PROTECTING YOUR BUSINESS: STRATEGIES TO ADDRESS EMPLOYEE THEFT

Now and again, we get a call from a member who has had an employee steal from them.  This is usually a complete shock to the owner, and they need some assistance to navigate the situation.  How do they handle it?  Do they terminate the employee?  Should they press criminal charges? How do they communicate the news to other employees?

Statistics on Employee Theft

Theft by employees is more common than you may realize.  According to a recent study, 75% of employees have stolen at least once from their employer.  It isn’t always money – it can be paper towels, computer equipment, or fuel for their car. Estimates from The Shulman Center show that 60% of inventory loss is due to employee theft. Some employees steal time by clocking in when they aren’t working, or having a buddy clock in for them when they aren’t even there.

Companies lose 5% of their revenue every year to fraud, costing a company an average of $145,000, and 32% of fraud cases are allowed to occur simply because a company does not have the proper checks and balances in place. Only 57% of embezzlement or employee fraud cases are reported to law enforcement, out of which 72% result in a conviction.

With all this evidence of mischief at hand, what’s an employer to do?

Proper Controls Help Prevent Employee Theft

Ensure that proper controls are in place, so you always know where everything is. Limit access, have an approval process, conduct audits, and create (and follow) company policies and procedures to avoid loss in the first place. For example, the same person entering payroll should not be the same person submitting and/or approving payroll.  We have seen several instances of an employee creating fake staff members and having the paychecks deposited into their account. Without any type of oversight, this kind of theft can go on for years, and has. One company lost almost $300,000 over 4 years to fake employee payroll accounts, simply because there were no checks and balances in place.

Security Protocols Protect Against Physical Losses

To avoid theft of property, security procedures are wise.  From keeping accurate inventory and locking said inventory away, to installing security cameras and alarms, maintaining control over your items doesn’t have to be complicated.  Again, a system of checks and balances is important.  The person in charge of inventory should have to account for the inventory to someone else on a regular basis.

Just as physical assets require protection, a company’s financial well-being hinges on approval procedures.

Approval Procedures Guard Against Financial Losses

When it comes to company accounts and credit cards, an approval system is best to prevent fraud, mismanagement, and unauthorized expenditures. For example, if you authorize an employee to purchase office supplies via Amazon, they should have a limit over which they have to have the order approved.  That limit should be decided based on how much money you are willing to lose. Is it $50?  $100?  Whatever that limit is, set it and be prepared to approve purchases over that minimum. The same can be done with company credit cards, gas cards, and bank accounts.  Access can be granted, but limited, with oversight.

Ensure the Company Has Adequate Insurance Coverage

While approval procedures are a critical first line of defense against financial losses, they aren’t foolproof. Even the most rigorous systems can sometimes be circumvented, and that’s why it’s also a good idea to have a conversation with your insurance broker to make sure you have coverage in place in the event of internal theft.  Coverages such as crime and employee fraud or dishonesty are available to most businesses.

Impartiality in Internal Controls

Unfortunately, it’s usually the long-tenured employees that owners trust without reservation who end up stealing from the company.  Relationships should not control your rules when it comes to your business – the process should.  Dishonest behavior and suspicious activity are not limited to strangers. Yes, this means your sister/wife/husband/daughter/best friend will have to have their purchases approved just like everyone else. Follow your process, not your heart.

Conclusion

If you don’t have a process in place, or any checks and balances, the best time to have them was yesterday, and the second-best time is now.  NAE has templates to help you create these processes for your company.  We also have HR Directors available to come to you and perform a needs analysis on all your checks, balances, policies, and procedures to keep your money intact. 

Don’t get scammed by your employees.  Get yourself into compliance and in order instead. We can help.

By: Amy Matthews, SPHR

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