Employee theft costs small businesses billions of dollars a year. But protecting your business from internal pilfering doesn't have to be costly or make your employees paranoid.

Types of Employee Theft

Some common kinds of employee theft include:

  • Taking merchandise
  • Forging or destroying receipts
  • Stealing small amounts of money
  • Putting fictitious employees on the payroll
  • Shipping/billing scams
  • Exaggerating or fabricating expenses

Smart Hiring

You can increase your chances of avoiding employee theft with careful hiring processes, like:

  • Complete background checks, including police reports
  • Thorough reference review, including asking questions about a history of theft or substance abuse (which may predispose an employee to theft)
  • Personality testing to isolate personality characteristics associated with the potential for stealing
  • Making sure any employee handling money is adequately bonded

Accounting Practices

Many types of employee theft are impossible with careful accounting practices. Easy ways to make it more difficult for employees to steal include:

  • Moving accounting and inventory responsibilities between employees on a random basis, so that one person isn't always responsible
  • Independent audits of bookkeeping records and inventory
  • Having organized and easy-to-find invoice and shipping records
  • Regular spot checks by high-level management of bank account records, including making banking deposits as often as possible
  • Keeping as little cash as possible at your business premises, and removing cash as it accumulates during your business day
  • Checking daily to make sure cash deposits equal cash receipts
  • Never handing over blank checks to employees
  • Reviewing cancelled checks each month
  • Keeping payroll preparation and payroll distribution separate, to be handled by different employees
  • Following up on customer complaints about credit for payments
  • Reviewing employee time records carefully to make sure employees were actually present during those times

      Security Procedures

      You can also make it harder for employees to steal from your company by:

      Attention to Employee Problems

      If possible, make sure your employees feel comfortable enough with management that they can come to you if they're having financial difficulties that might tempt them to take from the company.

      It also helps to have a clear written policy on employee ethics, including theft, signed by each employee. Your policy should include a statement that employees caught stealing will be prosecuted, rather than settling for simple restitution and an apology. Of course, the written policy should always be enforced.

      And it's important that employees know they can come to you with incriminating information about other employees without having to worry about ramifications such as job loss. If possible, set up an anonymous tip system that allows employees to hand over incriminating information without identifying themselves.

      Confronting The Employee

      You'll want to confront any employee you suspect of theft with all the evidence, giving the suspect a chance to explain. If the employee admits to the theft, you'll want to ask whether there were other people involved, how much was stolen, and whether the money or goods can be returned.

      It's important not to threaten to prosecute the employee if the money isn't repaid, as this may be considered blackmail on your part. Police and prosecutors may think you're only trying to prosecute your employee in an effort to get your money or goods back.

      Prosecuting Employee Theft

      Employee thefts should be reported to the police department where the theft occurred. Write down a chronology of evidence, with names and contact information for witnesses.

      The police will also want you to write a statement detailing the facts, including anything the employee told you. Give police originals of evidence such as forged checks, but keep copies for yourself.

      Many employees plead guilty when confronted with the evidence of their theft, so it may not even be necessary to testify against your employee at trial. If there is a trial, your time to testify can be scheduled with the prosecutor, so you won't need to spend hours waiting.

      You may also want to consider filing a civil suit against your employee if he or she has any assets.

    • Locking receiving doors, with a supervisor having the only key
    • Rotating security personnel when possible
    • Installing surveillance cameras
    • Tagging and inventorying equipment