5 Ways to Protect Your Business from Employee Theft
Employee theft is costly to businesses. CNBC says that workplace crime costs U.S. businesses $50 billion a year. Small and medium-sized businesses bear most of the cost.
Now that you've seen these scary figures, don't be discouraged. As a business owner, you still have control of what goes on in your business every day, and you can manage your business to minimize employee theft and embezzlement.
The Most Common Types of Employee Theft and Fraud
The CNBC article says the costliest types of employee theft are:
- Vendor fraud, where an employee manipulates accounts payable, using billing schemes, check tampering, and bribery or extortion
- Funds theft, check theft, theft of merchandise, theft of information, and
- Payroll theft.
The two most important things to remember about safeguarding your business:
- The employees who steal are most likely those who are the most trusted. Don't ever assume that the bookkeeper who has been with your company forever is honest. Because this person has unrestricted access to company records, cash, and information, he can do untold damage to your company. (Think "bankruptcy" here.)
- The hacker phenomenon is at work here. As soon as you plug up one hole in your security, the thief will work to find another. You will always be only one step ahead of a determined employee thief.
- Learn to recognize behaviors. You don't have to spy on your employees to recognize behaviors that could be a sign of employee actions. Some signs are living beyond their means, addiction, drastic life changes like divorce, discontent, and revenge.
Here are some ways to do protect your company from
#1 - Act to Safeguard Your Property
Restrict access to keys, computer data, inventory, supplies, and merchandise. Create passwords and change them frequently. Although cash is the easiest to steal, losses to inventory and merchandise for sale can be huge if someone can get access.
Business identity theft, in particular, is a growing concern among employers.
#2 - Create Written Procedures - Then Follow Them!
Your employees should know what to expect in their jobs. You can create an atmosphere of efficiency that will help you track all business transactions. For example:
- Number all documents and forms, and keep track of their use.
- Make sure you have the proper documents to assure that you are paying a bill for the right amount and to the right person.
- Set up payroll procedures so that you have control of the final action. One business owner has her bookkeeper do payroll using a payroll service. But the owner reviews each payroll and clicks "send."
#3 - Keep Track of Inventory
Remember there are two types of inventory. All businesses have an inventory of supplies, including office supplies, and businesses selling products have an inventory of products and component parts or materials.
Your inventory of supplies is vulnerable to pilferage (employees taking small items). While it might not seem like it's worth keeping track of, theft of small items can add up. For example, printer cartridges are extremely expensive.
Your product inventory should also be tracked and counted (inventoried). In particular, keep closer track of high-value items and document disposal of all obsolete, damaged, or low-selling merchandise.
#4 - Divide Up Duties Between Employees and Monitor
The duties you should be most concerned about are those of the people who do your bookkeeping and who handle merchandise. Establish two-step processes and then divide the steps between two people. For example, the person who does your bank reconciliation should not be the person paying the bills. Or, the person who takes in merchandise for sale should not be the person who decides if an item should be scrapped, or who enters the sale of an item.
#5 - Periodically Review Theft-prevention Measures
It's not enough to put these actions in place. You and your top executives must take time every so often to review. Check to see that all the items on your list of concerns have been addressed. Set key measures to make sure "slippage" is within a reasonable range. For example, look at your inventory turnover rate this year as compared to the last few years to detect greater-than-average turnover.
Yes, all of these safeguards are time-consuming and they may be costly. But they take far less time and cost less than losing money to employee theft and embezzlement.