Employee theft is a growing concern for both big and small businesses. According to research, employee theft affects approximately 95% of U.S. businesses. Surprisingly, 75% of employees admit to stealing from their employer at least once. This can range from petty cash theft to sophisticated embezzlement schemes.
So what can you do to deal with employee theft, considering it costs employers up to $50 billion annually? As an employer, you should take proactive measures to prevent employees from stealing from your business.
This blogpost discusses various strategies you can implement to deter employee theft and safeguard your business assets.
What causes employee theft?
The first step to addressing employee theft is knowing why it occurs. When you understand the main drivers, you can minimize the triggers to prevent employee theft. Here are some reasons an employee could take your business asset without permission.
Personal issues: Financial problems like unexpected expenses and mounting debts can force an employee to steal from your organization.
Job dissatisfaction: Employees who feel undervalued and underpaid may feel justified in stealing from your business to balance out what they see as an unfair situation.
Opportunity: Weak internal controls or inadequate security measures can cause employees to steal from you. They see it as a "life-time opportunity."
Above all, employees will only steal from your business if they can. Therefore, you must put strict measures in place to close any loopholes and prevent vulnerabilities.
Types of employee theft
Employees can steal from your business in multiple ways. Let's examine the common ways or types of employee theft.
Inventory theft is when an employee steals a company's stock or inventory. This includes office supplies, computer software, retail merchandise, and medical devices. They may steal for personal use or with the intention of selling the stolen items.
Inventory theft can occur at any stage of the inventory management cycle or supply chain stage and is the cause of many business failures.
Data theft involves stealing information stored on corporate databases, servers, and devices. After stealing the information, the employee may alter, restrict or delete it from the company's server or devices.
The perpetrators often target confidential or proprietary information that can be used for financial gains or to tarnish your business' reputation. The data stolen can be anything from online passwords, bank account information, medical records, social security numbers, online subscriptions, and more.
Data theft can particularly damage your business' reputation.
This type of employee theft occurs when the employee uses a business service for personal gain without the employer's permission or without paying. Some employers give discounts to employees on their services. Unfortunately, some employees end up misusing the offers for their own benefit.
An example of service theft is when employees allow their friends or family to use employee-only membership.
Payroll fraud is usually committed by staff like HR, payroll, and finance professionals with authorized access to data. It involves an employee stealing information or money from your company's payroll system.
For instance, an employee may change another employee's direct deposit to their own account.
Money theft involves a worker physically stealing funds from your company. This type of employee theft may occur in many forms. For instance, an employee may overcharge customers and take the overcharge. Also, the perpetrator may take money from a tip box or petty cash.
Money theft may involve finance or accounting team members who steal cash or checks before it's recorded.
Employee time theft occurs when employees record more time than they work. This type of employee theft is common in hourly employees.
How to prevent employee theft
Employee theft often goes unnoticed until your business starts experiencing financial losses and reputational damage. If an employee finds an opportunity to use your business resources for themselves, they'll do it over and over again. Therefore, it's important to implement measures to curb this disastrous behavior.
Here are some employee theft prevention strategies to get you started.
Create and implement a zero-tolerance policy regarding employee theft
The best way to minimize or curb employee theft at your company is to instill fear of the consequences. You can do this by creating policies and procedures to govern employee theft.
Here's what to include in your employee theft policy;
- Company policy on theft: You cannot always remind your workers about the illegality of theft, but a policy can. In your company theft policy, explain the various types of employee theft (focus on industry-related employee theft).
- Commitment to investigating theft: Explain your active measures to detect theft. Explain how you handle such a case (especially if another employee notices and reports the matter to you). Also, warn those who might falsely accuse fellow employees of theft.
- Repercussions of employee theft: Explain your company's discipline policy, clearly stating the consequences.
Know your employees
Many small business owners don't actually know their employees. And we're not talking about knowing their names—you need to know more than that.
Remember, anyone who has stolen anything and got away with it will think of doing it again. So when hiring, you must be careful who you hire in your company.
Therefore, performing background checks before extending a job offer is important. You need to know about their criminal and employment histories, education, driving records, etc.
Also, since most employee thefts go unnoticed and unreported, you should check (and, if possible, contact) references.
Make it easier for other employees to report theft
Believe it or not, if an employee steals from your company, those around the perpetrator will be the first to know. Unfortunately, the other employees may not report the matter to you due to the fear of losing their jobs (because the person stealing holds a higher position in your organization), or you don't have an effective employee policy reporting system.
Therefore, you should create an effective reporting system allowing anonymous and confidential reporting. The system should allow internal (co-workers) and external (customers and clients) parties to report theft cases without fear.
Moreover, you should have multiple channels for reporting theft, including a physical dropbox, phone, or email.
Every department in your company should submit reports after a specified period. These reports can help you gauge performance and detect issues in your business transactions. However, you still need to conduct regular audits to check for discrepancies and other issues.
Making unannounced audits can help you detect and prevent employee theft. When employees know you can conduct an audit at any time, they'll shy away from stealing your company property.
However, you should hire an expert, perhaps an external accountant and auditor, to perform the audit. Your audit should focus on payroll, HR compliance, inventory, supplies, register cash, financial records, and vendor files.
Secure your systems
You should limit access to some of your computers, software, and information. If a worker doesn't need access to a certain computer, file, or software, don't give them access.
For instance, all employees should not have access to your payroll software. Instead, you should limit access to one or two members of the HR department. This way, if someone steals from your company through the payroll software, you can easily find the person. This will help you prevent payroll theft.
Moreover, you should update or change your passwords regularly. This makes it difficult for employees and other intruders to crack them and gain access to your systems. Also, use different and unique passwords for each account.
Increase visibility in business processes
You've seen a business where one person manages everything, from payrolls to hiring to inventory. Well, unless you're the one person trying to manage your business, this can increase the chances of employee theft.
You should, instead, design a system of checks and balances. This way, any employee won't be tempted to steal from your company.
For instance, if you feel a certain department has a higher theft risk, assign multiple employees to work in that area. You can assign two workers to process customer returns, restock inventory or count cash, or perform other job tasks together.
You could also install security cameras to monitor your inventory and prevent employees from stealing office supplies.
Use an electronic time clock
You must get an electronic time clock to prevent time theft if you have hourly employees. With time software, employees won't be able to adjust their timesheets to get more pay.
Also, an electronic time clock requires workers to clock in and out electronically using unique login information. This way, no employer will clock in on behalf of another.
Employee theft affects companies of all sizes in various ways, including financial losses, damaged reputation, and decreased employee morale. Therefore, you must implement strategies to prevent employee theft within your business. This includes having clear policies regarding employee theft, conducting regular audits, and implementing a check and balance system.
Additionally, you should get a commercial crime insurance policy which comes with employee dishonesty coverage. This policy compensates business owners for employee actions that cause financial or physical harm to the business.
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