Labor and Employment

Preventing Employee Theft

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.

Learn about the risks your business can face, practices to reduce theft and how to handle problems with employees.

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
  • Inflating or fabricating expenses

Hiring Trustworthy Staff

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

  • Complete background checks, including police reports
  • Thorough reference reviews, with questions to uncover past theft or substance abuse, which may predispose someone to theft on the job
  • Personality testing to isolate qualities associated with the potential for theft
  • Securing bonding for employees handling money

Keep Watch with 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 among employees
  • Independent audits of bookkeeping records and inventory
  • Clear and organized invoice and shipping records
  • Regular spot checks by high-level management of bank account records, and frequent deposits
  • Checking daily to make sure cash deposits equal cash receipts
  • Keeping cash on hand to a minimum, and removing cash during the business day as needed
  • Never handing over blank checks to employees
  • Reviewing cancelled checks each month
  • Keeping payroll preparation and payroll distribution separate
  • Following up on customer complaints about credit for payments
  • Reconciling employee time records and actual attendance at work

Security Procedures

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

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

Policies and Avoiding Employee Problems

Workplace policies and procedures help your business avoid theft and deal with problems that come up. Have a clear written policy on employee ethics, including theft, signed by each employee. The policy should state that employees caught stealing will be prosecuted, and the policy should always be enforced.

Create an environment where employees feel they can come to management if they're having financial difficulties that might tempt them to take from the company.

It's also important that employees know they can come to you with incriminating information about co-workers without having to worry about retaliation. An anonymous tip system can put employees at ease and get you needed information.

Confronting an Employee

You'll want to confront any employee you suspect of theft with all the evidence, giving a chance to explain. If the employee admits to the theft, ask whether there were others involved, the extent of the theft, and whether 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 beĀ reported to the police department where the theft occurred. Write down a timeline of evidence, with names and witness contact information.

The police will also ask you for a written 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.

Questions for Your Attorney

  • Do I lose any of my rights when I give an employee a second chance and choose not contact the police about a theft?
  • What labor laws do I need to be concerned about if I fire an employee who I suspect of theft?
  • Does a theft situation have to kept private, or can I tell my other employees about it?
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