dec-masthead-theft2Cyber Monday is over and many of you were able to find some good deals on-line. Career Builder estimates that 50% of all employees did their on-line shopping while at work.  Some employers take no issue with a little friendly shopping while on company time; others see this as stealing and grounds for termination.

I remember well the first time that I had to confront an employee that was caught stealing from the company.  As we sat in my office, John (name changed) shared his story as the tears streamed down his cheeks. Over the years he stole small items for personal use: office supplies, stamps, even cleaning products. As the years went by the items got larger and more expensive. A fellow colleague saw him put two laptop computers in his bag and leave the building.  We waited a day to see if he would bring them back but that didn’t happen. When I asked him why he thought he could take property that didn’t belong to him he tried to justify his actions by the amount of overtime work he did for the company that wasn’t compensated.

The Hayes international retail survey of 25 companies representing 21,288 stores with sales of $700 billion shows that last year 1.2 million shoplifters (up 2%) were apprehended. These individuals were caught with over $150 million in stolen merchandise.  Of those arrested for shoplifting in Hayes’ study, one out of every 38 criminals was a company employee. Estimates range from $20 billion to $50 billion of total damage done to all U.S. companies every year through theft.

The U.S. Chamber of Commerce estimates that 75% of all employees steal at least once, and that half of these steal repeatedly. Theft prevention consulting company Incorp estimates that, on average, it takes 18 months for an employer to catch an employee who is stealing. Generally, employees under the age of 35 are the ones, who are stealing from their company, however, when the employee is older, they tend to take more than their younger colleagues.

Theft takes many different forms in today’s workplace. Here are is a list of the most common types of crime:

  • Larceny: Taking cash or property by an entrusted employee from his or her company.
  • Embezzlement: Theft or misappropriation of funds placed in one’s trust or belonging to one’s employer.
  • Billing Schemes: Creating false vendor accounts and paying these vendors (the employee who has set them up) for nonexistent goods or services.
  • Payroll Schemes: Any action that results in an employee receiving pay he or she does not deserve (falsifying time cards, overtime payment, salary increase).
  • Expense Report Fraud: Claiming company reimbursement for expenses that the employee never incurred.
  • Time Theft: Spending company time on personal work or pleasure.  Mostly connected to Internet surfing. Or, clocking in to work and then leaving for personal time. Taking extended lunch breaks.
  • Information Theft: Stealing proprietary information for personal use or to sell. Taking company information to a new employer without their consent.

So why do people steal from the companies that employee them? When you look at the working population, fraud prevention experts have created a 10-10-80 rule whereby 10% of all employees will never steal, 10% will always steal and 80% will go either way depending on the environment and opportunity.

The Association of Certified Fraud Examiners (ACFE) has done research on the reasons for employee theft and developed what they call The Fraud Triangle.triangle

  • Pressure: Pressure can also be described as the employee’s motive for stealing from his/her company. Most of the time it is linked to a financial need or want that they don’t want to reveal to their employer. They may have personal debt that they need to pay off or an addiction that requires cash to fund.
  • Opportunity: If the employee finds him or herself in an environment in which a crime is easy to commit and the risk of getting caught is low, then it will be fairly easy for the employee to move forward.
  • Rationalization: The majority of offenders has never committed a crime and consider themselves to be a normal, honest people. They have simply come across hard times and are looking for a way to get out of a jam. They may have observed that other people “take” things or cheating on the company and nothing ever happens to them. Or, they believe that the company owes them something because they are really not being paid a fair wage.

According to ACFE employee crime can be stopped if only one of the three factors from the Fraud Triangle is removed. However, it is very difficult to remove the motive or rationalization that an employee is holding close.  So the only real option is to focus on the removing the Opportunity that is presented to the employee.  This is done by putting controls in place.

Here are some common controls that will help you address the problem of employee theft:

  • Implement a code of ethics that all employees – from the president to the janitor – know and are held accountable to.
  • Conduct background checks on people you are planning to hire.
  • Set up an anonymous fraud hotline that employees feel safe contacting. There are outside vendors that provide this service if you don’t have the resource in-house.
  • Develop a training program for all supervisors/managers that teaches them how to recognize fraud. This should not be a one-off event but repeated periodically.
  • Separate cash-handling and bookkeeping functions.
  • Keep company checks under lock and key. Have one person draft the check and another signs them. Introduce two signatures for checks that exceed a specific dollar amount.
  • Conduct surprise audits.
  • Make sure everyone takes his or her vacation. Employees who are involved in embezzlement act as if they are fully devoted to the company and can’t take off for vacation when they are really only concerned that another employee might take over their job and discover their crime.

So what do you do if a theft has occurred and you need to take action? Here is a guideline that you can follow:

  • Investigate the employee: Prior to confronting the employee or reporting the crime to the police, quietly gather as much evidence as possible about the crime. If you don’t have the time or resources to do a thorough job, hire a third party that specializes in investigations.
  • Inform Your Attorney: Review the situation with your attorney.
  • Documentation: Record dates, times and what was stolen and how.  If you have video evidence, include this in your documentation.
  • Evaluate the employee’s position in the company and severity of the crime: There might be different consequences depending on who did what: written warning; probationary period; repayment or termination. What impact will your action or inaction have on other employees?  You may send the wrong message if you allow the employee to stay in the company.
  • Involve the police: If the severity of the crime warrants a criminal complaint, contact your local law enforcement. If nothing more, this will give you another form of documentation that you might need later.
  • Termination: If you decide to terminate the employee, escort them to their desk and let them collect their personal belongings. Make sure you collect all company property such as lap top, cell phone, company ID, etc. Then escort him or her out of the building. You may also decide to place them on administrative leave if you are conducting an investigation and don’t want them on company property during this time.  Don’t forget to change any security codes that they may have had access to.

Chances are there is theft going on at your company right now. This is even more disappointing in small companies where everyone knows each other and trust levels are high.  It may seem like a hassle but only by implementing a strict control regime will you be able to reduce the theft that is already going on.

Resources:
Hayes International 28th Annual Theft Survey

ACFE (Association of Certified Fraud Examiners): The Fraud Triangle

Pat Murphy, LPT Security Consulting : Employee Theft