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Dealing With Suspicions of Employee Theft

written by: •edited by: Michele McDonough•updated: 6/25/2010

As a business owner, how should you deal with suspicions of employee theft? Should you confront the employee or call the police? Is employee theft grounds for termination? Jean Scheid takes a look at dealing with suspicions of employee theft.

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    Signs of Employee Theft

    Many small business owners fall victim to employee theft because of the size of their business and number of employees. Businesses who employ less than 25 employees often think of employees as "family." The employee who is out to steal is more comfortable in a family-like business environment and for them, it's easier to take advantage of the situation.

    Employee theft is more than just taking cash. Employee theft consists of taking inventory, overcharging customers and pocketing additional dollars charged, and even undercharging to friends and family as well as falsifying company documents. Both forgery of company checks or documents or taking office supplies without permission are considered employee theft. Theft of company information that is deemed to be confidential is another form of identity theft. With all of these forms of theft, what signs can the employer look for to determine if an employee is stealing?

    • Missing Documents - If an employee continually loses packing slips, inventory control documents, or shipping receipts, this can be a big sign the employee may be hiding something or stealing.
    • Customer Complaints - When customers complain about items paid for but never received, this can be a sign of employee theft.
    • Attitude of Employee - Some studies show employees who plan to quit or have a fear of being terminated are more likely to commit employee theft.
    • Lifestyle - Employers who see employees living above their means may be committing employee theft or using theft to support an addiction to gambling, drugs, or alcohol.
    • Unhappy Employees - Employees who feel they deserve more in either salary or benefits often feel justified in committing employee theft.

    Once you identify the signs of employee theft, and determine an employee is stealing, what should you do?

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    How to Handle Employee Theft

    Security Guard by Gold Coast Security 

    The small business owner may not realize how detrimental employee theft can be over time. According to the US Department of Commerce, or DOC, employee theft is a $50 billion dollar annual business. That $50 billion includes large corporations but to the small business owner, even a few thousand dollars in cash, information or inventory can be hard to overcome. To control employee theft in your business, implement the following:

    Security Cameras - Installing security cameras is not illegal and only violates an employee's rights if they are not informed they are being filmed or if cameras are installed in places that are considered private such as bathrooms or changing areas.

    Written Policies - Your employee handbook should contain a clause on employee theft. The policy should be something an employee must read, understand, and sign. Further, the policy should state you have a zero tolerance policy on employee theft and if committed, termination will immediately follow.

    Hire the Right Employees - Most job applications today include a statement informing prospective employees that before an offer of employment, you, as the employer, can run background and credit checks on the employee before you offer them the job. Keep in mind that if your job application allows this clause, point it out to the prospective employee and have them sign it. Background checks may reveal if someone has committed employee theft in the past. Hiring reliable employees is key in preventing employee theft.

    Internal Controls - Setting up some internal controls can sway employee theft. Let your employees know that you will perform routine audits on anything that has to do with inventory, cash or confidential documents and information. If employees know their department will be audited, they will be less likely to commit employee theft.

    Access - Limit access to bank accounts and cash to only a few people or split the responsibility between a few people who you trust.

    Support - Offer employee credit counseling services, especially if you see an employee in financial distress. Most cities and towns have economic development centers where retired financial experts offer free debt advice so this service may cost you nothing.

    Be Consistent - If you catch one employee stealing and immediately terminate them, make sure you are consistent with future employee theft.

    Many law enforcement officers will not help you handle employee theft. As a car dealer, even when an employee took a vehicle from my used car lot and kept it, the local police told me it was a civil matter. Check with law enforcement officials in your area on how they handle employee theft and suggestions on how to prevent it.

    Continue to Page 2 to read more Tips on Preventing Employee Theft.

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    In the continuation of this segment on dealing with employee theft, Jean Scheid gives several tips and resources that can help you prevent this situation. In addition, she discusses employee theft insurance and recommends books that cover the topic in more depth.
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    Tips On Preventing Employee Theft

    Preventing employee theft is your best bet, especially for the small business owner. Here are some additional tips to help you prevent employee theft:

    Employee Theft Insurance - While this type of policy is not new, it is an expense. Check with your insurance broker on how much employee theft insurance will cost you.

    Rotate Employees - Consider rotating employees to keep checks and balances in place. This can be a good tool in preventing employee theft before it starts.

    Review the Work Environment - Theft experts tell us the happier the employee, the less likely they are to commit employee theft. Do an internal review to decipher how happy your employees are.

    Understand Your Business - Do you know how to order inventory, run the cash register and make deposits to your company's bank account? If not, the best way to prevent employee theft is by understanding every aspect of your business. Through understanding, you'll be able to more quickly identify a problem.

    Employee theft can be a big problem if controls are not in place such as written policies, checks and balances, and audits. Protect your investment by understanding the importance of controlling employee theft before it starts.

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    Resources for Employee Theft

    Solving Employee Theft by Bassett 

    The following are great resources for the small business owner to help identify and deal with employee theft:

    Solving Employee Theft by James W. Bassett is available at Amazon and is dedicated to the small business owner.

    Biting the Hands that Feed: The Employee Theft Epidemic by Terrence Darryl Shulman who has worked for decades on identifying and controlling theft is another helpful source.

    Employee Theft: The Profit Killer by John Case which can help you identify theft before it starts and offers great tips on handling employee theft.

    Employee Theft: Retail Loss Prevention by Chris E McGoey is a website dedicated to security and theft prevention.