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How to Prevent Employee Theft

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It may sound simple, but the best way to address employee theft is to not let it happen in the first place. While it may be impossible to achieve that goal, several steps can be taken by a business to reduce the likelihood that employees will be able to embezzle.

Thoroughly Check Out Potential New Hires

First and foremost, business owners should use the hiring process to their advantage and use it as an opportunity to identify, and eliminate, potential risks before the employee is hired. A criminal-background check should be a standard part of this procedure. As part of this hiring procedure, the employer shouldn’t hesitate to ask interviewees about any past issues regarding thefts and criminal convictions. In calling candidates’ references, a potential employer should ask questions that will allow additional insights to shed light on whether the candidate may pose a theft risk. Often former employers may be hesitant about directly discussing problems with past employees. However, they may be more forthcoming when asked a more open-ended question such as “What are some of the areas for which you would NOT recommend this person?” or “What are some areas where the employee may require additional supervision?”

Have an Employee Handbook with Teeth

A business should create and regularly update an employee handbook with clear language detailing the consequences of theft and other bad behavior. Make sure that all employees read it and acknowledge that they have done so. The language in the handbook should identify particular areas or situations in which wrongdoers will be terminated immediately without exception. Once these policies are in place, the employer must enforce these guidelines without exception.

Incorporate Redundancy into the Workplace

The business’s management practices should employ a “second set of eyes” system so that no single employee is completely responsible for a specific area. In a retail setting, it is useful to train employees in multiple assignment areas, this allows for rotations on regular basis.

Encourage an Environment Where Employees Are Comfortable Reporting Suspicious Activity

A business can benefit greatly from a well-publicized, confidential reporting system, one in which the reporting employee incurs no negative ramifications for reporting the suspicious activity of fellow employees. Research has found that 27 percent of employee thefts are discovered by other employees observing an issue and notifying management.

Additional steps your business can take to reduce the risk of employee theft:

  • Make sure that employees’ access to classified or sensitive data is restricted.
  • Hold regular meetings where company policies (including policies involving employee theft) are highlighted.
  • Use periodic surprise audits in areas where employees may be tempted to skim cash or misuse funds.
  • Lead by example. If business owners and senior management follow company rules, their employees are more likely to do so as well.

The steps a business takes initially can save substantial money and headaches later on. Employee theft is a growing problem in the U.S. and it’s a risk a business should not take lightly. Take steps now to develop the policies and practices which will reduce the likelihood that your money and resources will head out the door in employees’ pockets.

You are reading part three of our series on Employee Theft.
For part one of our series on Employee Theft click here.
To find part two of our series on Employee Theft click here.
For the final installment of our series on Employee Theft click here.

© 2015 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

You Have Identified an Employee Stealing from Your Business: What are your next steps?

 

After you’ve discovered that an employee has been stealing from your business, your initial reaction may be one of anger, shock, or dismay. Your second reaction will probably be: What should I do now?

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First Steps

Often times, the first step should be to call a business attorney and then probably (depending on the terms of the policy) your insurance carrier. Then, the next step should be, with the assistance and guidance of your business attorney, to launch an immediate investigation to gather all the facts and documentation available concerning the theft. This investigation often includes interviewing witnesses.

When an interview is necessary, it should be conducted both individually and, in private. Additionally, these interviews should be recorded. Depending on the size of the loss to the business, you may want to retain outside experts who are skilled in investigating employee theft. One such expert could be a forensic accountant who can assist the business in documenting the loss.

Once a business knows the nature and extent of the theft, file a proof of loss with your insurance carrier following the notice and any other requirements outlined by the terms of the policy. As discussed below, it might be necessary to contact law enforcement as well.

Should I Seek Criminal Prosecution?

If an employee steals from your business, it regularly involves both a civil matter and a violation of criminal laws. Often you as a business owner will question whether the perpetrator should be prosecuted in criminal court. Instead, you may prefer to recover your money or other assets through initiating a civil litigation or through some other means.

When your employee’s actions involve a criminal violation of the law, usually the best avenue for recovery is to coordinate with criminal prosecutors and demand restitution as part of any criminal prosecution. Restitution can be included in the terms of a plea agreement if the matter does not proceed to trial.

One of the issues to consider when pursuing the matter in civil court against an employee who has stolen from your business is that any civil judgment would probably be discharged if the employee declares bankruptcy. However, it’s more difficult for former employees who are faced with a criminal restitution order to completely avoid its terms and not make restitution payments. Often times, criminal restitution is one of the terms of the individual’s probation status. Constructing the individual’s probation status to be contingent as long as restitution payments are made provides additional incentive for the perpetrator to repay the money when the alternative for them may involve the revocation of probation, jail, or possibly even a sentence in prison.

Private Payback Options

Another option when criminal prosecution is not practical is to arrange payment through a settlement agreement or other similar arrangement. One choice may be the use of a promissory note, which gives you on behalf of the business the right to sue for nonpayment. Another option may be for the parties to stipulate to a specific judgment amount, but a separate agreement will direct how the judgment will be enforced. However, if the former employee is insolvent, a resolution through civil litigation or a monetary judgment may be impractical.

Conclusion

When your trust has been violated and your business harmed, you want to be able to both recoup your losses as well as chart a path forward. When facing these difficult circumstances it is essential to develop a strategy and course of action that can mitigate the damages caused. It is also important to reduce the chances of similar losses in the future. Reducing the chances of future losses to employee theft will be discussed in part three of our series on identifying and preventing employee theft.

You are reading part two of our series on Employee Theft.
For part one of our series on Employee Theft click here.
To find three of our series on Employee Theft click here.
For the final installment of our series on Employee Theft click here.

©2015 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

Worried About Losses Due to Theft? Look at Your Employees First

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Worried About Losses Due to Theft? Look at Your Employees First

 

Often businesses are concerned about the loss of revenue from the occasional shoplifter or burglary. Although both situations can cause financial damage to a business, most losses due to this type of theft comprise a small percentage of losses a business will incur. Instead, theft by employees often causes significantly greater financial damage to a business and can even lead to the financial failure of a business.

It’s great to have fully-trustworthy employees that a business can utilize worry-free. Unfortunately, if national statistics are any indication, a fully-trustworthy employee may be more difficult to find than ever before.

Statistics Reveal a Huge Threat

According to recent studies by law enforcement and insurance groups, American businesses lose a staggering $50 billion per year to employee theft, which translates into approximately 7 percent of a business’s annual revenue. In fact, employee theft has been determined to be a primary cause for fully one-third of recent business bankruptcies.

Just as alarming, these studies have also determined that 75 percent of employees steal at least once from their employers and (more importantly for the long-term financial health of the business) half of that group steals repeatedly. Furthermore, employees are responsible for a greater proportion of inventory shrinkage every year than shoplifters—43 percent to 36 percent respectively.

Where to Look

The first step for any business seeking to address the problem of employee theft is to identify where theft most commonly occurs in the workplace. Perhaps most obvious is anywhere cash is being handled or changes hands. This can include cash transactions, payments, and access to petty cash. Another area to identify where employee theft occurs which is less obvious but often causes greater damage is the company’s books or recordkeeping. Here, payments might be recorded by an employee who is entrusted with recordkeeping for the business but routed to an account created by that employee.

In service, construction, or trade industries employees might also make side deals with vendors to create phony invoices and then split the money with their accomplices. As another area in construction or trade industries might see an employee utilize company equipment or resources for their own personal use to make money on the side.

Warning Signs of Employee Theft

If you are suspicious that employees are engaged in theft, personal behavior can provide warning signs that point to larger problems. These warning signs often include:

  • Employees living above their means with extravagant or a large volume of purchases.
  • Signs of substance abuse.
  • Secretive conversations among employees.
  • Periods of unusually low levels of sales transactions.
  • Taking procedural shortcuts to expedite deliveries.
  • Changing work habits—arriving early, before anyone else, for “quiet time” or working through lunch or after hours when other individuals are not present.
  • Excessive or unexplained absences.
  • Employees who want to work alone, physically out of sight.
  • Missing items.

If you are operating a business that may be experiencing employee theft, there are steps you can take to protect yourself and your business. Check back for the next installment of our four – part series on identifying and preventing employee theft to find out what you can do.

You are reading part one of our series on Employee Theft.
For part two of our series on Employee Theft click here.
For part three of our series on Employee Theft click here.
For the final installment of our series on Employee Theft click here.

© 2015 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

Book Review: The Go Getter—It Shall Be Done

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Often times business owners will recommend books to their new employees and office staff.   One book repeatedly recommended is a classic: The Go Getter by Peter B. Kyne. I have noticed that this book is also recommended by nationally-known business and success coaches to entry-level executives and sales staff.  In fact, several newer publications of the book include a preface written by one nationally-known and successful individual or another.   These books also contain a modern or more-detailed explanation than what is found in the original book. What makes this book (and the modern variations that have appeared since) popular today?   I believe this popularity is based on the motto of one of the primary characters – “It shall be done.”

The Go Getter was first published in 1921.   Its author, Peter B. Kyne (1880-1957), is unique among business success authors because all indications suggest that he did not set out to write a book about business or success.   Mr. Kyne was an author of short stories and movie screenplays, often set in the San Francisco Bay Area.   The Go Getter is no different and contains a character, Capt. Cappy Ricks, who appears in other Kyne stories of the same period.   The character who sets this book apart from Mr. Kyne’s other short stories is a young World War I veteran, William E. Peck.

The story opens with Cappy Ricks, an older, highly successful California lumberman, complaining about the lack of initiative and integrity among certain of his employees.   At this moment, William Peck enters the office of Cappy Ricks. William Peck is seeking employment and though he has been already been rejected by several other businesses and by Cappy Ricks’ own staff as well. Mr. Peck is undeterred by these previous rejections, and seeks employment directly from Cappy Ricks.   Mr. Peck’s physical appearance sets him apart from most other potential job hunters.   As a disabled veteran from World War I, he walks with a prominent limp and has lost part of one arm.     Although no positions are currently available, Cappy Ricks is impressed by William Peck’s positive attitude, including his initiative of printing business cards labeling him as an employee of Mr. Ricks before he has been hired. Mr. Ricks decides to take a chance and hire Mr. Peck.

Mr. Peck is then given the most difficult sales assignment—selling skunk spruce lumber. He immediately begins to crisscross the Western United States and quickly sells out of this challenging merchandise.   After his success, Mr. Peck is given better products and assignments, which he also successfully sells without neither problem nor complaint.

As the story continues, an important job opening becomes available in the company’s Shanghai office. The main candidate for the position is William Peck.   However, before Cappy Ricks will feel confident about extending the job offer to Mr. Peck, there is one last challenge for the young veteran.   Mr. Peck must complete the purchase of a specific blue vase and deliver it to Cappy Ricks before he leaves town that evening. The vase is to be given as a present for a friend at Mr. Ricks’ travel destination.

This “simple” assignment becomes far more complicated than Cappy Ricks originally suggested.   A good portion of the remainder of the story follows William Peck as he overcomes multiple, roadblocks, misinformation, both time and monetary constraints, as well as uncooperative individuals in order to both procure the vase and transport it to Cappy Ricks before his scheduled event since he missed the original delivery deadline. This assignment culminates with William Peck providing the only item of great monetary value he possessed as collateral in order to purchase the vase and then recruiting a pilot friend to fly him to a location where he could intercept a train to deliver the desired vase directly to Cappy Ricks.

Ricks is surprised and delighted to have the desired vase presented to him by William Peck on his train in the middle of the night.   The surprise stems from the knowledge that Ricks deliberately designed an assignment that was impossible to complete. In fact, Cappy Ricks had utilized this test to assess potential candidates for years, including the current executives in his company, with no one actually succeeding. Often times, the candidates would become frustrated and would quit once the first roadblocks were encountered. Some had resorted to breaking into the shop to illegally acquire the vase. William Peck was the only person who, with a positive attitude and perseverance, accomplished the task.

When asked by Cappy Ricks how he developed his “go-getter” attitude, Mr. Peck relayed the story of his experiences after he received severe injuries during the war. While in bed, wounded, suffering from his multiple injuries, and wondering whether it was worthwhile to go on, he was reminded by his commander of his brigade’s motto “It Shall Be Done.” No matter how difficult the task or roadblocks placed before him, having the attitude of “It shall be done” always allowed him to find a way to overcome whatever challenge was placed before him.

Oftentimes people will become discouraged as they encounter roadblocks along their way. They quit trying and then provide varying excuses which blame forces allegedly outside their control for their failure.   Those who are successful know that multiple roadblocks and setbacks will occur in anything worthwhile to pursue.   Instead of quitting, these individuals move forward, overcome obstacles, look at a failure as a learning opportunity, adapt, evolve, and to find a way to succeed.   These individuals are the real life “go-getters.”

 

©2015 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

 

Statutes of Limitation for Arizona Businesses

 

Although no business owner likes to contemplate the idea of being sued or pursuing a lawsuit, civil suits are an inevitable part of the cost of doing business. When a dispute arises, an important first step is determining the deadline for filing a claim. This deadline is known as a “statute of limitations.” If an individual fails to file their claim by this deadline, he or she is barred from pursuing that specific claim.

Arizona business owners should familiarize themselves with some of the most common statutes of limitation they may face, these statutes of limitation include:

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Breach of Contract

The statute of limitations for oral breach of contract is three years and is governed by Ariz. Rev. Stat. Ann. Section 12-543(1). The statute is six years for written breach of contract under Section 12-548. The statute of limitations for breach of contract for a sale is four years. This deadline is governed by Sections 12-544(4) and 47-2725(A) of the Arizona Revised Statutes.

Breach of Fiduciary Duty

A fiduciary duty is a legal responsibility to act in the best interest of another person or organization, including a business. For example, a board of directors has a fiduciary duty to act in the best interest of its shareholders. In Arizona, the statute of limitations for breach of fiduciary duty is two years. These deadlines are outlined in Ariz. Rev. Stat. Ann. §12-542.

Consumer Fraud

Like most states, Arizona has legislation in place that protects the public from deceptive business practices that prey upon consumers. In Arizona, a seller or advertiser of objects, wares, goods, commodities, intangibles, real estate, or services engages in “consumer fraud” when it suppresses, conceals, adds, or fails to disclose a material fact through deception, an unfair act or practice, a false statement, a false pretense, a false promise, or a misrepresentation. The statute of limitations for consumer fraud in Arizona is just one year and is found under Ariz. Rev. Stat. Ann. § 12-541(5).

Negligent Misrepresentation

According to the Restatement of Torts (2d) § 552, negligent misrepresentation occurs when “one who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.” Under Section 12-542 of the Arizona Revised Statutes, the statute of limitations for this cause of action is two years.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.