Employee Theft: 4 Tips for Protecting Your Business
August 16, 2013
Given the tough economy over the past few years, it has been particularly difficult for business owners and the individuals they employee to thrive financially. Couple the poor economic climate with the fact that many businesses, especially small ones, have few controls in place to prevent employee theft and you get statistics like these reported by the National Federation of Independent Business:
- 30%─the average percentage of employees who do steal from their employer.
- 60%─the average percentage of employees who will steal if given a motive and the opportunity.
- $4,500─the amount of money per employee that is stolen from small businesses each year, totaling an estimated $600 billion per year in losses.
In addition to these grim numbers, according to the U.S. Department of Commerce, about a third of all business failures each year can be attributed to employee theft and other crimes perpetrated by staff members. So what can businesses do to protect themselves from potentially devastating losses as a result of employee theft? Here are four tips to help minimize the likelihood that employee theft becomes a problem in your organization:
1. Make employee fraud prevention a priority and part of your business culture. Develop an ethics policy for your company that clearly states that you have a zero-tolerance policy for employee theft and that you encourage employees to report any suspicious activity to management. In addition, let employees know that audits are done regularly and may also be conducted spontaneously. Research shows that openly addressing the topic of employee theft can be a very effective deterrent.
2. Use an electronic solution or outsource your accounting. Using an accounting software system that allows you to set authority levels and track employee access and activity is an effective way to monitor your business finances for unusual activity. For an added level of security, outsourcing your bookkeeping and payroll to a third party eliminates the chance of employee theft through these activities and also provides a regular audit process.
3. Know and train your employees. Taking the time to conduct proper background checks is an essential part of mitigating losses associated with employee theft. Verify job applicants’ education and employment histories. Be sure to call references to make sure a “perfect” candidate doesn’t have a criminal record or a history of suspected fraud or theft. If an employee consents, you can also check their credit score and credit history to determine how fiscally responsible they are or if they have any “red flags” indicating a lack of financial stability. Statistics show that one of the most common reasons that employees steal from their employer is to ease their own financial hardship.
4. Keep your finger on the financial pulse of your business. Although having trustworthy employees is essential, it is never wise to remove yourself completely from reviewing your company’s financial statements and account activity. Taking some time each month to look at the flow of transactions through your business accounts will ensure that you can identify any unusual activities right away. Using an online banking service can help to make regular reviews of bank reconciliations more efficient. The time you spend ensuring the integrity of your company’s financial flow will pay dividends in terms of loss prevention.
While having an atmosphere of trust and teamwork is essential for all businesses, it is equally, if not more important, to create the proper culture and controls to protect the financial stability of your company. The tips outlined above are a great foundation on which to build a customized plan that will mitigate the risk your company faces from employee theft.