EMPLOYEE THEFT



Employee theft is a problem of considerable size for many companies. Many corporate security experts estimate that 25 to 40 percent of all employees steal from their employers, and the U.S. Department of Commerce (DOC) estimates that employee theft of cash, property, and merchandise may cost American businesses as much as $50 billion on an annual basis. Small business owners are not immune to this scourge; indeed, many analysts believe that internal theft of money or goods from employees is a primary cause of a significant percentage of small business failures. In the early 1990s, the DOC estimated that employee theft and embezzlement activities accounted for one out of five business failures, many of which were smaller firms that were unable to weather the erosion that those activities brought to their bottom lines.

Security experts also contend that small business enterprises may be particularly vulnerable to internal theft. Smaller firms often include employees with multiple responsibilities that provide greater opportunity to commit theft and greater means to conceal such actions. In addition, many small business owners fall victim to erroneous assumptions about: 1) the nature of their relationship with employees, and 2) their ability to effectively combat employee theft. Business consultants point out that owners of small firms that have 50 or fewer employees may well view the work force as a "family" of sorts that operates in a more personable, friendly atmosphere than those that proliferate in the office corridors of multinational companies. Owners of such businesses may place too much faith on this "first-name-basis" atmosphere as an effective deterrent against internal theft. Moreover, business consultants point out people can have widely divergent views of the basic character qualities of the same company culture. For example, one employee may wholeheartedly agree with the owner that the company environment is friendly and open, while a fellow co-worker may feel that owner-employee relations are characterized by condescension and mean-ingless gestures. Indeed, many employees who steal rationalize their illegal behavior away with aspersions on their employers. "Stealing may be considered by many to be unofficial compensation—and a justifiable payback for what is assumed to be employer greed," wrote Bob Ingram in Supermarket News. Finally, owners are sometimes too willing to rely on self-policing among employees when it comes to internal theft. Workers who do not steal from their employers may not approve of the actions of those that do, but studies indicate that in most cases, they will not report such thefts either, since their light-fingered colleagues are also, in many instance, members of their family or social circle.

Some small business owners, meanwhile, adopt a remarkably fatalistic attitude toward employee theft. These entrepreneurs do not even bother to study the issue or adopt any but the most rudimentary strategies to control or stop it. Everyone agrees that employee theft is difficult to detect, but security experts contend that much of it can be curtailed if the employer makes that an important business goal. "Some companies view employee theft as something that can't be controlled," wrote Joan Delaney in Small Business Reports. "[but] this attitude only leads to ever-increasing losses that can seriously drain profits. Minimizing theft should receive the same attention you devote to cutting costs, improving operating efficiencies, and optimizing earnings. Deterrents include pre-employment screening techniques and strong internal controls."

FORMS OF EMPLOYEE THEFT

Employee theft can take many forms. Some of these may involve the swiping of items of relatively small face value—inexpensive items from store shelves, for example, or a box of ballpoint pens from office supplies—but experts warn small business owners that thefts of individually inexpensive items can add up to significant sums over time, and security consultants add that such thefts can help erode employee performance and loyalty in other areas. Other kinds of employee theft, meanwhile, can form a far more immediate threat to a company's financial wellbeing. Embezzlement, for instance, can devastate small businesses, wrecking owners' personal and business finances at the same time. Other specific examples of employee theft include the following:

SIGNS OF EMPLOYEE THEFT Small business owners should be aware of several common warning signs of employee theft, and of the types of employee that are most likely to steal from their employers. According to Delaney, common tangible signs that an employee may be stealing include missing records (such as shipping and receiving bills), company checks that bounce, customer complaints about missing or late deliveries, hefty payments made for "miscellaneous" purposes in employee expense claims, and managers who insist on performing clerical duties. But as Gary Ward noted in Developing and Enforcing a Code of Business Ethics, employers may also be tipped off by behavioral signs, such as an employee who maintains a lifestyle beyond his or her apparent means, acts differently with co-workers and managers, shows signs of alcohol or drug abuse, or displays abrupt changes in emotional behavior. "If an employee shows several of these signs," stated Profit-Building Strategies for Business Owners, "talk to him or her. It may well be a problem … that has nothing to do with your business." On the other hand, if the employee is engaging in larcenous behavior, the meeting may well convince them that they are not being as successful with their activities as they had hoped. This cold realization is often sufficient to put an end to further incidents of theft on their part.

Studies also indicate that certain types of employees are more likely to steal than others. Perhaps the single biggest factor here is whether or not the employee has a problem with drug abuse. "Many drug users hold legitimate jobs and a substantial number either deal or steal," wrote Delaney. Some studies also show that employees who plan on quitting their jobs are much more likely to engage in stealing than are those who have no plans to leave. Other characteristics of employees who steal include the following: they are more likely to harbor complaints—whether legitimate or illegitimate—about their employer; they believe that their co-workers accept, or at least do not actively oppose, employee theft; and they believe that it is relatively easy to steal from their employer without getting caught.

STOPPING EMPLOYEE THEFT

Since employee theft is both commonplace and costly, small business owners should take several steps to curb employee theft. Some of these steps are inexpensive and easy to impose, while others require greater investments of time and money. All should be weighed by entrepreneurs interested in shoring up their internal security systems.

FURTHER READING:

Coates, Joseph F. "Emerging HR Issues for the Twenty-First Century." Employment Relations Today. Winter 1997.

Delaney, Joan. "Handcuffing Employee Theft." Small Business Reports. July 1993.

Fishman, Neil H. "Signs of Fraud." CPA Journal. December 2000.

"Hints that an Employee may be Stealing from You." Profit-Building Strategies for Business Owners. May 1992.

Ingram, Bob. "Honesty: Just a Policy?" Supermarket Business. April 1994.

Kinni, Theodore B. "Lock the Door Before the Horse is Stolen." Industry Week. May 4, 1992.

Niehoff, Brian P., and Robert J. Paul. "Causes of Employee Theft and Strategies that HR Managers Can Use for Prevention." Human Resource Management. Spring 2000.

Schierhorn, Carolyn. "A Breach of Trust." Building Supply Home Centers. March 1992.

Snyder, Neil H., O. Whitfield Broome, and Karen Zimmerman. "Using Internal Controls to Reduce Employee Theft in Small Businesses." Journal of Small Business Management. July 1989.

Ward, Gary. Developing and Enforcing a Code of Business Ethics. Pilot Industries, 1992.

"Ways to Control Employee Theft." The Business Owner. September-October 1997.



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