Employee Theft

Employee theft is a luxury that businesses find increasingly difficult to afford. To a large degree, most businesses do not address this problem until they are forced to. This problem which cuts across all industry and product barriers has a particularly devastating effect on small businesses, who are the worst victims of this phenomenon.

THE SCOPE OF THE PROBLEM

Bureau of National Affairs estimates that business losses from employee theft run between $15 billion to $25 billion annually.

The US Chamber of Commerce concluded that employees steal more than $40 billion annually from their employers. This is 10 times the value of street crime in the US or 1.5% of the annual value of all world trade.

Professor Neil Snyder of the University of Virginia estimates that 1/3 of all small business failures can be attributed to employee theft.

Employee theft is increasing at a rate of 15% per year.

A study of over 9,000 employees in three different industries found that 1/3 (34%) of the typical company’s employees admitted to some form of stealing from their employer.

A study in 1984, showed that Canadian bank employees stole $382 million from banks, which was more than 9 times the amount stolen in actual bank robberies.

The annual loss to the Banking industry from employee embezzlement is estimated to be in excess of $1 billion annually.

Companies lose as much as 2% of their revenues each year to employee theft.

The U.S. Department of Justice in a study found that 35% of store employees admitted to stealing from their employers.

Employees are responsible for twice as many losses to business as shoplifters.

Only 2% of companies that are victims of embezzlements take steps afterward to improve internal controls.

MYTHS AND MISCONCEPTIONS

Myth: Most employees will not steal. Fact: Studies have shown that most employees are susceptible to the temptation to steal. Those who steal come from all social classes and economic circumstances.

Myth: Theft losses are not material. Fact: The magnitude of losses nationwide by all estimates are between $15 and $40 billion annually. On an individual basis, while initial thefts may be small they tend to grow in size and to continue.

Myth: Most thefts go undetected. Fact: Studies show that most thieves become careless and are discovered. Many are revealed by accident, others are reported by co-workers and the rest are uncovered by internal controls and audits.

Myth: High wages will prevent employee theft. Fact: Surveys, over forty years, have confirmed that high wages do not necessarily motivate workers, although management continues to believe this.

Myth: Crime does not pay. Fact: The benefits are immediate, it is difficult to detect, and victims are often reluctant to prosecute.

HOW DO YOU DEAL WITH THE PROBLEM?

Hire the Right People

It is much easier and less expensive to prevent potential thieves from joining an organization than it is to apprehend criminals once they are hired.

1.Personal Interviews

2.Reference Checks

3.Credit Checks

4.Paper and Pencil Honesty Tests

5.Polygraph Tests

Establish and Manage the Climate of the Organization (Management Awareness)

Theft is a state of mind. Prevention and control are merely states of awareness and caring. Physical security cannot solve the problem because the physical acts are not the root of the problem; the mental attitude behind them is.

1.Establish Company Values and Beliefs

2.Neutralize Rationalizations

3.Foster Morale by Opening Lines of Communication

Keep Employees Honest

If fighting dishonest employees is an important task, educating honest employees is vital.

1.Focus Employee Attention on the Cost of Theft to Individuals

2.Management-Labor Partnership

Use Internal Controls

Just as well-established lawns make it difficult for unwanted weeds to make inroads, so a well run, tightly controlled business makes it difficult for a dishonest employee to flourish.

1.Physical Controls

2.Social Controls

Prosecute

The amount of theft within an organization is inversely proportional to the perceived chances of getting caught.

1.Do Not Ignore the Problem

2.Anyone can be a Thief

3.Consistency, not Sympathy, is the Answer

CONCLUSION

Good and faithful employees are a business’s most valuable asset. In order to maintain that asset it requires a concerted effort to put into practice a philosophy that encourages rather than discourages a theft free work place. Management has responsibility to create the climate, to implement the systems, and most importantly to lead by example.

Employee theft is a $40 billion a year problem for U.S. business, and is growing at a 15% rate. Internal controls, which all involve common sense, are very effective in preventing employee theft, however, it is even more important for management to open their eyes, get out of their offices, and show an interest in what is occurring at the company. An involved management style will make you better aware of some of the clues that you may have a problem. Do not hesitate to use professionals in order to have independent confirmations.

In spite of all this, much like protecting your home from burglaries, no matter how sophisticated a security system is, it will not keep out professional thieves. Such a system, however, will likely keep out amateurs, and discourage professionals because there are a wealth of much easier targets. So too with a business that has a fully implemented system of internal controls, the system will prevent temptation to the basically honest employee, and discourages a truly dishonest employee.