EMPLOYEE THEFT: HOW TO CURB THE SCOURGE
Employee theft is a problem of considerable size for many companies. Many corporate security experts estimate that 25 to 40 percent of all employees steal from their employers. Small business owners are not immune to this scourge; indeed, many analysts believe that internal theft of money or goods from employees is a primary cause of a significant percentage of small business failures.
In the early 1990s, and till now, it is estimated that employee theft and embezzlement activities accounted for one out of five business failures, many of which were smaller firms that were unable to weather the erosion that those activities brought to their bottom lines. Security experts also contend that small business enterprises may be particularly vulnerable to internal theft. Small firms often include employees with multiple responsibilities that provide greater opportunity to commit theft and greater means to conceal such actions.
In addition, many small business owners fall victim of erroneous assumptions about:1) the nature of their relationship with their employees, and 2) their ability to efficiently combat employee theft. Business consultants point out that owners of small firms that have fewer employees may well view the workforce as a “family” of sorts that operates in a more personable, friendly atmosphere than those that proliferate in the office corridors of multinational companies.
Owners of such businesses may place too much faith on this “first name basis” atmosphere as an effective deterrent against internal theft. Moreover, business consultants point out people can have widely divergent views of the basic character qualities of the same company culture. For example, one employee may wholeheartedly agree with the owner that the company environment is friendly and open, while a fellow coworker may feel that owner/employee relations are characterized by condescension and meaningless gestures.
Indeed, many employees who steal rationalize their illegal behavior away with aspersions on their employers. Stealing may be considered by many to be unofficial compensation and justifiable payback for what is assumed to be employer greed. Finally, owners are sometimes too willing to rely on self-policing among employees when it comes to internal theft. Workers who do not steal from their employers may not approve of the actions of those that do, but studies indicate that in most cases, they will not report such thefts either, since their light-fingered colleagues are also, in many instances, members of their family of social circle.
Forms of employee theft
Employee theft can take many forms. Some of these may involve the swiping of items of relatively small face value; inexpensive items from store shelves, or a box of ballpoint pens from office supplies, but experts warn business owners that thefts of individually inexpensive items can add up to significant sums over time, and security consultants add that such thefts can help erode employee performance and loyalty in other areas.
Other kinds of employee theft, meanwhile, can form a far more immediate threat to a company’s financial wellbeing. Embezzlement, for instance, can devastate businesses, wrecking owners’ personal and business finances at the same time. Other examples of employee theft include the following:
- Forgery of company cheques for personal gain
- Using a “ghost payroll,” which occurs when one or more employees create “phantom” employees, submit time cards for those employees, and then cash their payment cheques themselves
- Theft of raw materials or inventory items
- Outright theft of cash from a register drawer
- “Sweethearting.” This term refers to an unethical practice wherein an employee will grant a friend or other person a discount at the register or ring up fewer items than the person has actually bought.
- Theft of information. Internal theft of information has become an increasingly serious problem for employers, especially since huge amounts of meaningful information are commonly stored in computer files. In fact, security consultants point out that employees often are more computer literate than their bosses, which may strengthen the temptation to abscond with proprietary information or otherwise engage in illicit activities.
Stopping Employee Theft
Since employee theft is both commonplace and costly, business owners should take several steps to curb employee theft. Some of these steps are inexpensive and easy to impose, while others require greater investments of time and money. All should be weighed by entrepreneurs interested in shoring up their internal security systems.
- Ensure that appropriate business ethics are practiced at the top levels of the company.
Business owners and supervisors are role models for their employees, and if they want their workforce to behave honestly, they will have to do so as well in both their internal and external dealings. Despite the widespread existence of official corporate ethics policies, the impression that management will bend certain rules or look the other way in the name of expediency has an undeniable trickledown effect.
- Establish a clear policy on theft and security and distribute it to all employees.
This policy should make it clear that the company has a zero tolerance on theft and that any employee, including executives and managers, who violates it will be terminated. In addition, many consultants believe that written policy statements on drug and alcohol use can be effective in curbing internal theft, since abuse of those substances is a leading cause of employee fraud and theft.
- Hiring policies should be shored up to better ensure that honest employees are brought on board.
When job applicants are asked directly about theft and drug use, they tend to admit to such behavior both on and off the job. But while a surprising percentage of applicants will admit to dishonest behavior during such screenings, others will lie. This reality makes it very important for business owners to conduct thorough checks on the references of prospective new hires as well as checks on their educational credentials and criminal history.
- Examine and update financial controls by implementing the following:
- Keep cheque books locked up, restricting access to cash and cheques to authorized employees.
- Limit the number of people with authority to write cheques, etc.
- Segregate financial responsibilities among several people.
- Control cash flow and have good documentation on where money is spent.
- Audit internal financial documents frequently using independent auditors.
- Make regular deposits of cash in banks rather than allowing them pile up in cash registers.
- Check all invoices to make sure they match what was delivered and to ensure that vendors were paid.
- Offer official support
Some business experts contend that employees can prevent some forms of employee theft by establishing a policy in which financially troubled employees can get financial counseling or short-term loans. Business owners should consult with legal and accounting professionals before launching any sort of program like this, however.
- Maintain uniform policies
Employers who do not treat everyone the same are far more likely to encounter incidents of theft than will those businesses that are consistent in their application of rules and guidelines. This can be particularly problematic for business owners who have spouses, children, or other relations on their payroll. Take expense accounts. He owner’s son may be allowed to wine and dine clients on an unlimited expense account, while a nonrelated employee is limited to one client lunch a week. Such unfair treatment can fan resentment among employees who may then retaliate by stealing.
- Act decisively when confronted with employee theft
Dishonest workers should not be tolerated, and if a business obtains proof that an employee has stolen from the company he or she should be immediately dismissed. This not only removes a drain on financial resources, but also sends a message to the rest of the workforce. Legal experts note that while most employees that are confronted with evidence of unethical behavior will leave without a big fuss, they should still be asked to sign a statement releasing the employer from all liability. This document will provide the employer with legal protection should the fired worker subsequently decide to pursue a lawsuit for wrongful termination. If you find this article useful, please share and subscribe to our newsletter.