In the area of business law, the risk of employee theft may not be a priority consideration to company owners but it should be. In fact, a recent study from the University of Cincinnati reveals that 64% of small business owners have been victimized by employee theft. And the U.S. Chamber of Commerce reports that 75% of employees have admitted to acts of theft in the workplace. The Federal Bureau of Investigation considers employee theft to be the fastest growing segment of crime in the country. Employee theft can cost a business around 7% of their profit. Roughly 33% of small businesses fail because of the losses they suffer from their own employees.
The Challenge in Preventing Employee Theft
Not only is it challenging to catch thieving employees after the fact and recover their damages, it can be very difficult to prevent the thefts from occurring in the first place. After all, employees know the locations of security cameras, are intimately familiar with the burglar alarms, door locks, and possibly even the safe combination. They can clear out a store’s inventory or cash on their own, or enlist partners from the outside who can disguise the fact that it was an “inside job.” Here are some of the most common methods dishonest employees use to pilfer from their employer:
· Using the company checkbook or debit card to ring up fictitious purchases of supplies or other goods, then diverting those funds directly to their own account or through a third party. One example of this is using company funds to purchase an overabundance of office supplies, then returning those supplies on their own and getting cash refunds that they then pocket.
· Overcharging customers or shorting customers’ change and pocketing the difference. In this way, the employee’s end-of-shift drawer accounting will be accurate and help them to avoid detection. This method of employee theft is often referred to as “skimming.”
· Company accountants can redirect customer payments to their personal account. To avoid detection, they can alter the books and cover their tracks.
· If a company stocks merchandise or raw goods onsite, employees can steal items and later sell them and pocket the proceeds. Depending on the layout of the building and the workflow, merchandise and materials can be smuggled out in a backpack, recycling bins, garbage cans, etc.
· Employees can “pad” their hours, logging time they did not actually work, thus stealing money from the company.
Tips to Minimize the Risk of Employee Theft
Experts suggest that when employers take a proactive approach to reduce or minimize the risk of employee theft. In practical terms, assume that theft is occurring or may occur but do not treat all employees with suspicion because that will be detrimental to employee morale which can then lead to lower production and efficiency. Here are some practical proactive steps that an employer can take:
· Include background checks on individuals during the pre-employment screening process. If there are gaps on an applicant’s resume, question them because it may reveal a job from which they were fired and they do not wish to include in their history.
· Implement a checks and balances system whereby at least two people must sign off on customer returns, voided sales, and other financial transactions that are vulnerable to theft. This holds true for the accountant as well—as a general rule, do not entrust only one person to manage your company’s books or else employ an outside company to perform occasional internal audits.
· Install a video surveillance system and make sure it is always working, maintained, and that there are no gaps in the digital records that could indicate footage was deleted by an employee who committed a theft.
A business lawyer in Melbourne, FL can provide guidance to company owners who wish to reduce their risk of employee theft but without violating the legal rights of their employees.
Thanks to the Law Offices of Arcadier, Biggie & Wood for their insight into business law and employee theft.