Theft of Cash by Employees

employee pocketing money from a cash register

Many of the losses sustained by small businesses involve the theft of cash by employees. Cash is king from the standpoint of an employee thief. It is easy to steal from a safe or cash register and is highly liquid. Thus, cash is stolen by employees more than any other asset.

Small businesses are particularly vulnerable to theft losses by employees. One reason is that workers often perform multiple functions with little oversight. An example is a bookkeeper who handles accounts receivable, accounts payable, and the monthly reconciliation of the balance sheet. A second reason is that many small companies lack basic controls to prevent fraud such as spot financial checks or an annual outside audit. Thirdly, many small business owners put too much trust in key employees and are reluctant to acknowledge signs of dishonesty.

Types of Cash Theft

The Association of Certified Fraud Examiners (ACFE) cites three types of cash theft: skimming, cash larceny, and fraudulent disbursements. Skimming and cash larceny involve the theft of cash receipts, meaning cash flowing into the business. Fraudulent disbursements involve the theft of cash flowing out of the business in the form of payments.


Skimming refers to the theft of cash that has not yet entered the employer's accounting system. The theft may occur at the cash register or usual point of sale. For example, a customer makes a purchase using cash. An employee pockets the money and never rings up the purchase on the cash register. The business owner is unaware of the theft because no record of the sale exists. A worker may also ring up a portion of the sale and pocket the remainder. For instance, an employee collects $10 from a customer and rings up a $5 sale.

He keeps the remaining $5.

Employees who work during off-peak hours such as the night shift tend to be supervised less closely than those who work during normal business hours. The same is true of outside salespeople, remote workers, and other employees who work away from the employer's primary location. For these workers, skimming is often a crime of opportunity.

Skimming can also involve the theft of checks. For example, patients mail checks to a dental office for services they have received. A dental office employee deposits some of the checks into a personal account instead of her employer's account. The missing checks were never entered into the employer's accounting system so the employer doesn't know they were received.

Cash Larceny

Cash larceny refers to the stealing of cash after it has been recorded on the employer's books. Larceny is more difficult to conceal than skimming because the stolen funds have been recorded in the employer's accounting system. An example of larceny is the theft of cash from a cash drawer after an employee has rung up a sale. The worker may later try to cover his or her tracks via a cash register scheme (discussed below). He or she may create a false refund, void a sale, or alter or destroy the cash register tape.

Fraudulent Disbursement

Like cash larceny, fraudulent disbursement involves theft of cash that has been recorded on the employer's books. The worker uses his or her position to release funds for a purpose not authorized by the employer.

The ACFE identifies five types of fraudulent disbursement.

  • Check Tampering. An employee creates a fraudulent check or alters an existing one for his or her benefit. For instance, a worker alters a check from a customer, replacing the employer's name with his name as the payee. The worker then deposits the check into a personal account.
  • Cash Register Schemes. A worker steals cash from the register by voiding a previous sale or creating a fake refund.
  • Billing Schemes. This type of fraud involves a fake document such as a purchase order or invoice. The worker creates a false document and then issues a check. He or she cashes the check or deposits it into a personal account.
  • Expense Reimbursement Schemes. Many workers commit fraud by falsifying business expenses. They may submit personal expenditures as business expenses or inflate the actual amounts spent. Some will even submit the same expense multiple times.
  • Payroll Schemes. Payroll workers may falsify payroll records, time sheets or other documents for personal gain. Workers may create fake employees, falsify commissions, or alter salaries or the number of hours worked.

Insurance Coverage

Theft of cash by an employee is not covered by a typical commercial property policy. There are two reasons for this. First, cash does not qualify as covered property. Most policies exclude accounts, bills, currency, notes, and money or securities under the definition of covered property. Secondly, most policies exclude loss or damage caused by a dishonest or criminal act committed by an employee (including any temporary worker or leased worker).

To protect your company against theft of cash by employees you can purchase employee theft coverage (also called employee dishonesty coverage). This coverage may be added to a property or package policy via an endorsement or crime coverage form.