Safeguards for Reducing Employee Theft

The U.S. Commerce Department estimates that American companies lose $20 billion to $40 billion annually to employee theft. It’s a huge problem, and small retail businesses tend to suffer disproportionately. Why? Smaller firms often operate on razor-thin profit margins. As a result, when employees misappropriate assets or “cook the books” at a small company — especially over long periods — the impact can be devastating.

Fortunately, employee theft can be prevented or minimized — even at a small retail firm — by implementing the following common sense safeguards:

  • Detailed background checks. Following up with listed references and interviewing former employers is especially important for job candidates who will be placed in sensitive assignments. But even those folks who work in your warehouse or on your sales team should be reliable and honest. Any indications of fraud in a potential employee’s work history should be investigated. Your firm’s application form should request relevant details that might highlight potential problems. After all, it’s much easier and less costly to pass over an applicant than to terminate a long-time employee who’s been stealing for years from your company.
  • Posted ethics policies. Sometimes employees just need to know what constitutes theft, and what behaviors management will or will not tolerate. Making sure that everyone is informed beforehand can prevent misunderstandings and, if litigation ensues, may provide a stronger defense for termination actions.
  • Routine audits. If staff know that their work will be reviewed, inventory will be counted, and accounting records studied by someone outside their department, they may hesitate to steal assets or revise journal entries inappropriately.
  • Reduced opportunities. Alternating duties among departments is another way to cut down on employee theft. Knowing that someone else will take over his or her work may act as a deterrent when the temptation strikes. For years, banks have required employees to take vacations. Why? So their duties can be performed and their records reviewed by others. Technology can also help. Surveillance cameras, for example, can be pointed at cash registers and placed throughout inventory storage areas. Delivery receiving systems and merchandise security tags also have been used to reduce theft at small businesses.
  • Tone at the top. All of the above measures may fail if employees perceive that management is not averse to conning customers, ripping off suppliers, or stealing business assets when no one’s looking. A zero tolerance policy for fraud must begin in the firm’s executive office.

Contact us for ideas on how to detect theft in your organization and how to set up policies and procedures to prevent this from happening at your business.