9 Tips to Reduce Employee Theft
You probably don’t know it yet, but one or more of your employees may be stealing from you.
I know what you are thinking: You are a nice person who pays them their dues in full and on time. They certainly must be feeling indebted to you because you are such a nice person.
Sorry to disappoint you, but that’s not the case. This employee may not show it, but he thinks that you are kind of a jerk. He feels overworked and underpaid. He can also swear that you don’t treat him with as the respect as he deserves. He believes that the only way of getting back at you is stealing small unnoticeable items.
Don’t believe the smiles. You have a problem.
Employees and workers are deemed to be the most important assets of any company or organization. You may have machines and equipment for the manufacturing processes in your company, but at the end of the day, these machines and equipment will not run or function without human input. Most companies these days greatly rely on systems for much of their operations, but you can’t deny the fact that systems are created by people, ran by people, and also maintained by people. That’s why it is safe to say that companies cannot exist, much less succeed without their employees.
Unfortunately, this will also tend to pull the blinds on the eyes of your company’s management. Your recognition of the importance and contributions of your employees tends to make you lenient and, often, deliberately oblivious to employees’ bad behavior.
However, there are certain lines that must not be crossed. When your employees’ actions have direct negative effects on your company’s profitability, management has to pay attention and act accordingly. If, for example, a tiff between two employees is starting to cause discomfort in the workplace, there is a need to step in and fix things. If productivity is clearly suffering due to improper behavior and actions, corrective steps must be taken before things get worse.
Disagreements, conflicts, and lack of motivation are some of the things that can easily be addressed by you as a manager using a heart-to-heart talk or a series of counseling sessions. But what if the problem is something so grave that it constitutes an actual crime? Like “employee theft”, for instance?
SOME HARD TRUTHS ABOUT EMPLOYEE THEFT
Just as the phrase implies, employee theft refers to the act of stealing or pilfering by an employee in the workplace. But before we can delve fully into the concept of employee theft, here are some hard and dirty truths about employee theft that will drive home exactly how serious a problem it is.
For starters, according to the 2015 report of the Global Retail Theft Barometer, United States retailers clock in losses amounting to around $42 billion in a year, losses that can be blamed primarily on shoplifting and vanishing merchandise due to dishonest employees or, to be more precise, employee theft. Of that total amount, 43% or a little more than $18 billion can be traced to employee theft.
If you ask the U.S. Chamber of Commerce, you’ll be surprised to learn that the annual losses due to employee dishonesty and employee theft averages $50 billion. And this is something that can happen to practically any company – no matter the size or industry. Other statistics include:
- 75% of all employees commit theft at least once and that’s not the scariest bit about it. The sad bit is that half of them (or 37.5% of all employees) make a habit of it.
- One out of every three businesses that fail can directly trace the result of the failure to employee theft. This is because it is among the big reasons for the business to incur losses and eventually causing it to close shop.
- 75% of all employee-related crimes go unnoticed and, therefore, unpunished. The dishonest employees end up getting away with the crime. That means that only one out of every four crimes is discovered.
The American Society of Employers, on the other hand, has its own statistics to share. Here are some of them.
- There is a great deal of awareness among employees that theft is taking place among their ranks. In fact, it is estimated that 20% of employees are aware of employee theft happening right under their noses. Now whether they are doing something about it or not is something that we can’t be entirely sure of.
- More than half of the employees committing theft are holding supervisory positions. 55% of confirmed employees stealing from their employers are managers.
- It takes employers an average of 18 months or a year and a half to apprehend a dishonest employee. That is quite a long time, allowing the employee to amass large amounts. Worst case scenario: by the time the fraud scheme or thievery is discovered, it would have already been too late, as the dishonest employee may have already resigned from the company, taking his loot along with him, with no hope of the stolen assets being recovered in full.
These findings somehow agree with the generalizations that can be made from the results of the 28th Annual Theft Survey conducted by Jack L. Hayes International for 2015. Some highlights of the Survey are:
- There was a 1% increase in apprehensions of dishonest employees, with 75,947 employees apprehended in 2015. One can easily make a loose connection between the number of apprehensions and the rate of employee thefts. The mere fact that there was a rise in the number of dishonest employees that were caught, is already a cause for alarm, since it may also indicate a corresponding increase in the rate and frequency of employee theft being committed.
- In a study involving close to 3 million employees, it turned out that one out of every 38 employees was apprehended or caught by the employer in the act of stealing employer or company property. Now think about a medium to large company, with hundreds or even thousands of employees. This statistic just increased the likelihood of bigger companies having more thieves among their employees and that means more loses from employee theft.
- In 2015 alone, the amount recovered from the apprehended employees amounted to a little over $55 million. Worse, this is even under the assumption that not all properties or assets stolen by the apprehended employees were recovered. Now compare that with the annual loss of $42 billion, and we’re talking about a recoverable amount that less than 0.2%.
WHAT IS EMPLOYEE THEFT?
Now let us head straight to the core of this discussion, which is Employee Theft.
Any stealing, abuse or misuse of the assets of an employer or business by an employee for personal reasons is “employee theft”. We’re not just talking about the employee you’ve assigned to the cash till or cash register pocketing some cash at the end of the day, because employee theft pretty much covers the theft of assets, not just monetary assets.
- Cash or money. This is the most obvious and most common asset stolen by employees. In fact, when we hear about stealing or theft, we’ll immediately think of someone grabbing someone else’s cash or money.
- Supplies and properties. Bringing home reams of stationery paper or boxes of pens from the supplies inventory at the office qualifies as employee theft. The same is true when an employee decides to take an office computer or laptop home and claim it as his own, without permission or an intention of bringing it back.
- Merchandise or Goods. If you have ever run a retail company, you must have experienced this. It involves merchandise or goods vanishing, thanks to employees’ quick hands.
The object of thieving by employees is not limited to tangible items, since there are also assets of an intangible nature that can also be stolen from your company.
- Time. Time is one of the most important resources in business, your employees are being paid for every second of their time at work. Therefore, we can comfortably conclude that any minute at the workplace that is spent doing something else other than the employee’s actual job constitutes employee theft. This is on the premise that that employee is being paid for his time, but he is not putting in the work he is supposed to.
- Data or information. Some industries deal with information of such a sensitive nature that divulging them to external interested parties could mean actually earning money from it. Company secrets, trade secrets and product designs are some of the types of information that is often stolen by employees, and sold to external parties.
In one of the statistics presented earlier, we saw that more than half of the perpetrators of employee theft are composed of managers. However, all employees are actually capable of committing theft, regardless of their position in the structure or hierarchy, especially if you take in consideration the wide variety of assets that can be stolen.
But why do employees commit theft in the companies they work at? Why do they decide to bite the hand that feeds them?
To answer that question, we can look to the theory developed by criminologist Donald R. Cressey, which he called the “Fraud Triangle”.
According to the Fraud Triangle, there are three factors that influence or push an employee to commit occupational fraud or, in this specific discussion, employee theft. All three elements must be present.
- Pressure, from a financial need that can’t be shared
- Opportunity, or a perceived opening to commit fraud
- Rationalization of the crime of fraud
It is simple enough. Your employees will feel pressure arising from financial constraints, where they find themselves in need of money, and there are no other sources they can turn to. Maybe a sudden family emergency calls for a large amount of cash immediately, and at that moment in time, no cash is available. If the employee is unable to take out a loan, not even a personal loan from friends or other co-workers, then the pressure can lead to unorthodox ideas.
This pressure will lead them to look for other possible sources, and the moment they spot a weakness in the company’s internal controls, or there is an oversight on the part of management in some areas regarding protection, maintenance and custodianship of assets, they are bound to spot an opportunity. Managers or those in positions with considerable authority definitely have greater opportunities to commit employee theft, which explains the statistic about managers being more prone to committing the act.
The third element entails the employee rationalizing the criminal act of stealing, reconciling the behavior and justifying his actions. He will find ways to make stealing all right. Some employees justify stealing by saying that it is a matter of life and death. If they did not steal, their loved one would have died or their family would have fallen to ruin. Or it could be in the form of pinning the blame on someone else, most likely someone at work. He could say that he would not have stolen if the company paid him enough, or if the supervisor granted his application for a loan.
Out of the three elements of fraud, the one that the organization has the most control over is on opportunity, which explains why most anti-employee theft efforts are directed towards decreasing the likelihood of these opportunities cropping up.
TYPES OF EMPLOYEE THEFT
Again, employee theft can be more than the act of physically taking cash out of the cash register or supplies and merchandise from the shelves. Briefly, let us go over the most common and frequently committed types or methods of theft used by employees.
This is when your employee unlawfully takes the asset or property from your premises with no intention of ever bringing it back. The best example would be that of a stock clerk of a convenience store pocketing part the day’s collections from the cash register at the end of his shift, or a maintenance person sneaking out the backdoor of the office building with a box filled with cleaning materials that he plans to sell or bring home for personal use.
Many tend to confuse embezzlement with larceny, and they wouldn’t be wrong, since the concept is pretty much the same. The difference lies in the employee committing theft. It is considered embezzlement if the employee stealing is someone who is in the position of having legal access to the assets that he is stealing. It is embezzlement if the convenience store cashier is the one who steals the money from the cash register.
It is larceny if the stock clerk, tasked with keeping the shelves well and fully stocked. A cleaner, who is in a position of trust when it comes to cleaning supplies and materials, is committing larceny if he’s the one to steal the money. If it is the maintenance man, who is primarily tasked with plumbing and wiring duties, it is larceny.
Some crimes of employee theft are done off-the-books, and they are termed as skimming. Usually, this type of theft is committed by employees who have custody of cash, and the method of stealing is done through timing intervals.
For example, a cashier, debt collector or bank teller can commit skimming by taking the cash even before it has been recorded in the company’s books. This makes the theft much harder to detect since the employee pretty much intercepted the cash before it can get to the company.
For example, your cashier can take the payment from the customer and immediately pocket it, without recording it in the cash register. This means there won’t be a receipt or any document as proof of the transaction, and the cashier can keep the money to himself.
This type of employee theft has a lot more impact than the previous two, primarily because it is a crime committed by an employee working around the existing system of the company. It is a given that this theft is committed by one who is knowledgeable about the ins and outs of the system and can manipulate data to suit his purposes.
An employee can do this through check tampering, or using company checks to pay themselves fraudulently. It often involves forgery of the signature of persons authorized to make and process check payments. Or they can set up fake accounts as vendors and bill the company to pay those accounts for nonexistent deliveries.
It can be more elaborate, though, with employees using payroll and expense reimbursement schemes. These are the scenarios that involve the so-called “ghost employees”, or when the employee seeks reimbursement from the company for expenses that were not actually incurred.
Stealing Business Ideas, Information, and Opportunities
This is probably the heaviest among the different types of employee theft since they often involve ideas and information of high value. For example, an employee of a company may resign his current position and transfer to the competitor, providing them with vital information from his old employer.
It is even worse if the employee remains employed in the company and actually sells confidential information and secrets to the competition.
TIPS TO REDUCE EMPLOYEE THEFT
Employee theft is rising, but that does not mean that you are completely helpless against it. There are actions that you can take to ensure that incidences of employee theft are minimized, and the amount of damage it causes is also kept at a minimum. Here are 9 tips for employers that are seeking to reduce employee theft.
Hire the right people, so weed out the rotten apples from the beginning.
Here’s a reality check for you: no matter how much you claim to be careful in the selection of your employees, the possibility that they will eventually commit theft once they are employed in the company is still present. In fact, the U.S. Chamber of Commerce study claims that majority of the employees who commit theft are first-time offenders.
Still, it is encouraged that you weed out the bad apples from the beginning, as much as you can. Here are some things you can do to accomplish that:
- Do a thorough background-check. It is not enough to rely entirely on the qualifications and credentials of the candidate. You should also perform a background check. This is to discover information about the candidate that is not presented in his resume. Running a background check will allow a glimpse of his previous behavior, which you can use as an indicator of future behavior, especially when he is employed in your company.
- Perform a drug test on all potential candidates. If possible, do the drug tests on your own dime. There are far too many diagnostic and drug testing centers that may issue results that can be easily manipulated by the candidate. Usually, addiction can be a potential precursor to the commission of theft and other crimes.
Review the organizational structure.
Are you giving too much power and authority to one manager? Is there a system of check and balance when it comes to authorization and implementation of transactions and activities?
All positions must have accountabilities. Similarly, no position should be too powerful to make all the decisions alone. Give a manager too much power and he will be drunk with it, basking in it and eventually end up abusing it. The next thing you know, he has embezzled much of the company’s cash and you are left in regrets.
Nurture a good employer-employee relationship.
Some employees who committed theft say that they stole because they felt no remorse stealing from an employer who did not seem to care about their well-being. In fact, they even felt justified stealing something from an employer who does not even seem to know much about them.
As a human being, it is proper human decency to get to know people you will be working with. As an employer, it is a good business practice to nurture a healthy and good relationship with the people working for the company, mainly to ensure productivity.
Employees are less likely to steal from an employer that they respect because he showed interest in them as human beings and as contributing members of the organization. If you are free you’re your employees, it will also give you more opportunities to show empathy if they are having financial difficulties, and you have the chance to even help them look for solutions that will dissuade them from stealing. A good relationship will keep everyone happy, and keep any thoughts of theft at bay.
Do not leave your employees alone.
Usually, employee theft is committed by a lone person. Left alone, with no other eyes on him, he is bound to be tempted to steal. After all, no one else is there to catch him, or to rat him out to the bosses.
Do not give employees the opportunity to commit theft by leaving them to their own devices. Sure, you may think this is a show of your faith in his capabilities, but it is also a come-on for the employee to steal.
- Encourage the buddy system. Let employees work in pairs, at least. This will limit the opportunity for one of them to commit theft. A cashier being the sole employee during the night shift at a convenience store is bound to steal if there’s no one else with him. Assign another store clerk to be on the same shift as the cashier.
- Encourage a culture of teamwork. The buddy system is not entirely fool-proof, however, since there is a risk that the two will be in cahoots and actually conspire to commit theft together. An alternative is to encourage employees working in a team. There will be more people working in close proximity with each other, so there are more eyes to consider when contemplating stealing.
- Practice job or task rotation. Familiarity can easily breed a criminal act… or something to that effect. You see, if two employees have been assigned as a pair or work buddies for a long time, they’re bound to have formed a bond or relationship that will likely lead to them working together to commit theft. To avoid this, rotate the employees who are paired together every once in a while.
Pull the Big Brother act on your employees.
If employees know that they are being watched by the bosses, they are less likely to steal anything. Setting up CCTV systems or similar surveillance systems around the workplace, or in key areas where there are assets that may be stolen, is a good idea. It will cost money, yes, but it is also a good investment in the long run. Not only will it protect the company’s assets, but it will also ensure that employees are kept on the straight and narrow. It is also a good security practice against outsider attacks.
Of course, make sure that your surveillance systems are not accessible by just anybody. Security systems must be under the control of only a select few: you, key members of top management, and core security officers. This is to avoid possible tampering of dishonest employees of the surveillance system long enough to allow them to commit the act and get away with it.
If your budget is limited, there’s an affordable solution. Performing your supervision functions – and encouraging all other supervisors to do their jobs properly – is already one way to keep employees in line. It is a fact that employees with less supervision are more inclined to go astray. Supervise them well, and they will be more respectful and loyal. Loyal employees rarely, if ever, steal from the one they are loyal to.
Maintain tight physical control and security over assets and properties.
If only you can keep everything under lock and key, then there would be no problem. However, you cannot do that with the machines and supplies and other materials used in the normal course of operations. Will you want to keep large production machines in storage at the end of every work day, only to bring them out first thing the next day, and set them up all over again? That will be very tedious and will also be costly.
You can, however, ensure that the areas where these assets or properties are located are secured and protected. Factories must be locked up tight at the end of the day. Depending on the nature of the business and the assets, there may also be assigned security personnel specifically tasked to make sure no one steals or tampers with them.
Close monitoring is also a must. When packing up goods for shipping or delivery to customers, make sure the proper checks are in place to see to it that the amount ordered is actually what will go out of the warehouse. In some cases, employees may also steal by using the company’s trash collection system. This is why some companies make trash removal monitoring as another physical control.
Here’s one thing you should definitely take into consideration: set up a dedicated security system for employee theft. You may already have a security system to avoid retail theft or shoplifting in your physical stores. But that’s a different type of theft altogether, so you cannot expect it to work the same way when you’re dealing with employee theft.
Get all employees involved by empowering them.
Even with a security team in place, or even a state-of-the-art electronics or computer system, a company can still be vulnerable to employee theft. After all, do not forget that the ones running these systems are the employees themselves.
Sometimes, employers may feel overwhelmed with the task of policing the company. He cannot do it alone. He will need help. Well, he should ask for it, then.
- Setting up a hotline or a similar reporting facility where employees can give information on any suspicious movements or actions implying a potential for theft will definitely help. There is nothing wrong with turning your employees into watchdogs. Worried that they might hesitate about ratting out on their co-workers? Make it an anonymous reporting facility and reward any useful hints. This is another way of keeping a watchful eye on employees, but this time, through the eyes of other employees. Knowing that there are other people watching will surely discourage an employee from committing theft.
- Keep employees informed about the company’s policies on theft. This way, they cannot plead ignorance in the event that they are caught red-handed. Let them know the sanctions that will be made when they are apprehended and caught. If they are made aware, they will be discouraged to risk stealing anything from you. Show them how deeply committed the company is in preventing losses, particularly due to employee theft. Make it clear to them about the steps that will be taken to deal with such cases.
Maintain good internal controls and audit policies.
Good business practices dictate that every company must have internal control over inventory and other assets, not just physical control. Documentation must be clear and accurate so that no employee can easily manipulate them to commit theft.
Usually internal controls focus on three things: separation of duties, access control and authorization control. Separation of duties refers to avoiding redundancy of job functions. Only authorized employees should have access to physical and financial assets. Do not make everything accessible to everyone. Only allow a few individuals and they should be personally responsible for all authorizations made. Otherwise, they will be tempted to steal. Finally, there should be clear-cut policies on the initiation, recording and review of financial transactions, and these policies must be implemented to the letter.
Performing informal audits and random inventory counts are only two of the many activities that can be performed to enforce good internal control. Overall, implementing an effective internal control and accounting system takes the company a step closer to reducing the risks of employee theft.
Lead by example.
Creating a positive working environment is something that employers should do in general, not necessarily to prevent theft. If you as the employer can demonstrate that you are not the type to commit theft, then they will follow your example and stay away from that path. Don’t take shortcuts just because you can. Your employees are learning from you.
Unfortunately for businesses everywhere, there is no sure-fire one-pill-cures-all solution for the reduction or prevention of employee theft. In fact, you’re probably wondering why we are aiming for its reduction instead of outright elimination. That’s because completely eradicating it from a business or organizational culture is close to impossible.
Of course, we are all hopeful that the time will come when employee theft will no longer take place. But let’s be realistic here. If that does happen, then it won’t be in the next several years. Until then, the best thing that businesses and employers can do the world over is to keep these employee thefts under control, and keep the related losses at a minimum. Before long, and with efficient tracking, it will be a thing of the past.