Employee Theft
By Justin A. Walsh
August 2000
Billions of dollars are lost and stolen annually from businesses, because of employee theft. Employee dishonesty and theft costs U.S. business over $50 billion dollars annually. National estimates show that 75% of all employees steal from their employers at least once throughout their careers. The same statistics show that at least half of these 75% steal multiple times from their employer. It is plain to see that the businesses of the United States cannot continue to function if they let employees steal from them.
The intent of this article is to give supervisors and business owners a better understanding of employee theft. We will first be defining employee theft, next we will reveal the causes of employee theft, then state the facts about employee theft, exhibit numerous case studies where employee theft has drastically affected businesses, and finally suggest the measures that should be taken to prevent employee theft.
Definition: Employee theft – any stealing, use or misuse of their employer’s assets without permission to do so.
To further add to this definition it is also important to point out what employees normally steal from their employers:
Money
Money is one of the most common assets that are stolen from employers.
Theft of time
Theft of time occurs when an employee is paid for time which they did not work. Usually this happens through the falsifying of time records. Technically theft of time can also include employees who are not working while on the job, though legally this is more difficult to prove.
Theft of supplies
Theft of supplies is another prevalent form of employee theft. Common examples of this form of theft are office supplies (paper, computers, cabinets, etc.) and restaurant supplies (food, condiments, silverware, etc.).
Theft of merchandise and company property
Theft of merchandise refers to products that are to be sold. A good example of theft of company property is product displays.
Overcharging customers and then pocketing the extra cash
This can drastically affect a business’ reputation, because it affects not only the employer but the customers as well. If the customers find out that a business is overcharging them it can hurt that business’ public relations. This is very common in restaurants because most private restaurants do not keep a close eye on their employees’ actions.
Information
This is probably the most damaging of all the forms of theft that were mentioned earlier. Common examples of this are theft of product design and trade secrets. Businesses should be fully aware of how theft of information can cripple their business operations.
Causes of Employee Theft
Rarely do most employees steal from their employer because of need. Thefts usually because an opportunity to do so has presented itself. It stands to reason that an employee will only steal from their employer if the chances of getting caught are low.
There are many other basic reasons why employees steal:
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Low morale at the workplace. This is also a major reason why businesses suffer from low production.
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The employee feels that the business or company has wronged or mistreated them in some way.
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The employee feels that they are underpaid [and under-appreciated] for the "hard" work they do.
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The consequences for theft are minimal. The company has no punitive procedures or policies regarding employee theft. If there are no set consequences to employee theft then employees will continue to steal, because they think that they won’t be punished.
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Lack of control over inventory. It is easy to steal because the employer does not have preventive measures to stop them. Preventive measures are crucial to reducing the risk of employee theft. If preventive measures are not existent then the opportunity to steal is very high.
Facts about Employee Theft
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A majority of employee theft goes undetected by supervisors and management.
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Opportunity remains the leading cause of employee theft.
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Employee theft is responsible for 33% of all business bankruptcies.
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Other employees often ignore the theft and don’t do anything about it. Employers should not count on other employees to report employee theft, unless they can put a system in place that keeps the "reporter" anonymous and/or a reward program is set up.
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Employee theft is prevalent in every type of business.
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Business owners must be aware of these facts in order to detect employee theft. It is a common fact that most employers do not suspect their employees of theft. Another fact that is important for owners and supervisors to keep in mind is that the majority of the people who are stealing are those who have a close relationship with their boss.
Case Studies
"The comptroller of a multinational company’s new overseas subsidiary provided a friend with a corporate credit card. Over 2.5 years, the comptroller authorized payment of $17 million in charges for this friend's purchases and cash advances. The loss was discovered when the comptroller was on sick leave and a box of monthly credit card bills arrived at the company’s office" (Dickerson and Tully).
"The chief financial officer of a meat exporter wrote $95 million in checks to himself over seven years. He covered the missing funds by securing corporate loans, then paid off earlier loans by arranging for even more loans. The scheme continued until federal tax investigators uncovered it" (Dickerson and Tully).
These are just a few prime examples of how employee theft affects the business world. In essence millions of dollars were stolen and extorted from these businesses. In order for this to be stopped businesses must take preventive measures.
Prevention
It is important to establish a "zero-tolerance" program regarding employee theft. Make sure that it is understood, during orientation that the company will take legal action against employees caught stealing.
Next, employers should take security measures to reduce the risk of employee theft. To accomplish this employers should:
Select employees carefully
Employers should use background checks that will inform them of the employee’s prior criminal record. Reference checks as well if education verification should be mandatory.
Supervise employees on a regular basis
The first suggestion is to install covert or overt video equipment to supervise the employee’s actions. This is a crucial way to prevent or catch employee theft.
Improve the business’ accounting system
Separate accounting tasks. Do not assign A/P and A/R to the same employee. Do not have the same employee responsible for payroll and distributing pay-cheques. Prevent the rest of the employees from having access to accounting functions through the use of access codes or separation of duties.
Establish specific guidelines for dealing with employee theft
The guidelines should clearly identify the consequences of employee theft. The consequences should include the firing of the employee caught stealing and that employee should be prosecuted. Primarily the key to the success of these measures is that every employee be aware of the policy.
Conduct surprise audits
These audits will reduce the risk of employee theft, because it will limit theft opportunity.
Web Resources:
Business owners and supervisors who are interested in learning more about employee theft and prevention will find further information at the following websites:
www.nsi.org
Located in the archives section of this website are articles on employee theft prevention. These articles are very informative and focus on employee awareness and preventing high-tech theft. Every business owner should look over this site to learn more about employee theft prevention.
www.ioma.com
This site is very informative on the subject of preventing business fraud. In the archives section of the site are numerous articles on how to fraud-proof information systems and strategies to deter fraud.
www.securityresource.com
This site provides details for securing your business assets. Includes a resource library on securing your property and personnel.
www.securityforum.org
This site is a must-see for those interested in information security. This site is dedicated to meeting the increasing demands of consumers for information security.
www.employeetheft.com
This site focuses on certain aspects of employee theft. This site includes a well written section on why employees steal from their employers.
www.cfenet.com
This is the web site for the Association of Certified Fraud Examiners. It contains articles, resources and courses for those interested in fraud detection [and employee theft].
References
Bottom, N. R. (1998). Employee dishonesty, crime in business. In
Protection Officer Training Manual (edition 6, pp. 191-196).
Woburn, MA.: Butterworth-Heinemann.
Case, J. (1999). Why employees steal. Employee Theft The Profit Killer.
http://www.employeetheft.com/main.htm (1999, May 2).
(1999). Employee theft costs billions. Welcome to USMA!
http://www.usmutual.com/ (1999, May 2).
Liner J. (1998). Preventing employee theft. Protecting Assets.
http://www.chubb.com/news/pr19981012.html (1999, May 2)
