Theft of Cash by Employees

Man hiding money in his suit and raising his finger to his lips.

Many small businesses are victims of thefts perpetrated by employees. When choosing an asset to steal, employees often opt for cash. 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.

Small businesses are particularly vulnerable to employee theft losses. For one thing, 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. Secondly, many small companies lack basic controls to prevent fraud, such as an annual outside audit. Thirdly, small business owners are often overly trusting of key employees and disregard 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 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. Some thefts involve money that should have been put into the cash register. For example, a customer makes a purchase using cash. An employee pockets the money and never rings up the purchase. 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.

Skimming can also involve the theft of checks. For example, a spa customer pays for a facial with a personal check. The clerk never enters the transaction into the spa's billing system. Instead, she deposits the check into a fake business account she's opened in her name. The theft goes undetected because the spa has no record of the sale.

Cash Larceny

Cash larceny means stealing cash that has already 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 cash an employee steals from a cash drawer after ringing up a sale. The worker may try to cover his tracks by creating a false refund, voiding a sale, or altering or destroying the cash register tape.

Fraudulent Disbursement

Fraudulent disbursement involves the theft of cash for a purpose not authorized by the employer. As in cash larceny, the money has already been recorded on the employer's books.

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 written by a customer and then deposits it 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, which he or she cashes or deposits 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.


There are a number of steps you can take to discourage unscrupulous employees from stealing your cash. One way to prevent skimming is to stop accepting cash. You can ask customers to pay for purchases with a credit or debit card. If this option isn't feasible, you can keep a close eye on your inventory. Shrinking inventory can be a sign that your workers are skimming cash. Another tactic is to install cameras near your cash registers. Workers are less likely to steal when they know their actions are being recorded.

Shrinking inventory can be a sign that your workers are skimming cash.

You can help prevent cash larceny by making random checks of cash registers. The goal is to ensure the transactions recorded by the registers are consistent with the amounts of cash in the drawers. You should also institute a system of checks and balances by dividing up duties. For instance, ask someone other than a cashier to do an end-of-day reconciliation between the register tape and the amount of cash in the cash drawer.

Checks and balances are also important for preventing fraudulent disbursements. For instance, you can prevent check tampering by having one employee prepare checks and another mail the checks after they've been signed. You can prevent many types of fraud by rotating tasks and requiring workers to take periodic vacations. Workers can commit fraud more easily when they have total control over an entire process. An example is a worker who approves timesheets, prepares paychecks, and distributes the checks to employees.

Insurance Coverage

Theft of cash by employees isn't covered by a typical commercial property policy. One reason is that the definition of covered property generally excludes accounts, bills, currency, notes, and money or securities. 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).

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