EMPLOYEE THEFT and fraud is a perennial problem. One rogue employee can seriously damage the finances of a company. About a third of all business failures trace back to employee theft and crime, according to the U.S. Department of Commerce. Small and midsize businesses accounted for 68% of all workplace theft, with median losses of $290,000 in 2016, according to a study by insurance company Hiscox Ltd. Given these figures, it’s important that you protect your company against internal theft and forgery and take the proper steps if you discover a crime.

How Employees Steal

Understanding how theft happens can help you stay one step ahead of errant staffers. The most common thefts fall into three categories:

Larceny – Theft of property or cash is the easiest to detect because the cash or item usually has already been recorded on the books and adequate controls normally exist.

Skimming – This is the theft of cash before it is recorded on the company’s books. It can happen when an employee has a customer pay them directly for goods or services. Receivables skimming is when the amount owed is reduced on the books by write-off schemes. Also, personnel who have expense accounts may submit receipts twice – or inflate their expenses and mileage.

Fraudulent disbursements – This includes billing schemes, payroll schemes, register disbursement schemes, expense reimbursement schemes and check-tampering. Schemes include fake payrolls (paying a person who does not exist) or purchasing fraud (paying a fake supplier for goods that don’t exist).

Preventing Crime

For a measure of protection:

Perform background checks – Make sure you contact previous employers, references and schools and look for signs of any misconduct in terms of stealing or fraud. And consider getting a police report on the applicant.

Consider giving an ‘honesty test’ – These are standardized, commercially available written tests that are psychological evaluations of an applicant or employee. While many believe these tests weed out people with a propensity to steal, others feel that they are inaccurate and violate privacy and civil rights.

Supervise your employees – Research has shown that businesses with low levels of employee supervision show high rates of employee theft. Don’t be hyper-vigilant but do keep your eye out for the telltale signs of theft, such as a rise in an employee’s spending habits. Remember to be extremely careful about making accusations before investigating – a false accusation can result in a lawsuit against you.

Make it hard to steal – Don’t allow only one person to deal with money. Conduct unscheduled inspections or audits of inventory and bookkeeping. Monitor bookkeeping records.

Create a fraud avoidance plan and set rules – Every company needs to develop a fraud avoidance and assessment plan and set the rules for consequences if an employee is caught embezzling money from the business. Proper planning will make sure that all employees know where the company stands in regard to employee theft and will give business owners the confidence to handle it properly should it occur.

A plan should include:

      • Pre-employment and periodic background investigations.
      • Periodic checking and changing of computer passwords.
      • Internal and/or external auditors.
      • The specific consequences for theft, such as termination and reporting them to authorities.

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