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Tips for Preventing Embezzlement and Employee Theft

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If you are a business owner, you might be concerned about employee theft. If you aren’t concerned, perhaps you should be.

There are a number of ways that an employee can steal:

  • Embezzlement money, inventory or materials
  • Skimming – Diverting funds
  • Stealing business opportunities, data or trade secrets
  • Fraudulent disbursements like check tampering or billing schemes
  • Larceny – absolute theft

It might surprise you to find out that employees who steal are not usually new employees. Instead, they are those who have worked for a business for a number of years. (Three years is the average.) So, what can you do to protect your company from employee theft? Here are some ideas:

Watch Your Staff

You should be aware of the signs of theft. These include:

  • A sudden devotion to their work and/or the company
  • Working late
  • Living above their salary
  • Drug or alcohol abuse
  • Evidence of gambling, bad check writing, or persistently asking to borrow money
  • A second job with materials available at your business
  • Strong objections to changes in inventory, financial, or supply procedures

Small businesses should always do background checks on any potential hire. Checking references is one thing, but to really understand who you are hiring, a full background check is best.

Supervise Employee Behavior

Research shows that employees are more likely to commit acts of fraud and theft when they don’t have a lot of supervision. You don’t have to supervise them constantly, but you should check on them often. It also is a good idea to have more than one person in charge of company finances.

Control All Business Receipts

Use pre-numbered sales slips and audit them frequently. This is especially the case with cash. You should not rely on a sales clerk to count and audit these receipts. Have another person do it.

Use Random Auditing

Start doing unannounced audits internally, and hire an outside company to do a yearly audit.

Use Purchase Orders

You should also use purchase orders and make sure that these are not handled by the same people over and over. It’s best to use pre-numbered purchase orders, and then always verify any orders coming in.

Keep Track of Business Checks

Use checks that are pre-numbered and make sure the amounts and recipient name is typed or in permanent ink. It’s best to produce checks from software, such as QuickBooks. If you have bank checks, make sure they are locked up.

Install Security Software on Computers

Start using security software on your computers that monitors employee activity, and restrict access to company records. You should also frequently change passwords and ensure that all of your security features are working.

Be Responsible with Accounts Receivable

Ensure that you are recording all of your incoming payments. Make sure incoming checks are marked as “deposit only.” Hire a forensics accountant at least bi-annually. Having a professional come in looking for discrepancies, or “cooked books” is worth every penny.

Use Security Systems with Inventory Management

Keep shipping and receiving as separate functions. Consider using security devices to monitor all inventory and merchandise that is coming in.

Install Security Cameras

Frankly, “trust” is overrated. It’s natural and normal to trust by default. As an “interdependent” species, humans can’t function without inherently trusting one another. But while most people can be trusted, the few that can’t need security cameras pointed at them all day.

Help Employees Report Theft by Their Co-Workers

You should make it as easy as possible for your staff to report theft or fraud by their co-workers. You want to make sure that you are doing this discretely, and you want to make sure that you don’t make it look like you don’t trust your staff.

What to Do if You Suspect Theft

If you have an employee who you think is stealing form you, here’s what you should do:

  • Use extreme caution when conducting your investigations and when making an accusation. If this turns out to be false, it could mean a lawsuit for you.
  • If you have a suspicion, investigate. If you can correctly identify the employee who is responsible, you should terminate their position immediately, revoke all network and building access and then consider contacting the authorities.
  • If theft is a complex or a large issue involving more than one employee, you should talk to a legal professional. They can help find experts who can help.

Robert Siciliano personal security and identity theft expert and speaker is the author of 99 Things You Wish You Knew Before Your Identity Was Stolen. See him knock’em dead in this identity theft prevention video.

Top 10 Warning Signs of Employee Theft

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The U.S. Chamber of Commerce estimates that employee theft costs American employers more than $50 billion dollars each year. In a study conducted last year by The Chubb Group of Insurance Companies, executives of 60 percent of the companies surveyed said they expected their employees to steal money or equipment. Another study conducted by The Chubb Group in 2004 found that 39 percent of private companies had employees who stole company funds, equipment, or merchandise.

 

Small businesses are particularly vulnerable to employee theft. Many dollars are saved when business owners and managers make prevention their top priority.

Look out for:

#1 Big spenders: Large purchases such as cars, TVs, jewelry, vacations and more, especially if they cry poormouth.

#2 Violators: Employees who habitually violate company policies are breaking the rules in more ways than one. Often that means they steal too.

#3 Drug abusers: Employees that have a substance abuse problem need to feed their habit and they steal to do it.

#4 Liars: White lies are lies. If you catch employees in a little lie, chances are they are lying big.

#5 Disgruntled: Employees who may have cause to feel wronged justify their theft. If work conditions are unfair, morale goes down and theft goes up.

#6 Loners: If an employee makes an effort to work alone that may mean they are scheming and planning to steal.

#7 Comes in early, leaves late: While this may please some employers, the extra 30 minutes before and after everyone arrives and departs allows for plenty of time to toss items in their car with no one watching.

#8 Cooked books: The moment a discrepancy is recognized a deep investigation into the numbers must be performed.

#9 Protect your business by performing background checks as they are the best defense against internal theft. Screen all employees before hiring them. Limit the number of employees authorized to ring up other employees’ sales, reducing the opportunities for collusion. Use a card access system rather than traditional keys to digitally document who comes and goes.

#10 Install a closed-circuit television system. It allows you to monitor employees and serves as a very strong deterrent when employees know one is in place. Install hidden cameras. Employees will seek out blind spots where there are no cameras.

Robert Siciliano personal and small business security specialist toADT Small Business Security discussingADT Pulse on Fox News. Disclosures