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.