4 Tips to Help Prevent Employee Theft
For a small business, employees may be its greatest assets. But in some cases, they may also be a liability. Theft on the job appears to be on the rise, at least within the retail industry. According to the annual Retail Theft Survey conducted by Jack L. Hayes International, based on 23 retail companies representing more than 1.4 million employees, employee theft increased by nearly 10 percent in 2016, with one in every 27 employees being apprehended for theft.
Luckily, there are some steps you can take to help deter would-be criminals:
1. Be Aware
One step to help protect your business from employee theft and fraud is awareness. In addition to knowing how often these incidents can happen, it’s helpful to know the numbers when it comes to lost revenue. The average case of employee theft cost U.S. retailers about $1,923 in 2017, up from $1,234 the previous year, according to a National Retail Federation study. According to a report by the Association of Certified Fraud Examiners (ACFE), the typical organization loses 5 percent of annual revenue to fraud.
So, what qualifies as theft? SCORE, a small business nonprofit organization, cites five kinds of employee theft:
- Outright theft
- Skimming or diverting funds
- Billing or check fraud
- Theft of raw material or inventory
- Theft of customer information
2. Hire Wisely
Background checks can help you establish a foundation of trust with new hires. This may be especially crucial when hiring high-level employees: The ACFE found that the average damage caused by fraud from executives or business owners is 10 times worse.
For entry- or mid-level employees, SCORE recommends that employers always check references. According to Jack L. Hayes International, screening applicants with pre-employment “honesty tests” can help employers identify high-risk candidates. Employers can purchase these tests from pre-employment screening vendors.
By responding to statements such as, “I have frequently associated with fellow employees who admitted they were stealing merchandise from the company” or “I could be tempted to steal from my employer,” applicants may identify themselves as untrustworthy before they’re hired. These tests are surprisingly effective, according to Jack L. Hayes International.
Its 2016 Annual Retail Theft Survey report found that 18.4 percent of applicants who were rated as “high risk” admitted to associating with fellow employees who committed theft. And 26.7 percent admitted they could be tempted to steal themselves.
3. Monitor Employee Activity
Unfortunately, closely monitoring your employee’s activities cannot guarantee that an employee will never commit theft or fraud, according to David Blankenhorn, a chairman at the Orange County chapter of SCORE.
But, you can take measures to help discourage theft. Installing security cameras and regularly monitoring employee activity in areas where money and inventory are handled may remind employees that you are paying attention, according to Entrepreneur.
“People are less apt to commit a theft if they know that someone is watching and they might get caught,” Blankenhorn adds.
4. Create a System of Checks and Balances
The ACFE also found that organizations without anti-fraud controls lost twice as much in revenue.
Employee theft is more likely when one person is responsible for managing money or assets without a second set of eyes, according to Blankenhorn. “If you let one person write all the checks, then reconcile the accounts, that’s an invitation for theft,” he warns.
SCORE suggests stronger measures around computer use, such as restricting access to computers and routinely changing passwords. Unannounced internal audits from a third-party firm can also help keep track of inventory or accounts, they add.
Employee theft is an unfortunate reality for many businesses. Using these loss prevention practices, small business owners can help prevent loss and help increase the likelihood of identifying untrustworthy employees before they’re hired.