How to Guard against Fraud and Theft by an Employee?

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 How to Guard Against Fraud and Theft by an Employee?

Employee theft is not simply a matter of white-collar crimes such as fraud and embezzlement. Employee theft is defined as any stealing or misuse of an employer’s assets without their permission. This includes stealing office supplies or sales merchandise, billing expenses for more than was paid, and taking intellectual property and proprietary information that does not belong to the offender.

There are several measures business owners can take to reduce or prevent incidents of employee fraud or theft. These measures include:

  • Performing daily reconciliations of cash
  • Conducting regular, systematic audits
  • Implementing loss prevention strategies
  • Checking inventory regularly to assess whether the loss prevention strategies are adequate
  • Reviewing financial statements every month to catch any discrepancies early on

Additionally, there are other internal controls that business owners can implement to guard against fraudulent behavior and theft. Internal controls are rules and procedures instituted by a company to prevent fraudulent behavior, ensure financial and accounting information integrity, and promote accountability. These are measures that a company can take to ensure effective and efficient operation while complying with relevant company policies and theft and white-collar laws.

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 it expects from its employees to adhere to those values. Codes of conduct may seem unnecessary, but they are not – they are important ways to convey a company’s ethics and values.

In 2002, the Sarbanes-Oxley Act and the NYSE and NASDAQ made having a code of conduct a requirement for a company to be listed publicly on stock exchanges. These codes help identify behaviors that may leave the company legally liable.

A code of conduct aims to encourage honest and ethical behavior while discouraging misconduct such as fraud and theft. A visibly and prominently posted code of conduct, perhaps in an employee break room or lunchroom, will remind employees to conduct themselves according 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.

An effective code of conduct:

  • Is written for the average reader, meaning it should be clear and understandable to every employee, and complicated language should be avoided
  • Covers appropriate theft-related topics, such as rules concerning accuracy and access to business records
  • Includes prohibitions against such things as employee theft of company goods (what would be shoplifting if committed by a non-employee)
  • Includes detailed prohibitions against discrimination and harassment,
  • Includes guidelines and workplace rules concerning workplace safety
  • Includes guidelines for reporting violations
  • Is enforced consistently
  • Is revised and updated as needed to ensure efficacy

Delegating Responsibilities with Caution Can Prevent Theft

Especially in small businesses, where the number of employees qualified to perform specific tasks may be limited, it is not uncommon for one person to perform many responsibilities themselves, often without much supervision.

This becomes a problem when that person has open, unfettered access to sensitive information, such as company files, accounting statements, sales and billing records, financial records, and other documents. Having too much access places the person in a position where they can easily commit embezzlement, fraud, or theft, often undetected until it is much too late.

It would be irresponsible to give a bookkeeper sole responsibility over payments, deposits, and filing transaction documents. This would be easy for the bookkeeper to commit embezzlement, or the “theft or misappropriation of funds belonging to one’s employer.”

Embezzlement most often occurs when an employee has access to the company bank account and uses 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 either temporary or permanent permission to access and conduct transactions with what is being stolen; with employee theft, it is more likely that the employee had no such authorization.

In the example of the bookkeeper, it would be wiser to have different employees handle different financial duties instead of giving one employee all of the power and responsibility. This would reduce the likelihood of embezzlement. Business owners should have policies and procedures 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 genuinely honest and trustworthy people. However, it can be difficult to determine who truly possesses these qualities if the only pre-employment review of the employee is a simple job interview. Business owners can reduce the chances of hiring risky and dishonest employees by conducting background checks.

The first check is to contact all of the references that the employee has provided to find out if there is any history of employee fraud, theft, or embezzlement.

The next most common form of research when screening job candidates is criminal background checks. Background checks will reveal any prior misconduct that may suggest that the person is likely to commit other dishonorable behavior, such as crimes consisting of acts of violence, theft, or fraud. They can also be used to verify employment history and education.

Another type of background check that can give insight into a potential employee’s likelihood of committing company fraud or theft is a credit history check. This will let the employer know if the employee handles money wisely and whether the employee is in enough financial trouble that stealing from the company might seem almost necessary to get out of trouble.

Other background checks may be employed, such as checks of driving records and medical records, but they require the written consent of the person being investigated before being conducted, and they have less impact on the likelihood of an employee committing theft or fraud.

If Workplace Theft Occurs, Conduct a Thorough Investigation of the Incident

Business owners should conduct a thorough investigation whenever an incident involving theft or fraud occurs. The investigation should be immediate to learn all the facts of the case and take swift action. All decisions made should be informed and in compliance with labor laws. It is extremely important to document everything that is encountered in the investigation.

This is because the company will want solid evidence that it terminated the employee for good cause and not for an improper reason such as sex, racial, or other discrimination.

Should I Consult an Attorney If I Have an Employee Who Is Stealing from Me?

If you believe that an employee has committed fraud or theft against your company, you should consult with a workplace attorney. A knowledgeable and qualified employment attorney will help you conduct a legal and fair investigation.

They will also be able to give you solid, knowledgeable advice on whether you should file a criminal action against the employee or a civil suit, which would allow you to recover as much of the stolen funds or property as it is possible to obtain.

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