Employee Theft Is On The Rise: What You Need To Know
‘Tesla sues employee for stealing software code’ proclaimed a recent CNBC headline. Unfortunately, this is not an isolated incident. Employee theft is a growing concern, costing U.S. businesses an estimated $110 million per day. While the majority of employees are honest, it only takes one bad actor to cause significant financial and reputational damage.
Surprisingly, it’s small businesses that suffer the most. With fewer employees and often lacking adequate internal controls, they are particularly vulnerable to theft. These companies are also the least able to absorb financial losses. Research shows that small businesses with fewer than 100 employees experience a median loss of $150,000 due to employee theft, a staggering amount for any small enterprise.
This post offers an in-depth look at the different types of employee theft, how to identify the warning signs, and, most importantly, how to protect your business. The good news? There are straightforward and effective measures you can implement to reduce your risk.
Top 5 Most Common Types Of Employee Theft
Employee theft takes many forms, some seemingly harmless, others extremely damaging. From stealing office supplies to committing data breaches, the scope is broad. In fact, research suggests that up to 75 percent of employees steal from their employer at least once during their tenure. Let’s examine the five most prevalent types of workplace theft.
1. Theft Of Supplies
Office supply theft includes everything from pens and printer paper to laptops and even toilet rolls. This form of theft has increased due to the rise in remote working. Employees may mistakenly assume it’s acceptable to stock their home office with company materials.
Although tracking every pen might seem excessive, theft can escalate. For instance, a restaurant employee helping themselves to food supplies can significantly impact inventory levels. It’s estimated that over 33% of inventory loss in U.S. stores stems from internal theft. In more serious cases, stolen goods, especially expensive tech or medical equipment, are resold, resulting in severe financial loss.
2. Data Theft
Data breaches involve stealing sensitive company information such as trade secrets, product designs, client databases, or internal HR files. This type of theft can cripple a business by jeopardizing its brand reputation and breaching regulatory compliance.
The consequences are severe: potential lawsuits, regulatory fines, and irreversible damage to client trust. Protecting proprietary data should be a top priority, especially for companies operating in competitive or regulated industries.
3. Theft Of Services
Service theft occurs when employees misuse company offerings to benefit friends or family. This includes unauthorized discounts, free services, or access to company facilities. While often done without malicious intent, it still causes significant financial impact over time.
Employees may not realize the real cost of these actions, wasted time, depleted resources, and added operational expenses. Clear policies and internal education can help prevent this common oversight.
4. Payroll Theft
Payroll fraud encompasses a range of unethical practices. Minor infractions include inflating expense claims, logging false hours, or claiming unearned overtime. Even frequent social media scrolling during work hours is a form of time theft.
More serious payroll scams involve manipulating payroll systems, such as overpaying oneself or creating fake employees (“ghost employees”) and diverting the payments. These acts can go unnoticed without regular audits and strong financial oversight.
5. Stealing Cash
Cash theft is a major issue, particularly in retail and hospitality sectors where physical cash is regularly handled. Common methods include taking money from registers, overcharging customers and pocketing the difference, or failing to record sales and keeping the funds.
Another form is misuse of company credit cards for personal purchases. More elaborate schemes like disbursement fraud involve setting up fake vendors or inflating invoices to siphon funds. These frauds can be especially damaging if not identified early.
Why Do Employees Commit Theft?
So, why do employees steal from their employers? The motivations behind employee theft are varied and not always financially driven. In many cases, it’s about opportunity and temptation. When internal controls are weak, some workers find it too easy to take advantage.
Others engage in theft due to resentment or dissatisfaction. These employees may feel they’ve been mistreated or underappreciated, and they use theft as a form of revenge against the organization.
A common rationalization is the idea that companies are impersonal or faceless entities. Employees convince themselves that their actions are victimless crimes because no single person seems directly affected.
Surprisingly, managers and executives account for a significant proportion of workplace theft. In fact, they are responsible for 55% of employee fraud. Senior employees often have more autonomy and access, making it easier to commit fraud undetected. Although executives are involved in only 20% of employee theft cases, the median loss in these cases reaches a staggering $600,000.
Key Warning Signs of Employee Theft
Identifying employee fraud early can save your business significant losses. Here are the most common red flags that may signal internal theft:
- Inconsistencies or discrepancies in cash handling or bank deposits
- Missing inventory, company products, or office supplies
- Unexplained or frequent inventory shortages
Keep an eye out for behavioral red flags, including:
- Lavish lifestyles that don’t align with known income levels
- Reluctance to delegate tasks or take time off work
- Becoming defensive when questioned or asked for transparency
- Decline in job performance or inconsistent attendance
- Unusual favoritism towards specific vendors or clients
- Excessive complaints or hostility toward workplace policies
While these signs do not confirm theft on their own, they do indicate a need for further investigation and internal review.
6 Effective Strategies to Prevent Employee Theft
Fortunately, you can take proactive steps to protect your company from the devastating effects of employee theft and fraud. Here are six proven methods to reduce risk:
1. Hire With Care and Conduct Background Checks
Preventing theft begins during the recruitment phase. Always verify references and conduct thorough background checks, including a review of criminal history, before making a job offer. This is especially important for small businesses, which often skip this step due to time or cost constraints.
According to CareerBuilder, 74% of small business employers admit to making a bad hire, resulting in losses tied to recruitment, productivity, and workplace morale. Taking a careful approach early on can save significant resources down the line.
2. Create Clear Company Policies and Conduct Guidelines
Implementing well-defined workplace policies can dramatically reduce theft. Develop an employee handbook outlining acceptable conduct, and explicitly state your zero-tolerance policy for theft, fraud, and dishonesty. Include real-world examples, like misusing staff discounts or falsifying time logs, to reinforce the message.
Ensure all employees receive a copy and sign an acknowledgment of understanding. This documentation not only builds a culture of accountability but also supports legal actions if disciplinary steps or termination are required.
3. Foster a Culture of Honesty and Transparency
Workplace culture plays a critical role in minimizing theft. When leaders model ethical behavior, employees are more likely to follow suit. Be consistent, if management bends rules or overlooks infractions, others will too.
Offer ethics training sessions that include real-life scenarios and role-play exercises. This helps staff understand expectations and consequences. Incorporating tools like anonymous reporting features on a small business intranet empowers employees to speak up without fear of retaliation, increasing internal oversight.
4. Implement Robust Internal Controls
Setting up internal checks and balances is one of the most effective strategies to prevent employee theft. This is particularly crucial within the finance department, where high-value transactions occur regularly. No single employee should have sole control over issuing payments or reconciling accounts. Implement a dual-authorization system where all payments require approval from another manager or staff member. Similarly, distribute payroll responsibilities among multiple employees to reduce risk.
Regularly monitor financial statements and maintain a vetted list of approved suppliers and vendors. These preventative measures help you stay one step ahead of fraudulent activity.
To combat data theft, restrict access to sensitive digital information. Use your intranet’s built-in permission controls to manage user access efficiently. Adopt best practices in data security, including mandatory password updates, secure cloud storage, and proper disposal of old devices. When staff exit the company, promptly disable their access to internal systems.
If your business handles large amounts of cash, consider installing surveillance cameras near registers to deter theft. For high-value inventory items, secure storage or locked enclosures can also serve as an effective deterrent.
5. Conduct Surprise Financial Audits
Unannounced audits are a powerful way to uncover discrepancies and discourage fraudulent behavior. Perform random cash counts and avoid limiting audits to predictable, scheduled intervals.
Instead, introduce routine mini-audits throughout the year. These should examine bank statements, accounts payable, and receivable ledgers for irregularities. Investigate any inconsistencies thoroughly, even minor ones may be early signs of larger issues.
6. Foster a Positive Work Environment
A strong and supportive workplace culture significantly reduces the likelihood of internal theft. Employees who feel valued, respected, and fairly compensated are less inclined to commit fraud or theft. Many incidents of employee theft stem from feelings of injustice, such as being underappreciated or mistreated.
According to the Society for Human Resource Management (SHRM), 40 percent of employees who steal exhibit red flags beforehand, such as demotions, reduced hours, or poor performance reviews.
Cultivating a positive company culture helps address these red flags early. Engage employees through feedback opportunities, recognize achievements, and provide fair compensation. When staff feel secure and respected, they’re more likely to stay loyal, and honest.
Employee Theft: Key Takeaways for Small Businesses
While high-profile cases like Tesla’s may grab headlines, employee theft is far from being limited to major corporations. In fact, small businesses are more frequently affected and cannot afford to ignore this issue. Proactively address internal fraud with these five essential strategies:
- Complete a comprehensive background check on all potential hires
- Develop a staff code of conduct with zero tolerance for theft
- Set up an effective system of internal controls
- Undertake random audits of company financials
- Promote a positive company culture where staff are valued 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.
FAQ Section
What are common types of employee theft?
Common types include theft of physical items (like office supplies or inventory), data breaches involving sensitive company information, unauthorized use of company services, and payroll fraud such as falsifying time sheets or creating ghost employees.
How can I detect employee theft?
Signs of employee theft may include unexplained inventory shortages, discrepancies in financial records, employees exhibiting secretive behavior, or living beyond their means. Regular audits and open communication channels can aid in early detection.
What steps can I take to prevent employee theft?
Preventative measures include establishing clear policies and procedures, conducting thorough background checks during hiring, implementing access controls, performing regular audits, and fostering a workplace culture that emphasizes honesty and accountability.
