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Employee Theft – Reducing Your Overall Risk

September 11th, 2018 by Stefanie Walker

You’ve just discovered that one of your employees has been stealing money from your company over a period of time. Once you get over the initial shock that this trusted person has been stealing from you, the logical thing is to terminate the employee and then withhold money from their final paycheck or just withhold the entire paycheck to recover those funds, right? Unfortunately, it’s not quite that easy.

Types of Employee Theft

Employee theft accounts for eight times more losses to companies than shoplifting and may occur in several different ways:

  • Cash – this can be as basic as pocketing money from the cash register to forging checks or stealing funds by moving money through different accounts. This may be considered embezzlement if the employee is in a position of trust or responsibility over the assets that are stolen.
  • Payroll – falsifying time sheets or business expenses. This can include stealing time from the company in the form of spending work hours performing non-work-related or personal tasks.
  • Company Property – this can range from supplies (pens, scissors, etc.) to company equipment such as computers or office furniture to merchandise that the company manufactures or sells.
  • Intellectual Property – employees may steal company information such as customer lists, trade secrets, or other proprietary data that can be sold to a competitor or used in some other way that would benefit the employee.

Who are the ones most likely to steal from a company? The majority are general or first-line employees, those without supervisory responsibility. About 20% were managers/executives; the rest consisted of small percentages of accountant/bookkeeper/finance professionals; receptionists and secretaries; and billing/purchasing professionals.

Tips to Minimize Employee Theft

There are several things a company can do to minimize the risk of theft in their organization

Utilize background checks before hiring – this may help identify some red flags and prevent problems down the road.

Put proper security protocols in place – these can protect both the company and the employee. Examples of these may include locked safes, limited access to certain areas or information to include restricted access to particular computer files, strategically placed cameras, or other types of surveillance equipment. For the latter, it’s important to check with your state labor agency to ensure you are following your state’s regulations on this. Generally, cameras cannot be installed in places where employees have a reasonable expectation of privacy, such as restrooms or locker rooms. Some states may have additional rules around this.

Policies and procedures – this is especially important to have in place for those who handle cash or other financial transactions as part of their job responsibilities. This should include who is accountable during various steps of cash handling or any cash exchanges. Your employee handbook should also specify the expectations of employee conduct and prohibited behaviors in the workplace, including potential consequences of theft.

Monitor trash removal – using clear trash bags or making sure that empty boxes are flattened may keep employees from removing company property in this way.

Conduct periodic audits – these can be in the form of auditing your books or your inventory to ensure that everything is where it should be. Audits can be both internal and external.

Checks and balances – have more than one person responsible for handling all the financial matters of the company. If you have a small company and only have one person to handle the bookkeeping, try to have an external accounting firm that can periodically conduct audits for you.

What’s My Recourse?

If you suspect that employee theft is occurring in your company, there are several steps you’ll want to take.

Gather all evidence and conduct a thorough investigation by an appropriate member of management – this would be the time to work with your HR partner who can help guide or participate in the process of interviewing possible witnesses, reviewing the evidence, documenting the steps, and summarizing the findings.

Decide whether or not to involve law enforcement – this may depend on several factors, including whether the amount or value of items stolen is considered petty larceny or grand larceny. If you’re dealing with a cash theft, involving law enforcement is generally a good approach.  Decide this early in the process, as law enforcement may conduct their own investigation, or have specific recommendations for your investigation.

Maintain confidentiality – keep information sharing only to those who have an absolute need to know. You’ll also want to decide whether or not to suspend the employee pending the results of the investigation. Your HR partner can work with you on that decision.

Ensure consistency – if, after the investigation is concluded, you determine that termination is the next step, make sure to follow company policy and ensure you are being consistent with any other similar situations. This will help if the employee claims that the decision to terminate was arbitrary and others who have done the same thing were not treated the same way.

Review other pertinent information prior to termination – take into consideration things like employment contracts, collective bargaining agreements, etc. It’s also a good idea to seek legal counsel to make sure you haven’t overlooked any possible issues.

Determine whether you have employee dishonesty insurance coverage (also known as a fidelity bond) – this is coverage that can protect the employer from financial loss due to employee theft, forgery, funds transfer fraud, credit card fraud, computer fraud, and other business-related losses caused by employees and other members of an organization (such as volunteers, directors, trustees). If you have this coverage in place, you’ll need to determine what information is needed in order to file a claim. Your insurance agent should be able to help you with this.

When making the decision to terminate, most business owners believe they can withhold the amount of stolen cash or the value of other stolen items from the employee’s paycheck. That’s where it gets complicated.

Federal law may allow certain deductions from an employee’s paycheck, however, many states have their own laws on this which supersede federal law. For example, in Georgia this type of deduction might be allowable, but in California it definitely would not. Other states are in the middle with many requiring a written authorization from the employee to be able to deduct the money. Seek assistance in understanding the  concept of “wage theft,” that may include withholding money from an employee’s paycheck without employee authorization, and how it applies to your state.

Some business owners may decide to press charges against the employee and take the matter to court to try and recover their losses. This often ends up costing more in lost productivity and attorney’s fees than the value of what was actually stolen, so more and more employers are deciding against this option.

If you find yourself in the situation of dealing with employee theft, make sure to check your specific state’s labor laws to help determine your best course of action.

Click the link to view the recent INFINITI HR blog: Right to Work is Not Employment at Will or check back for more on human resources, payroll, insurance and benefits.


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