Employee theft is not simply white-collar crimes such an embezzlement. Employee theft is defined as any stealing or misuse of an employer’s assets without the employer’s permission.
This includes stealing office supplies or merchandise, overbilling expenses, and taking intellectual property and information that does not belong to them. There are several measures business owners can take in order to reduce or prevent incidents of employee fraud or theft. These measures include:
- Implementing loss prevention strategies;
- Checking inventory regularly to assess whether the loss prevention strategies are adequate;
- Conducting audits;
- Reviewing financial statements on a monthly basis in order to catch any discrepancies early on; and
- Performing daily reconciliations of cash.
Additionally, there are other internal controls that business owners can implement to guard against fraudulent behavior and theft. Internal controls are rules and procedures put in place by a company to ensure financial and accounting information integrity, prevent fraudulent behavior, and promote accountability within the company. These are measures that a company can take to ensure effective and efficient operation while complying with relevant laws and policies.
Guard Against Theft by Creating a Code of Conduct
A code of conduct is a statement of what the company values, and standards of behavior that adhere to those values. These codes are helpful in identifying behaviors that may leave the company legally liable. In 2002, the Sarbanes-Oxley Act was passed, and the NYSE and NASDAQ made having a code of conduct a requirement for public listing.
Having a code of conduct written and visibly, prominently posted will remind employees to adhere to the rules and regulations outlined within the code. A code of conduct should also include consequences for failure to adhere to the rules of the company.
The goal of a code of conduct is to encourage honest and ethical behavior, while discouraging misconduct such as fraud and theft. An effective code of conduct:
- Covers appropriate topics, such as rules concerning accuracy of business records, discrimination and harassment, and workplace safety, to name a few;
- Is written for the reader, meaning, it should be clear and understandable to every employee, and complicated language should be avoided;
- Includes guidelines for reporting violations;
- Is enforced consistently; and
- Is revised and updated as needed to ensure efficacy.
Delegating Responsibilities with Caution Can Prevent Theft
In small businesses especially, it is not uncommon for one person to perform many responsibilities themselves. This becomes a problem when there is no separation of duties and that one person has too much access to sensitive information, such as company files and documents. Having that much access places the person in a position in which they can easily commit acts of fraud or theft, often undetected until it is much too late.
It would be irresponsible to give, say, a bookkeeper charge over deposits, payments, and filing transaction documents. This is an easy way for that employee to commit embezzlement, or the “theft or misappropriation of funds belonging to one’s employer.”
Embezzlement often occurs when an employee has access to the company bank account, and use this access to withdraw funds for their own use. It is a serious white-collar crime, and is different from employee theft. With embezzlement, the employee has been granted permission to access what is being stolen, either temporarily or permanently; with employee theft, the employee more than likely was not authorized.
In the example of the bookkeeper, it would be more wise to have different employees handle different financial duties instead of giving one employee all of the access. This reduces the likelihood of embezzlement. Business owners should have policies and procedures in place that limit employees on how many functions they are allowed to handle simultaneously.
Employ Genuinely Honest and Trustworthy People to Prevent Workplace Theft
Obviously, the best way to avoid employee fraud and theft is to employ people who are genuinely honest and trustworthy. However, it can be difficult to determine who genuinely possesses these qualities from a simple job interview. Business owners can reduce the chances of hiring risky and dishonest employees by conducting a series of background checks.
Criminal background checks are the most common when screening job candidates. This will reveal any prior misconduct that may indicate further dishonorable behavior, such as crimes consisting of acts of violence, theft, and fraud. They can also be used to verify education and employment.
There are other background checks that may be employed, but they require the written consent of the person being investigated before being conducted. Driving records, credit reports, and medical records are some of these.
If Workplace Theft Occurs, Conduct a Thorough Investigation of the Incident
Whenever an incident involving theft or fraud occurs, business owners should conduct a thorough investigation. The investigation should be immediate, so as to learn all of the facts of the case and take swift action. All decisions made should be informed and in compliance with labor laws.
Should I Consult an Attorney If I have an Employee Who is Stealing from Me?
If you believe that an employee has committed an act of fraud or theft against your company, you should consult with an employment attorney. A knowledgeable and qualified employment attorney will help you conduct a legal and fair investigation into the matter, and will file a civil suit or criminal action against the employee.