Knowing the signs of employee theft

Posted by | March 29, 2014 | Investigations 101 | No Comments
Employee-Theft

It’s only natural for you to place a great deal of trust in your employees. “We’re like one big family,” is a refrain often heard in entrepreneurial ranks. That’s as it should be—but it’s important to keep your guard up.

The unfortunate fact is that employee theft is a growing national problem, and our difficult economy isn’t making things any easier. According to the FBI, employee theft is the fastest growing crime in America.

To an employer, employee theft occurs when a worker steals merchandise, money or property while on the job.

Even if you’re confident that employee theft is not a problem in your business, it’s important for you to recognize the telltale signs and know how to build and maintain an environment that will help your staff to avoid temptation.

Hiring procedures

According to Joseph T. Wells, founder and president of Association of Certified Fraud Examiners, minimizing the chances of employee theft begins with the hiring process. Before hiring anyone, he says, you should conduct a background check to find out as much as you can about the employee’s previous experience with employers and law enforcement.

“At a minimum, you should check the background of any prospective employee who will have constant access to cash, checks, credit card numbers or any other items that are easily stolen,” he says. Before hiring an employee, you should check as many of the following as possible:

  • Past employment verification
  • Criminal conviction checks
  • Drug screening
  • Reference checks

But remember to always obtain the consent of the applicant. Numerous federal and state laws, such as the Fair Credit Reporting Act, govern the gathering and use of information for pre-employment purposes. Many of these laws require that you obtain written consent from the applicant before gaining some of the types of information listed above. It is also a good idea to obtain a signed authorization and release from a potential employee. Consult with your attorney to ascertain the laws applicable to your business and to obtain the proper authorization forms.

Policies and procedures

Perception of Detection

Employees who perceive that they will be caught engaging in occupational fraud and abuse are less likely to commit it. Increasing the perception of detection may well be the most effective fraud prevention method. This means letting employees, managers and executives know that programs are in place for actively seeking out information concerning internal theft.

Proactive Programs

Some useful programs cost very little while others require a cost commitment. In most cases, anti-fraud programs will more than pay for themselves.

Employee Education

This can be done as a part of employee orientation, or it can be accomplished through memoranda, training programs and other intra-company communication methods.

Any education efforts should be positive and non-accusatory. It should be emphasized that illegal conduct in any form eventually costs everyone, including employees, through lost profits, adverse publicity, decreased morale and lower productivity.

Enforcement of Mandatory Vacations

Many internal frauds require constant manual intervention, and are often discovered when the perpetrator is away on vacation.

Job Rotation

Some frauds are detected during sickness or unexpected absences of the perpetrator because they require continuous, manual intervention by the offender. That’s why it can be helpful to rotate potentially sensitive jobs whenever possible.

Split Responsibility

Wherever possible, don’t allow the same person who handles incoming cash and checks to do the paperwork accounting for that money.

Watch for signs

Despite the best of internal programs, it’s important to keep yourself aware of early warning signals of possible employee dishonesty. Watch for such signs as:

  • Any hint of substance abuse. An employee with a substance abuse problem will need extra money to finance the habit.
  • An employee with a disgruntled, belligerent attitude, often complaining about management or the job to others.
  • Bad temper or unpleasant behavior that tends to discourage questions.
  • Inconsistencies in explaining discrepancies or errors in paperwork.
  • Excessive loitering around the business by off-duty employees, ex-employees or friends.
  • Secretive conversations among employees and phone conversations that stop abruptly when you approach.
  • Unusually friendly relationships or loyalty between employees and customers or sources.
  • An employee living a lifestyle that appears to be in excess of what the salary could be expected to support.
  • An employee who habitually returns to the work area after others have left to retrieve something supposedly left behind.

In a small business such as yours with loyal and trusted employees, some of whom may even be relatives, it’s only natural for you to dismiss any thoughts of employee dishonesty. Still, both you and your employees will benefit from a policy that creates an environment that openly discourages dishonest behavior.

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