Preventing employee theft in the workplace
Preventing employee theft in the workplace should be a top priority for businesses. According to research, 75% of employees have stolen from their employers. The same study found that employee theft accounts for 42.7% of shrinkage while shoplifting only accounts for 35.6%. This is especially crucial for small businesses because they are more likely to be the victims of internal theft (64%). However, only 16% of small businesses report incidents.
It’s reported that the FBI has found that employee theft, which they refer to as ‘shrinkage’ is the fastest growing crime in the U.S. American companies lose 7% of their yearly revenue to theft or fraud.
- A quarter (25%) of businesses suffered losses of more than $1 million because of employee theft.
- More than a third (37.1%) of total thefts was committed by a manager.
- One in three retail employees were arrested for internal theft.
The repercussions of employee theft on businesses are severe – with 30% forced to close because of internal stealing. The problem that businesses face in trying to prevent employee theft in the workplace is that the stealing takes many forms including:
- Outright theft (larceny)
- Diverting business funds (‘skimming’)
- Tampering with checks and expense reports (fraud)
- Misuse of customer lists and other secrets (theft of intellectual property)
Why Employees Steal
Before we get into the tips for preventing employee theft in the workplace, it’s useful to try to understand the possible motivation of someone who steals from your business. The Association of Certified Fraud Examiners identified three factors that drive workplace crime:
- Motive: Greed, financial strife, unexpected bills, addictions
- Opportunity: Weak financial controls, cash management processes
- Rationalization: Employee has internal excuses, such as “the business won’t notice”, “I deserve a raise”, or “other people do it”.
How Employees Commit Theft in the Workplace
Most employees have the chance to steal from their workplace because they have access to restricted areas. As a result, the ways that they steal can vary depending on what opportunity presents itself. Here are some ways that employee theft can take place in your workplace:
Time theft – Employees can get their friends to punch in and out for them to get paid for hours that they haven’t worked. Stealing time can also be done while at work. This is especially the case with employees who have access to a smartphone. Using phones or even work computers to message friends or check social media can account for a large chunk of time theft. This is perhaps not a surprise since people now spend more time on social media than they do eating, drinking and socializing.
Cash and stock theft – Employees can steal cash by failing to enter the correct transactions through the cash register. For example, they can charge the customer extra, if the price isn’t displayed and the item isn’t scannable. The employee then keeps the excess. Theft of workplace stock can be done using personal bags, garbage bags or, in the case of retail, employees might wear the clothes before leaving the store. Employees can also enlist the help of a friend who returns stolen goods in return for cash.
Vendor theft – Where employees have access to set-up and manage vendor accounts, they can abuse this position by setting-up fraudulent vendor accounts. They will then issue checks to the fake vendor and redirect the funds to themselves. In the case of large workplaces, employees could even set up a fake account for a staff member who has left.
Tips to Prevent Employee Theft
Now that we’ve outlined why and how workers steal from your business, here are 7 practical tips on preventing employee theft in the workplace:
- Make employees feel valued
- Pre-screen applicants
- Put your workplace under surveillance
- Arrange employee schedules responsibly
- Carry out impromptu audits
- Set-up a confidential whistleblowing line
- Spell out the punishment
1. Make employees feel valued
One way to make employees feel like you care about them is to offer them adequate pay. Research has found that higher wages are related to lower employee theft. Unfortunately, underpaid employees are likely to think about committing petty theft to even the playing field. Perhaps you could take a leaf from Target’s book and increase your worker’s wages because this could not only help with staff recruitment and retention but also safeguard your store against internal shrinkage.
Offering employees more money isn’t the only way to boost their morale. Taking time to show genuine interest in your employees to build a good working relationship could reduce the likelihood of them wanting to do something that could cause you harm. This situation becomes trickier if the employee is a temporary worker and doesn’t feel like they’re invested in your business. However, it’s still worth including your temporary or seasonal staff in activities that will make them feel valued, such as:
- Setting aside time to recognize achievements.
- Providing coaching and feedback.
- Treating employees to perks to say thank you.
2. Pre-screen applicants
The saying that ‘prevention is better than cure’ is applicable when preventing employee theft in the workplace. It’s obviously best for your business if you could weed out employees who are likely to steal from you before they even get access to your business. The same stringent screening process should be applied to both permanent and temporary employees. Increase the chance of employing someone who is less like to commit theft in your workplace by doing the following:
- Check all references.
- Find out why the applicant left their last few positions.
- Confirm at local and state level whether it’s legal to do a credit check on your applicant. Credit issues could indicate financial pressure that may increase the likelihood of the applicant being tempted to commit theft.
- Ask applicants to do a drug screening.
- Conduct a criminal search.
3. Put your workplace under surveillance
Video camera surveillance systems can be a deterrent to employees who are thinking about committing theft in the workplace. According to a survey, 48% of respondents already used video monitoring to target workplace theft. Video surveillance can be used in almost all workplaces to monitor theft ‘hotspots,’ like:
- Behind the cash register
Be aware that placing security cameras in places where people have a reasonable expectation of privacy, such as restrooms and locker rooms, is illegal.
Security cameras are the eyes and ears when you’re not around. Reviewing your CCTV recordings at regular intervals will help you to identify any unusual activity.
4. Arrange employee schedules responsibly
Responsible employee shift scheduling can play a part in preventing workplace theft. Use workplace management software to ensure that there are at least two employees working at any given time. Use a system that makes it easy to replace a worker who is called out.
Your workforce management tool should also have the ability to assign tasks to ensure that there’s more than one employee covering critical functions, for example, working on the cash register.
You can also add tasks, like register counting before a shift and till balancing when an employee finishes work. This will help to prevent employee theft because they will be accountable for maintaining an accurate register. Keep a record of the times that the register has been short in relation to the same employee. You may have to terminate the employee if this is a pattern of behavior.
5. Carry out impromptu audits
Preventing employee theft in the workplace involves the business owner taking a proactive approach. Security cameras provide a level of reassurance, but showing that you’re on top of what’s happening in your business is one of the best deterrents. Carry out random, spontaneous cash counts at different times of the day. Your employees will be unsure about when the cash register will be checked, so they’re less likely to take the chance of stealing from it.
Merchandise should also be audited on an unplanned basis. You should adopt this approach if you sell high-value goods. Review the number of returned or damaged goods to try to identify any unusual activity. Inventory management tools can help you to track suspicious merchandise trends.
Consider hiring an independent accountant to assess your key financial records. Ask the accountant to review records, such as:
- Checks issued and checks received.
- Bank statements.
- Ledgers for accounts payable and accounts receivable.
A qualified third party is more likely to spot anomalies in your accounting and will bring any suspicious activity to your attention. The probability of employees getting away with committing theft in the workplace increases when they:
- Work in isolation.
- Control too many aspects of any financial transaction.
- Lack third party scrutiny.
6. Set-up a confidential whistleblowing line
A study found that tips from other employees were the number one way that employers were alerted about theft in the workplace. Most employees are loyal and honest and they would feel aggrieved to know that someone is stealing from their place of work. Make it easy for employees to report their suspicions by setting-up an anonymous tip line.
Ensure that every tip will be treated in the strictest confidence so that there will be no repercussions for the employee who made the report. Consider outsourcing your whistleblowing hotline to help reassure your employees that they can relay their concerns in a safe environment.
7. Spell out the punishment
Be very clear about what will happen if it’s proven that your employees are stealing from you. Big retailers have the funding to prosecute thieves to the fullest extent of the law. However, prosecuting employees who commit theft isn’t so easy for small businesses due to the high costs involved.
Help Your Workplace be Prepared
Irrespective of your business size, you need to be strict about following your internal theft procedures. There should be no leeway in following your disciplinary process when dealing with someone who has stolen from your business. You need to send out a message to the rest of your employees that theft – in any form – won’t be tolerated in your business. Your theft policy should be part of your employee’s signed contract so there will be no excuse for not knowing about the punishment. You should also reinforce your internal theft policy during team training.
It’s your responsibility to undertake a thorough investigation before any accusation is made. Business owners need to tread carefully since false accusations can lead to lawsuits. It’s always recommended that you seek legal advice before dealing with the employee under suspicion. The tips above will help you when trying to prevent employee theft in your workplace so you can focus on growing a healthy business.