By Gina Blitstein

There are probably few things that can hurt an entrepreneur as deeply as employee theft. Let’s face it: you’re supposed to be able to trust your employees, in and out of your presence. The thought they would demonstrate such a level of disrespect is disheartening, to say the least – not to mention illegal. This breach of trust happens every day, however, and could have a significant impact on your company’s bottom line.

Employee theft is common

As a pertinent example of the prevalence of employee theft, a study of 314 small business owners in Cincinnati reported in Security Magazine, January 11, 2015, indicated 64% of small businesses have experienced employee theft. According to Statistic Brain Research Institute's 2015 Employee Theft Statistics, 75% of employees have stolen at least once from their employer.

What gets stolen by employees?

Very little is safe from employee theft. The report goes on to say 40% of thefts in small businesses are money, 18% were of products sold by the business, 12% were of materials (items that go into the production of a firm's product offerings), 8% were of tools, and 6% were equipment.

What can be done to curb employee theft?

It can’t be completely stopped, but taking certain precautions may help to minimize the risk of employee theft to your business.

Safeguards against employee theft:

1. Know who you’re hiring. Background checks and references provide important intel about the character and history of those you hire.
2. Employ security and surveillance measures. Being too trusting is a naive mistake in light of the aforementioned statistics. Limit access to sensitive areas of your business (both physical places and cyber data) and keep an eye on employees’ locations and activities.
3. Documentation of financial transactions. Be a stickler for accurate figures and accountings of all incoming and outgoing funds. Don’t take any excuses for frequent mistakes or failure to follow protocol when handling money.
4. Conduct regular, stringent inventory checks. It’s all too easy to lose track of items in a busy work environment. Put procedures in place to help you keep strict inventory records of your equipment, materials and products.
5. Cultivate personal relationships with employees. It’s more difficult – even for those with a propensity to steal from their employer – to steal from someone they feel they know and respect.
6. Provide convenient and anonymous means for employees to report suspicions of employee theft. Your honest employees will want an opportunity to help you catch a thief without the threat of repercussions among other employees or the perpetrator him/herself.

Looking at the ways employee theft is detected can also provide insight to the places where more attention can be concentrated.

Possible ways employee theft can be detected:

1. Tips from employees
2. Internal audit
3. Internal controls
4. External audit
5. Tips from customers
6. Anonymous tips
7. Tips from vendors
8. Notification from law enforcement

What can/should you do as a victim of employee theft?
1. Proceed carefully when you first suspect an employee of theft. You may feel angry and betrayed, but don’t say anything until you learn all the facts. If you’re wrong, you could face a lawsuit for making a false accusation.
2. Investigate thoroughly to discover the extent of the theft and the guilty party or parties. Bring in professional investigators, accountants or loss prevention specialists if necessary before communicating your concerns to the employee(s) suspected of theft.
3. Determine your course of action: Is this cause for a warning, termination or legal action?
4. Learn from the situation and put in place safeguards to prevent similar theft from happening again. This is also an opportune time to reiterate your policy on employee theft in case there are employees contemplating similar misdeeds against your company.

Employee theft is a sad but true part of conducting business. By taking prudent and proactive precautions, you could save your business from substantial losses. Cultivating a loyal and honest workforce that stresses accountability will serve your business well.

Want to learn more about how to help protect your business from internal fraud? View our webinar on this subject.

Gina Blitstein combines her insight as a fellow small business owner with her strong communication skills, exploring topics that enhance your business efforts. That first-hand knowledge, matched with an insatiable curiosity to know more about just about anything, makes her a well-rounded writer with a sincere desire to engage and inform.
 


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank or its affiliates.