Prevent Employee Theft and Save Your Business
As hard as it is to believe that someone you hire to fill a trusted position in your company would actually take from you, it happens every day in all kinds of businesses and in a variety of ways. And it is estimated that up to 75 percent of all employee theft goes unnoticed.
Some security experts predict that up to 30 percent of the nation's workers will steal at some time in their career. Difficult economic times, lack of salary increases and the threats of downsizing and cutbacks make it even more tempting for employees to help themselves.
Statistics on Employee Theft
- The FBI calls employee theft “the fastest growing crime in America!”
- The U.S. Chamber of Commerce estimates that 75% of employees steal from the workplace and that most do so repeatedly.
- One third of all U.S. corporate bankruptcies are directly caused by employee theft.
- The Boston Globe and Denver Post newspapers recently reported that U.S. companies lose nearly $400 Billion per year in lost productivity due to “time theft”
or loafing.
- The American Society of Employers estimates 20% of every dollar earned by a U.S. company is lost to employee theft.
- A majority of employee theft goes undetected by supervisors and management.
- Rarely do most employees steal from their employer because of need. Here are some Causes of Employee Theft
- Low morale at the workplace. This is also a major reason why businesses suffer from low production.
- The employee feels that the business or company has wronged or mistreated them in some way.
- The employee feels that they are underpaid [and under-appreciated] for the "hard" work they do.
- The consequences for theft are minimal. The company has no punitive procedures or policies regarding employee theft. If there are no set consequences to employee theft then employees will continue to steal, because they think that they won’t be punished.
Opportunity remains the leading cause of employee theft.
Thefts usually occur because an opportunity to do so has presented itself. It stands to reason that an employee will only steal from their employer if the chances of getting caught are low. It is easy to steal because the employer does not have preventive measures to stop them. Preventive measures are crucial to reducing the risk of employee theft. If preventive measures are nonexistent then the opportunity to steal is very high.
What are they stealing?
Money
Money is one of the most common assets that are stolen from employers.
Theft of time
Theft of time occurs when an employee is paid for time which they did not work. Usually this happens through the falsifying of time records. Technically theft of time can also include employees who are not working while on the job, though legally this is more difficult to prove.
Theft of supplies
Theft of supplies is another prevalent form of employee theft. Common examples of this form of theft are office supplies (paper, computers, cabinets, etc.) and restaurant supplies (food, condiments, silverware, etc.).
Theft of merchandise and company property
Theft of merchandise refers to products that are to be sold. A good example of theft of company property is product displays.
Overcharging customers and then pocketing the extra cash
This can drastically affect a business’ reputation, because it affects not only the employer but the customers as well. If the customers find out that a business is overcharging them it can hurt that business’ public relations. This is very common in restaurants because most private restaurants do not keep a close eye on their employees’ actions.
Information
This is probably the most damaging of all the forms of theft that were mentioned earlier. Common examples of this are theft of product design and trade secrets. Businesses should be fully aware of how theft of information can cripple their business operations.
Internal Controls That Small Businesses and Nonprofits Can Implement to Prevent Employee Theft
In accounting internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It is a means by which an organization's resources are directed, monitored, and measured. It plays an important role in preventing and detecting fraud and protecting the organization's resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks).
The process of establishing sound internal controls is very comprehensive. However, the following internal control checklist will give small business owners and nonprofit manager a means by which to measure their performance in this area:
SEGREGATION OF DUTIES – Related duties should be assigned to different people whenever possible.
Know your employees. Employee theft occurs when you provide opportunity and an employee has a personal situation that lends itself to committing a crime. Always check work references and when feasible conduct background checks.
When one or two employees perform most of the accounting functions, actively supervise the employees and spot check your accounting records on a frequent basis.
When staffing levels permit, segregate these accounting functions:
- Receiving cash and checks vs. recording receipts in the accounting records.
- Receiving inventory vs. ordering and paying for inventory.
BANK RECONCILIATIONS – Receive bank statements unopened and scrutinize for unusual activity
- Carefully scan bank statements after opening and question any unusual transactions.
- Review cancelled checks each month, including payee endorsements on the reverse side.
- Reconcile bank statements timely each month.
- Review reconciliations prepared by employees, particularly the list of reconciling items.
- Review transfers between bank accounts.
RECEIPTS AND OTHER ASSETS – Safeguard valuable assets
- Immediately record and restrictively endorse incoming checks.
- Make daily (or more frequent) deposits of checks and cash.
- Secure blank check stock.
- Maintain accurate inventory records.
- Backup computer records regularly and store at least one recent backup off-site.
- Restrict access to sensitive customer information.
- Change computer passwords regularly, particularly after terminating someone’s employment.
DISBURSEMENTS – Review the appropriateness of payments
- Restrict signature authority on company bank accounts, especially for employees writing checks.
- Compare payroll checks with current employee records.
- Verify the name of each vendor paid.
- Track the number of credit card bills signed each month.
- Verify the account number when signing a check made payable to a credit card company.
We can help set up and Implement your Internal Controls
If you feel that you can use stronger internal controls, give me a call. We can conduct a thorough assessment of your business practices in this area and assist you in the implementation of controls that will provide you with peace of mind as you work to sustain and grow your business or organization. Our initial consultation is free of charge.
I hope that this blog post has given you some insight on how to prevent employee theft and run an efficient and effective operation.
Please check in on my blog periodically for helpful business related tidbits. In the meantime, be well and prosper!
Angeline
Client Portal