07/ 25/ 2006
by Marcia Passos Duffy
Picture this: An accidental discovery in the books reveals that the most trusted, high-level employee from the company down the street has been embezzling money for years, and it has gone unnoticed—until now.
Do you think this frightening scenario will never happen at your company? Think again. Security experts say that as many as 30 percent of the average company's employees do steal, and another 60 percent will steal if given a motive and opportunity. Some estimates indicate that more than $600 billion is stolen annually, or, roughly $4,500 per employee. According to the U.S. Department of Commerce, about a third of all business failures each year trace back to employee theft and other employee crime.
Given these figures, it's important that you protect your company against theft or forgery and take the proper steps if you discover a crime. Here's how:
Become familiar with the common ways employees steal
Those who want to steal from you can get very creative, and you must understand how theft happens so you stay one step ahead of them in their schemes. The most common ways employees steal fall into the categories of larceny, skimming and fraud.
- Larceny is the actual stealing of property or cash. This is often the easiest to detect because the cash or item usually has already been recorded on the books and adequate controls usually exist. But different ways this can happen include pocketing loose change, or stealing goods before they reach the shelves.
- Skimming is the embezzlement of cash before it is even recorded on the company's books. This can happen when an employee has the customer pay him/her directly for goods or service. Receivables' skimming is when the amount owed is reduced on the books by write-off schemes. Over-billing can also happen, with managers who have expense accounts and may submit receipts twice and then are reimbursed twice or who inflate the expenses.
- Fraudulent disbursements. These take several forms, including billing schemes, payroll schemes, register disbursement schemes, expense reimbursement schemes and check tampering. In retail, for example, salespersons can charge a customer one sum, ring up a receipt for less and pocket the difference. Other schemes include fake payrolls (paying a person who does not exist) or purchasing fraud (where employees pose as suppliers of goods that don't exist and then reimburse themselves).
Prevent crime before it happens
Since stealing can cost your company a lot of money, the best way to avoid employee theft is to take steps to prevent it from ever happening. While these steps are not foolproof, they can offer a measure of protection against employees raiding the till.
- Perform background checks on applicants. Make sure you contact previous employers, references and schools and look for signs of any misconduct in terms of stealing or fraud And consider getting a police report on the applicant.
- Consider giving an "honesty test." These are standardized, commercially available written tests that are psychological evaluations of an applicant (or even a current employee). While many believe these tests help keep out people with a propensity to steal, you need to be aware of the flip side: That many feel that these tests can be inaccurate and violate privacy and civil rights.
- Supervise your employees. Research has shown that businesses with low levels of employee supervision show high rates of employee theft. Don't be hyper-vigilant, but do keep your eye out for the telltale signs of theft, such as a rise in an employee's spending habits. Remember to be extremely careful about making accusations before conducting an investigation—a false accusation can result in a lawsuit against you.
- Make it hard to steal. Don't allow only one person to deal with money. Conduct unscheduled inspections or audits of inventory and bookkeeping. Monitor bookkeeping records carefully.
- Make a fraud-avoidance plan and set the rules. Every company, public or private, needs to develop a fraud avoidance and assessment plan and set the rules for consequences if an employee is caught embezzling money from the company. Proper planning will make sure that all employees know where the company stands in regards to employee theft and will give business owners the confidence to handle employee theft properly should it occur. A plan should include: pre-employment and periodic background investigations, periodic checking and changing of computer passwords, internal and/or external auditors and the consequences of theft.
Take the right steps if a suspected theft happens
If you suspect employee theft, you must take the right steps to not only catch the thief, but avoid wrongly accusing an employee (which could lead to a lawsuit for libel, slander or wrongful discharge).
The steps are:
- Conduct an investigation to determine if an actual theft occurred.
- Figure out the extent of the theft and the methods used.
- If you discover a theft and can pinpoint the employee doing the stealing immediately, eliminate his or her access and/or remove him or her from the workplace.
- Try to recover the money or property.
- Take preventative actions to avoid theft and losses from happening again.
Remember, if the loss is very large and complex, you should immediately seek legal advice, which can assist you in evaluating the case and calling in additional experts, including forensic accountants and investigators.
You should also check your insurance policy for theft coverage since these policies require the insured to provide prompt notice and furnish a sworn proof of loss within a short period of time.
