If you answered yes to any of these questions, your business could be suffering from losses due to occupational fraud, or the more common term: employee theft.
A 2010 Global Fraud study conducted by the Association of Certified Fraud Examiners (ACFE), entitled, “Report to the Nations on Occupational Fraud and Abuse,” found the median loss caused by occupational fraud was $160,000, with nearly one-quarter of the frauds involving losses of at least $1 million. In many cases, the criminal activities lasted an average of 18 months before even being detected.
The study also found that businesses with fewer than 100 employees suffered the greatest percentage of employee theft of all the companies studied. One reason that small businesses are particularly good targets is that they tend to have far fewer anti-theft controls than larger organizations, which makes them particularly vulnerable.
Employee theft, generally defined as “any stealing, use or misuse of an employer’s assets without permission to do so,” can take many forms. Theft, stealing— or the legal term larceny—can be as simple as pilferage of company supplies or manipulation of timesheets. Whatever the act, they all have one thing in common: at their core, all thefts involve a violation of trust. For businesses, violations of trust are potentially more harmful because they are committed by the very individuals who are relied upon to make the business successful: its employees.
On top of the loss of profit, the very idea that an employee is stealing from the company can cause extreme emotional stress in an already stressful business. In addition, the cost of inventory loss is eventually passed on to the consumer, who must then share the financial burden. For struggling companies, these losses can mean the difference between staying in business and closing their doors.
Inventory theft is the most common and the easiest to identify.
Small items such as tape measures, hand tools and sprinkler heads are easy to pocket on a jobsite. Larger items like bags of fertilizer, sod, seed, and power equipment, can be driven away after hours in the back of a pickup truck. Very large equipment like lawn mowers or leaf blowers are harder to steal, but not impossible.
The most cost-effective way to limit employee theft is to prevent it from occurring in the first place. From GPS tracking to surveillance cameras and motion detectors, more and more contractors are resorting to new or creative measures to curtail their losses.
When he noticed some of his inventory missing, Dan Pestretto, owner of Our Gardener in Fort Lauderdale, Florida, said that putting up a few surveillance cameras immediately put an end to his inventory problems. “All we did was install a few poles with cameras on them and once the crew knew they were being watched 24/7, nothing left the facility.”
Not all employee theft is due directly to someone taking material items. Rather, theft can occur because of negligence or lack of proper procedure. One landscape contractor had a crew load up the truck at the end of the day, and then they went to use the restroom. When the crew returned to the truck, all of the equipment had been stolen. While this may seem to be an isolated occurrence, it surprisingly happens all the time.
Properly educating your staff on procedures can limit your exposure to theft on and off jobsites.
Another less obvious form of employee theft is overcharging for products or services. Overcharging clients can drastically affect a business’s reputation, because it affects not only the employer but the customers as well. If the customers find out that a business is overcharging them, it can hurt that business’s public relations. While it is difficult to do this at the employee level, misrepresenting what supplies cost, or offering false receipts for expenses is considered theft. From a management standpoint, this can be easily remedied by having a manager do all of the purchasing and by doing verifications for all employee reimbursements.
Theft of proprietary information, such as the company’s client list or confidential pricing information, can be equally as damaging as material theft. While this form of theft is hard to catch and even harder to prevent, there are still ways to deter it. Theft of information can be difficult to locate and prosecute, but businesses should be fully aware of how theft of information can cripple their business operations.
With such a wide variety of opportunities to steal, it becomes important for the business owner to understand why employees steal. Doing so can lead to other ways of understanding and preventing insider theft.
Most employees steal from their employer not because of need; rather, thefts usually occur because an opportunity to do so has presented itself. It stands to reason that an employee will only steal from their employer if the chances of getting caught are low. There are many other factors as well. For example, low morale at the workplace can be a huge motivation to steal.
Other reasons for employee theft run the gamut and include: the employee feels that the business or company has wronged him in some way, the employee feels that he is underpaid, the consequences for theft are minimal or there is lack of control over inventory. If preventive measures do not exist, then the opportunity to steal is very high.
However, the flip-side to that scenario is also true. John Gachina, owner of Gachina Landscape Management in Menlo Park, California, says the simplest and least expensive way to cut down on employee theft is to develop a good relationship with your staff and crew. “I think if you have a company where people are not really satisfied with their jobs and don’t feel good about who they work for or how they’re treated, you’ll see a lot more employee theft or workman’s comp lawsuits. If you treat your employees well, and have a good relationship with them, they’ll treat you well in return.”
With one-third of new businesses failing due to employee theft, prevention isn’t just a buzzword.
Safeguarding yourself does not have to be expensive, time consuming or even difficult, and in the end could save your business thousands of dollars or even prevent a financial ruin.
The ACFE report includes a checklist that is designed to help businesses test the effectiveness of their theft prevention measures. One of the first things you can do is establish a firm company policy on theft. Most companies adopt a ‘zero-tolerance’ approach to theft. Make sure that it is understood during orientation that the company will take legal action against employees caught stealing.
Have the costs of theft to the company and everyone in it— including lost profits, adverse publicity, job loss and decreased morale and productivity—been made clear to employees?
Selecting employees carefully can be a great way to eliminate insider theft. Employers should use background checks and credit checks that will inform them of the employee’s prior criminal record. Reference checks should be mandatory. A simple Internet search on a perspective employee’s name may reveal some crucial information.
Supervising employees is another way to have direct managerial oversight. Most companies agree that installing covert or overt video equipment to supervise the employee’s actions is a crucial way to prevent or catch employee theft.
Other useful ways to deter insider theft is to establish good guidelines for dealing with employee theft, such as making surprise visits to jobsites or conducting surprise inventory checks. These procedures can keep employees on their toes and will allow you to catch instances of petty theft before they balloon into more serious crimes.
Another idea for prevention of employee theft is through company perks and benefits. Some thefts occur because of disgruntled employees and employee dissatisfaction. Having simple ways to show appreciation goes a long way in deterring theft. Some businesses offer an employee discount, while others will lend out their power tools to employees for personal use. In each case, when these methods have been applied, companies report a decrease in theft.
Controlling and checking your inventory on a regular basis will tell you if you have a problem. Checking jobsites to be sure your crews are where they are supposed to be when they’re supposed to be working, and checking the hours recorded on the time card will cut down on time-theft.
If you follow these guidelines and the advice published in the ACFE report, act swiftly when a problem occurs, and treat your employees well, you’ll be on your way to reducing or eliminating employee theft.