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Workplace theft is more common than most small business owners think. According to statistics, about 75% of employees have stolen from their employer once and about 38% have stolen at least twice. When you include theft of time, the percent of employees that have stolen from their employer goes up to a whopping 95%!
How much does all this workplace fraud cost small businesses? According to a 2016 report from the Association of Certified Fraud Examiners, the median loss is $180,000 for both big and small privately held businesses, but for small businesses the loss is much more devastating than it is for big business. In fact, some estimates say that 30 percent of small business fail because of employee theft.
Small businesses tend to be vulnerable to employee fraud because they don't have procedures in place to prevent it, and because small business owners often don't believe trusted employees -- or their business partners -- would steal from them.
Theft takes many forms. Among them,
- theft of physical product
- theft of cash
- check tampering
- billing fraud
- reporting more hours than worked
- turning in receipts that were for personal expenses
- payroll fraud
- theft of expensive equipment
How do you know if employee theft is happening to you? In some cases you'll get a tip from a customer or vendor or an employee. Sometimes you'll stumble on fraud by accident. But in many cases the fraud will go on under your nose.
How to Identify Employee Theft
You and your managers should be watching for behaviors that might indicate that you’re being ripped off. (But remember, it's not unusual for a manager or upper-level employee to be the perpetrator.)
1. Change in Lifestyle
If you didn’t give the employee a substantial raise, where did the new car, the new TV, and the new house come from?
2. Change in Work Habits
The employee who used to hate mornings now comes to work long before anybody else arrives, and stays much later.
3. Wants Independence
Some people work better on their own but if that otherwise outgoing employee suddenly decides that they want to work in a “quieter atmosphere,” that could be a red flag.
4. Makes a New Friend
If you start seeing two employees strike up a new friendship—and they’re both acting a little odd, investigate.
5. Makes Friends with a Vendor
Being friendly isn’t a red flag, by itself. But giving away free basketball game tickets and nice meals could indicate that the employee has been pushing business to that vendor in exchange for some gifts that he or she shouldn’t have.
6. Excessive Absences
If you can’t trace it to a life event, dig a little deeper. There might be something going on where theft is occurring but the employee doesn’t want to be there when it’s happening.
7. Never Takes Time Off
If you have an employee who is never absent, and never takes vacations, be suspicious. Yes, they might be a very dedicated employee with no other "life." But they could also be a crook who is afraid their scam will be discovered if someone fills in for them when they're not in the offic.
8. Strange Cars Showing Up
If you start seeing strange cars sitting outside your business, write down the license plate and possibly call the police. Especially if they’re around a dumpster or other place that may indicate they’re picking something up.
9. Change in Register Behavior
If you start seeing more refunds, charge backs, or voiding of sales, it’s time to investigate further.
10. More Damaged Merchandise
Again, you’re looking for changes in behavior. If the number of damaged goods starts rising, something is likely going on.
11. Problems with the Books
If something isn’t adding up in the books, or there are some suspicious ledger entries, once might be an honest mistake but 2 times or more could indicate something’s going on.
12. Computer Screen Changes When You Walk By
If you have an employee whose computer screen goes black, or changes suddenly as you approach their desk, and it happens repeatedly, there's a good chance they're spending a lot of time on things they don't want you to see. Be suspicious. Besides theft of goods or time, if they are visiting unscrupulous sites, they could get a computer virus that endangers your entire operation.
What to Do
Remember that you’re first looking for patterns of behavior and other signs that might indicate a problem. Don't accuse anybody, but do investigate.
If you find that there is evidence of theft, document your proof. Think of it this way: If you had to testify in court, how would you present the evidence in a way that would leave no doubt that the theft was occurring? Can you get video evidence? Does your financial software log all actions, is there something in an employee's e-mail that you can pull up? Did you get a tip from someone who will confirm the story?
When you terminate the employee, follow the procedures you have in your employee handbook. Also, take precautions before terminating the empoyee to protect company data and to prevent the individual from trying to cover up proof of their misdeeds.
If possible, lock them out of all company systems including their e-mail, Google docs, dropbox, and any other service immediately before you terminate them. If you can't do this until after you terminate the employee, walk them to the door and do not give them access to their desk, computer or other devices. (Then cut off all access.) You can mail any personal effects to the employee's home address.)
If you have proof of the theft and the amount is substantial, call the police and report the theft.
RELATED: Are Employees Stealing from You? Tips to Prevent Employee Theft
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