Employee Theft: Six Ways To Safeguard Your Small Business

Tesla sues employee for stealing software code’ proclaimed a recent CNBC headline. Employee theft is indeed on the rise, costing US businesses a whopping $110 million per day. And while most workers are trustworthy, it just takes one rogue individual to have a devastating impact.

However, it’s small businesses and not big enterprises that are affected the most. With fewer employees and often inadequate internal controls, small businesses are particularly vulnerable. And they are least able to absorb the losses.  According to research, small enterprises with less than 100 employees experience a median loss of $150,000 from employee theft.

This post takes an in-depth look at employee theft as we share warning signs and common types of theft. And the good news is there are steps you can take to safeguard your business. We explore some easily implemented ways to help protect you from employee theft.

Types Of Employee Theft

There are several types of employee theft, with some more serious than others. Pilfering office stationery, taking long lunch breaks, theft of cash and data are all too common. Some research suggests up to 75 percent of employees steal from their employer at least once.

Here are the top five types of employee theft.

1. Theft Of Supplies

Supplies cover everything from pens, paper, and toilet rolls to office equipment. This type of theft has increased with the shift to remote working. Employees can mistakenly think it’s acceptable to equip home workspaces with the same supplies they would have in the office.

Very few employers keep a check on every single pen or stapler. However, pilfering can become serious. For example, a restaurant staff member helping themselves to food supplies could easily have a massive impact on inventory. And company profits are ultimately at stake. It’s estimated that employee theft is responsible for over 40 percent of inventory loss in US stores.

Sometimes staff will steal company products and sell them on to others. For manufacturers and suppliers of big-ticket technology and medical products, the costs quickly add up.

2. Data Theft

Examples of data theft include stealing a company’s trade secrets, product designs, client contact lists, or personnel information.

This type of employee theft can be very damaging. Your brand reputation and company assets are at risk. And confidential client and staff data are also on the line. These types of theft often result in hefty fines and lawsuits. And the long-term damage to your reputation can be even more costly.

3. Theft Of Services

Theft of services to benefit family and friends is another common form of employee theft. You may provide free services or discounts to staff, but if these are passed on to others, then it’s theft. Often this kind of theft is not malicious. Workers don’t appreciate the harm done in terms of cost to the business in supplies, time, and labor.

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4. Payroll Theft

This category covers a range of misdemeanors. At the low end is falsifying hours worked, inflating expenses claims, or claiming overtime that isn’t due to the worker. Even time spent scrolling social media during work hours is technically payroll theft.

More sophisticated forms of payroll theft include payroll employees paying themselves more or creating ghost employee accounts, and pocketing the money.

5. Stealing Cash

This can be a significant problem in cash-heavy retail or hospitality businesses. Examples include stealing money from cash registers and overcharging a customer while pocketing the difference. Skimming is another common way to steal cash. Sales are not recorded in the books, and the employee simply takes the money instead. Another way to steal cash is misusing credit company cards for personal expenditure.

This category also covers more elaborate schemes known as disbursement fraud. Good examples include creating phony vendor accounts, or deliberately overpaying a vendor, and keeping the returned amount for personal use.

Reasons For Employee Theft

So, why do employees steal? Workers steal for a variety of reasons and not just because they are hard up. For some employees, it’s all about having the opportunity. For them, the temptation to make an easy buck can be too hard to resist.

Other staff take to theft because they have an ax to grind with their employer. They may feel the company owes them or that they have somehow been wronged. For these workers, theft is a way of getting back at the company.

All too often, workers justify their actions by seeing the organization as a faceless entity. They believe their crimes are victimless as it’s only the ‘company’ that’s affected.

Perhaps surprisingly, the statistics tell us that managers account for 55 percent of employee fraud.  This may be because executives are in positions of trust and can work independently. Furthermore, although generally, it’s employees under the age of 35 who steal, the older demographic does far more damage. According to the Association of Certified Fraud Examiners, executives accounted for only 20 percent of employee theft cases. However, the theft resulted in a median loss of $600,000.

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Employee Theft Warning Signs

Detecting employee theft can be tricky, especially when it’s low-level. But there are some early warning signs to look out for. The following are all potential red flags requiring further investigation.

  • Discrepancies in cash amounts
  • Missing company merchandise or supplies
  • Unexplained shortages in inventory

Additionally, keep a close eye on changes in employee behaviors, including:

  • Personal lifestyles that don’t match with salaries
  • Unwillingness to hand over job tasks to colleagues
  • Defensiveness when reporting on tasks
  • Poor work performance
  • Unexplained favoritism of a supplier or customer
  • Unjustified complaints about work.

There may be other reasons for the changes in behavior described above. However, employee theft is one possibility that needs to be ruled out.

6 Ways To Safeguard Your Business From Employee Theft

The good news is you can take action to protect your business from employee theft. Here we share six easily implemented ways to minimize the potential.

1. Start With Recruitment

If you are serious about stamping out employee theft, then the process starts before you even hire. Make sure you conduct thorough background checks on candidates before offering them a job. Verify references and do a review of criminal records.

When it comes to pre-employment background checks, small businesses in particular often take shortcuts. However, investing time in this crucial step will help ensure you are not a soft target for potential fraudsters.

One study by CareerBuilder found that 74 percent of small business employers have made a bad hire. These employers reported direct costs in recruitment and advertising. And also indirect costs associated with lost productivity and compromised work quality. Therefore, it’s easy to see how the wider costs of employee theft can quickly spiral.

2. Develop Company Policies And Guidelines

Clear staff guidelines and policies are an essential weapon in your arsenal against employee theft. A staff handbook or code of conduct provides the ground rules and sets out your employee behavior expectations. Make it clear that employee theft of any kind is not tolerated. And set out the consequences, including disciplinary action. Be sure to bring the message home with specific examples of employee theft. As we have seen, many employees typically do not realize that passing on staff discounts to friends and family is theft.

Every employee needs to be given a copy of the guidelines. And make sure you get staff to sign an acknowledgment to confirm they understand. Doing so helps to keep employees accountable. And written documentation is also critical in any potential court cases or lawsuits.

3. Promote An Honest Company Culture

A culture of honesty and integrity needs to start at the top. For instance, if your business has a strict time and attendance policy, make sure managers set the right example. Lax behavior from executives sets an unwanted precedent for the rest of the team.

Promote an honest company culture with regular training sessions and workshops. Get employees to explore work-based scenarios with role-playing and focus on best practices. Being proactive in this way reinforces the zero-tolerance stance and gets staff thinking about what this means for their jobs.

Furthermore, consider introducing an employee feedback tool on a small business intranet. And encourage staff to report any concerns around employee theft anonymously. This can act as a valuable deterrent for any employees tempted to stray.

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4. Set Up A System Of Checks And Balances

Setting up internal checks and balances is one of the most important steps to combat employee theft. This is especially so within the finance department. One employee should not have sole charge over issuing payments and reconciling accounts. All payments should be approved and authorized by an additional staff member or manager. Similarly, assign payroll responsibilities across several employees. Keep a close eye on financial statements and always maintain an approved list of suppliers and vendors.

There’s also plenty you can do to combat data theft. Be sure to restrict access to sensitive data to appropriate staff only. Your intranet’s in-built management tools make it easy to grant or deny access to users. And build data security best practices into your business processes. Options include regular enforced password changes, cloud data storage, plus good disposal practices such as wiping data from devices. Furthermore, when employees leave, act quickly to disable access to company systems.

Some cash-heavy businesses decide to install surveillance cameras to deter staff from skimming or dipping into cash registers. Others with expensive inventory items keep them locked up to discourage potential thieves.

5. Conduct Random Audits

Unannounced, random audits are another valuable tool.

Make sure you carry out regular random cash counts. And rather than auditing financial systems at set points during the financial year, do mini audits regularly. Audits should focus on verifying bank statements, plus accounts payable and receivable ledgers. Ensure you thoroughly investigate any discrepancies, however insignificant.

6. Value Staff

Companies with positive workplace cultures where staff feel valued and engaged are less likely to experience employee theft. After all, a primary driving force behind employee theft is the sense of being wronged by the company. The worker justifies their actions because they feel poorly treated, undervalued, or underpaid.

According to SHRM, 40 percent of employees who steal from workplaces have experienced HR red flags beforehand.  Red flags included negative performance reviews, demotions, or having hours cut.

A positive company culture goes a long way to tackling red flag issues before they become a reason to commit fraud. When workers are engaged, valued, and receive a fair wage for their efforts, they are less likely to commit employee theft.

Employee Theft: Main Takeaways

The Tesla example mentioned at the start may be just the latest in high-profile corporate employee theft. However, the problem of employee theft isn’t confined to big business alone. In fact, it’s small businesses that bear the brunt. Research from Hiscox reports that 68 percent of employee theft occurs in companies with fewer than 500 employees.

Small businesses cannot afford to be complacent. Tackle the problem of employee theft head-on with our five-step approach:

  • Complete a comprehensive background check on all potential hires
  • Develop a staff code of conduct with zero tolerance of employee theft
  • Set up an effective system of internal controls
  • Undertake random audits of company financials
  • Promote a positive company culture where staff are valued, recognized, and fairly rewarded.

Want to safeguard your organization from employee theft? Find out how an intranet can help. Sign up for a free demo or 14-day trial. The experts at MyHub will explain all the great features available to combat employee theft in your small business.

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