Statistics indicate that 75% of employees steal from their employer at some stage in their careers and half of those steal multiple times. (See Employee Theft on the International Foundation of Protection Officers website. I believe the original source is the U.S. Chamber of Commerce.)
Startling statistics that indicate employees don't need tips on how to steal from the boss... but the opposite, how can small businesses stop theft and fraud.
I just thought I'd try a dramatic title - it was originally called "How To Steal From Your Boss".
I am aware that by identifying possible ways to steal money I risk encouraging theft, in just the same way that some scum hearing on the news about a thug robbing pensioners will think "That's an easy way to get some money."
But I am also aware that forewarned is forearmed... if employers know what can happen, they can put in systems to minimise the theft or at least to keep a wary eye open.
How Bad Is Employee Theft & Fraud?
Statistics from the American Society of Employers include:
- Businesses lose 20% of every dollar to employee theft.
- 20% of employees are aware of fraud at their companies (including theft of office items, false claims of hours worked, and inflated expense accounts).
- The average time it takes for an employer to catch a fraud scheme is 18 months.
- 55% of perpetrators are managers.
- 44% of workers say their companies could do more to reduce fraud.
- The U.S. Retail Industry loses $53.6 Billion a year due to employee theft.
- 60% of companies have staff trained to deal with fraud and ethics issues (up from 30% in 2000).
I found those statistics on Biting The Hands.
Employee Thefts & Frauds I've Seen
I think one of the problems is the difficulty of knowing to draw the line between the black and white, that's right or wrong and the shade of grey which requires action.
How many of us have used stationery from work at home, made some copies on the office photocopier, franked a letter when we'd run out of stamps, used the office Internet to buy on eBay or rounded up a mileage claim?
Strictly they are all theft or fraud but I'm not sure that I'd want to work in such a Draconian business that clamped down hard on any indiscretion.
There has to be give and take.
What I'm talking about is the wilful intention to take money and property from the employer.
- Theft of stock and scrap
- Creation of fictional employees on the payroll
- Stealing cash from cash sales and petty cash
- Teaming and ladening of cheque receipts to disguise cheques stolen and paid into a fake bank account - that was before the Money Laundering clampdown which has made it so difficult to open a bank account.
- Kick backs from suppliers for accepting inflated buying prices
- Payment of false purchase invoices from fake vendors
- Inflated expense claims
- Inflated overtime claims and falsifying attendance records to cover absenteeism and lateness.
So how do your stop your employees from stealing from the boss?
1. Acknowledge the problem and accept even your most trusted staff could be up to no good.
Every fraud I know about has been done by someone trusted. In the statistics above, it is startling that 55% of the perpetrators are managers.
I sat next to the woman who was putting fake employees on the payroll at the staff Christmas dinner a few months before she was caught. She was charming... and no she wasn't a stunner... just someone I thought was really nice.
Two things start many frauds - opportunity and need.
Most frauds I've known about have started because of a sudden - perhaps desperate - need for cash.
The employee thinks of it as borrowing, not stealing.
It's just a loan to tide them over and they plan to find some way to pay the money back.
But for many, they get into the habit of spending what they "earn" and a little bit more. Instead of paying the money back, they need a bit more... and then a bit more.
2. Finding the victims of the crime
One of the reasons why insurance fraud is so common is that it's seen as a victimless crime or even as getting even against the big, bad insurance company that is cheating customers out of valid claims.
So your employees need to relate the crime to the victim.
In the fascinating book Predictably Irrational, behavioural economist Dan Ariely looks at the problems of cheating and fraud. He argues that we care about honesty and want to be honest... but the internal honesty monitor is only triggered by the thought of big transgressions. And this allows people to take actions which bypass their own moral code.
Tests show people find it harder to steal cash than goods or even near cash equivalents.
It's also harder when it gets personal... when you like the victim and understand the pain you can cause.
Help your employees to bond with the business and care about its well-being through good management practices and bond with the employees yourself by being fair and showing you care.
Reinforce the connection between you and the business so that stealing from the business is little different from breaking into your house and stealing your personal possessions.
3. Don't Hire Dishonest People Unknowingly
If you are hiring, do your checks on people - references, qualifications and in the UK employers can have criminal record checks.
Know what you are getting yourself in for.
I'm not saying don't hire someone with a criminal record because people generally deserve second chances and someone who has been caught and been to prison may well have learnt their lesson.
4 Educate your employees
Your employees need to know where the line is between acceptable and unacceptable behaviour, how employee theft threatens the viability of the business and that your policy is to prosecute.
Make it clear that your employees have an obligation to the business to report any suspicious behaviour - otherwise they are accessories to the crime - but it will be confidential.
5. Lead by example
What you say doesn't make as much of an impression as what you do.
It is your business but you need to be seen as scrupulously honest and follow your own rules.
6. Strengthen your internal controls
Remember opportunity is a key cause of theft so you need to tighten controls to reduce the opportunity and to increase the likelihood of being caught.
A lot of this is common sense... but sometimes sense deserts us.
Keep valuables under lock and key with controlled access. Don't have the petty cash tin left open on your desk so anyone can dip in and take a few twenties. Keep valuable equipment and stock locked away.
If the product is really valuable, operate a search policy. I worked at a coin producing Mint and in the cupro-nickel factory, there was a random search generator. At the precious metals medals business, everyone was searched every time they left the building.
Make people sign for things... it helps to reinforce responsibility.
Do spot checks at surprise intervals to check that things are as they should be.
Split the duties so two people are involved in the process... and would have to collude, be stupid or incompetent for theft to occur. Make sure each understands their responsibility to protect the company's assets.
Make sure reconciliations are done and agree to the underlying supporting documentation... in fact make sure you see the supporting documentation, if not for everything, then on a random basis.
The simple message is to take each process and look at how someone could take money out of your business... and then do what you can to stop it.
Do you have an employee theft or fraud story to share?
If so, please leave a comment... and make it anonymous with a fake email address if necessary.