Steps to Prevent and Address Employee Theft

Date: June 28, 2013

With many individuals still feeling the financial pinch of a slow economy, it’s a good time to review your business’ procedures that prevent and, if necessary, handle employee theft. The NFIB Research Foundation found that one in five small employers were victims of employee theft in the last three years.

Here are some tips on how you can protect your business from employee theft before it happens:

Perform background checks on applicants. The best form of prevention is to make smart hiring decisions. Checking references is a good first step to determining trustworthiness. For employees who will be handling financial transactions, you should also consider a criminal background check. But contact an attorney to ensure you are following the multiple state and federal laws that cover criminal background checks.

Have a Code of Ethics policy. This will help you set forth values and expectations for employees; it should list behaviors that are grounds for termination, such as misuse or theft of company property.

Supervise your employees. Research shows that businesses with low employee supervision result in high rates of employee theft. You don’t need to be hyper-vigilant, but you should look for telltale signs of theft, such as a change in an employee’s spending or an unexpected shift in behavior.

Make it difficult to steal. Don’t allow only one person to handle the money at your business—with more than one set of eyes, employees are more accountable for their actions. Conduct unscheduled inspections or audits of inventory and bookkeeping, including timesheets for vacation and sick leave, as well as overtime pay (protecting against wage theft by employees).

In the event you suspect an employee is stealing from your business, you must take the right steps to catch the thief and avoid wrongly accusing an employee. An unwarranted accusation can result in a lawsuit for libel, slander or wrongful discharge.

Conduct an investigation to determine if there was a theft at your business.

Figure out the extent of the theft and the methods used.

If you determine a theft occurred and know which employee committed the crime, eliminate their access and/or remove them from the workplace.

Try to recover the money or property.

Analyze what happened to determine if there are safeguards you can put in place to prevent future theft.

You should contact an attorney to help you through an employee theft investigation. In addition, you may want to check with your insurance carrier to determine if employee theft is covered by your policy. If it is covered, the insurer often requires you to provide prompt notice and furnish a “sworn proof of loss” statement within a short period of time.

Karen R. Harned is the executive director of the NFIB Small Business Legal Center, This article is intended to provide general information for reference only and should not be considered legal counsel.

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