated. Although separation of duties may be difficult for a small business, this is an important step you may take to protect your company’s finances.
  6. Install computer security and learn the company’s software programs well enough to understand how they might be misused. Limit access to critical records and functions. Change passwords regularly and include computer systems in all audits.
  7. Create a positive company culture of fairness, honesty, and communication.
  8. Provide for confidential reporting of theft. Employees should be able to confidentially report theft, waste, or fraud without fear of retaliation or identification. A reward policy for theft tips that lead to stolen goods recovery may also be effective.

Exercise caution if you suspect an employee is stealing from your business. A thorough investigation may be needed before you pursue any action against an employee who is suspected of theft. If you do your due diligence before hiring, promote a workplace that does not tolerate workplace dishonesty and theft, divide critical duties, and conduct periodic audits, you can minimize the risk of theft from your business.
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