Employee theft can cost thousands before detection. Explore practical tips to safeguard your organisation and stop theft before it starts
One of your colleagues is constantly on their phone while at work. Another brings home a few items of stationery from the supplies cupboard, saying “no one will notice”. And then there’s the co-worker who's been caught stealing from the register.
All of them are guilty of employee theft. It comes in many forms and can go undetected for years. So how do you protect your organisation from an internal attack like employee theft?
In this article, we’ll discuss:
Read on to find out how you can handle and prevent employee theft.
Employee theft refers to the misuse of company finances and assets. It could cover:
Employee theft isn’t limited to money. Any time an employee uses company resources for tasks unrelated to their job, that's considered employee theft.
Yes, it’s more common than we think! Around 75% have admitted to employee theft at least once at their workplace. Businesses lose $50 billion every year to employee theft.
An employee theft case can go on for at least 12 months before anyone finds out.
Employee dishonesty comes in different forms. We’re listing them here in the hopes that it will help you spot workplace fraud, allowing you to take the right action.
Here are some types of employee theft:
Larceny – when an employee takes items that belong to the company, whether that’s money, supplies, or inventory
Skimming – this happens when an employee steals funds or products before they can be recorded in the company’s inventory or point-of-sale systems
Fraudulent disbursements – when an employee tampers with financial documents for their own personal gain. Some examples are creating fake vendor invoices for payment or submitting inflated expense reports
Payroll theft – this happens when an employee manipulates the payroll system to divert funds meant for wages and salaries. Some examples: creating a fake employee profile or tampering with direct deposit details
Stealing business opportunities – employees with access to the company’s databases could sell trade secrets, customer lists, or other intellectual property
Time theft – this involves doing other activities during working hours. Some examples: submitting inflated timesheets; doing a side hustle at work; taking long lunch breaks
The most common types of employee threat vary according to industry. For example, manufacturing companies are most at threat from theft of non-cash assets and billing fraud. Insurance companies should look out for check and payment tampering.
How does HR handle suspected employee theft? There are specific steps to follow:
If you suspect someone of employee theft, the first step is to conduct an investigation. This will help the organisation establish all the relevant details, including the scope of the theft.
“It may be appropriate to suspend employees pending investigation or a response from the employee. [This is to isolate] the employee from the workplace and prevent evidence tampering and/or further theft,” said Amy Zhang, executive counsel and team leader at award-winning employment law firm Harmers Workplace Lawyers.
It’s important to follow due process before taking any disciplinary action for theft in the workplace. “Before proceeding with any disciplinary action, employers should put allegations to the relevant employee and provide them with an opportunity to respond,” Zhang said. “Procedural fairness must continue to be maintained notwithstanding the potential seriousness of the alleged conduct.”
Once it’s been proven that employee theft did happen, employers should carefully decide on next steps. Consider if dismissal is the appropriate response or if there are other options to explore.
Read our article on how to discipline an employee for theft for some real-life cases.
Getting in touch with the authorities might also be required, according to Zhang. “Depending on the nature and extent of the theft and the conduct of the employee concerned, it may also be appropriate to notify the police and/or seek urgent court orders, such as freezing orders or search orders if there is concern of disposal of assets or evidence,” she said.
There's no template for handling employee theft cases, so the action taken should be proportionate to the offence. “Each case will turn on its own facts, so it is important to tailor the response to the situation at hand,” Zhang said.
“Theft by a grocery store clerk of money in a cash drawer will be different from an employee committing fraud and misappropriating company funds electronically.”
Why do people commit fraud?
— The ACFE (@TheACFE) November 21, 2024
As we dive into International Fraud Awareness Week, let’s explore the why behind fraudulent behavior. Understanding the motivations—be it pressure, opportunity or rationalization—can help us all stay one step ahead in preventing fraud. #FraudWeek pic.twitter.com/Jl4oxWS7yu
Here are some tips on spotting employee fraud.
Employers and HR leaders can use several strategies to prevent employee theft:
Strengthen recruitment practices
Carry out pre-employment screening and background checks, especially if the job applicant will have access to:
Apart from conducting these checks – and perhaps more importantly – follow through on what these checks reveal. Here’s what we mean: 57% of organisations run background checks. Out of this number, 16% of applicants had a history of fraud or theft, but the employer hired them anyway.
Pay attention to the red flags. This could save you and your organisation a lot of trouble in the future.
Define clearly what employee theft is to the organisation and what the penalties are. It helps to spell things out here, rather than have employees make assumptions on what’s acceptable.
Include reporting mechanisms in this document. Employees need to know what to do if they notice suspicious behaviour.
A code of conduct is not set in stone, so update this regularly. Share this document widely, at every opportunity possible:
Here are some guidelines on writing an effective code of conduct.
Tools like CCTV cameras and inventory tracking can help with theft prevention. Check if the fraud detection software and video surveillance you intend to use are in line with local privacy laws and your organisation’s policies.
The tech, widely deployed in law enforcement, is now being expanded into retail to help deter conflict and prevent theft. https://t.co/37FIBL8hXy
— NBC 7 San Diego (@nbcsandiego) December 17, 2024
Time-tracking software can be used to combat time theft. Other tools for various types of theft are:
access control systems – only employees with specific permissions can access sensitive areas
inventory management – tracks stocks and inventory levels, flagging any gaps between what’s on record and what’s in storage
point-of-sale monitoring – tracks cashier activity like voided sales, refunds, discounts
CCTV with analytics – analyses videos in real time; tracks patterns and repeat behaviour to spot suspicious activity
Use the technology that’s available. It’s a small investment in preventing large-scale internal theft.
A lack of internal controls accounts for 32% of workplace fraud reported. An override of existing internal controls accounts for 19%. This means that in over half of the incidents reported (51%), the cause was lax internal controls.
A few steps can be taken to address this. For example, have two employees complete a task for proper check and balance. Another option is to have a supervisor or manager sign off on certain transactions (e.g. issuing refunds or voiding a transaction).
Avoid giving full control of finances or assets to a single individual.
Apart from surprise audits done internally, your organisation could benefit from the expertise of external professionals like auditors, accountants, and legal counsel.
They can help provide an objective eye in reviewing your processes. They could also bring their wealth of experience and insight in suggesting improvements to systems already in place.
They can advise you on compliance requirements that you might not be aware of. This will make your workplace up to standard when it comes to meeting requirements.
Once the code of conduct has been drafted and internal tools have been set up, it’s time to get the rest of the workforce involved.
Start a training program to raise awareness. Be very clear about what your organisation considers employee theft.
Educate colleagues about possible red flags. That way, they’ll know what to do once they spot behaviour that might be suspicious. Tell them about their role in keeping the workplace safe for everyone.
Here are some of these red flags:
The top behavioural red flag – living beyond one’s means – has been part of this list since the Occupational Fraud reports started in 2008.
After giving employees information on internal theft, give them the means to take action. Set up and promote whistleblowing hotlines. These should be anonymous channels where they can report possible employee theft without having to worry about their safety.
Setting up a hotline goes in tandem with training; both have proven to be effective in combating employee theft. Around 67% of whistleblowers had fraud awareness training beforehand.
Most of the figures cited in this article are from Occupational Fraud 2024: A Report to the Nations. Read the full report here.
“The role of management is crucial at all stages of developing a no tolerance workplace culture on employee theft – from pre-employment screening through to the imposition of disciplinary action,” Zhang said.
To achieve a workplace free of employee theft, leaders should:
Set the example – Leaders who act with honesty and integrity set the tone for the workforce
Communicate policies regularly – Doing this throughout the year is important, especially with staffing changes and policy updates
Empower managers to spot red flags – Managers and team leads are best placed to spot any sudden changes that could lead to employee theft
Encourage managers to empower their teams – Workplace fraud also happens at the executive level, so managers should empower their teams to speak up if they suspect wrongdoing
Promote employee engagement – Disgruntled employees who feel underpaid often steal as a form of revenge. Nip this in the bud by using employee engagement tools to find out what issues concern employees the most. Take action on these complaints
None of this works unless the leadership team walks the talk. “Senior leaders must lead by example, shaping organisational values of trust and honesty from the top,” Zhang said.
As we have seen, employee theft comes in many forms, most of which are difficult to detect. Fraudulent acts like billing theft and payment tampering can take 18 months to uncover. By then, your company may have lost thousands of dollars.
Addressing this issue requires effort from leaders, managers, and employees alike. Having a training program to raise awareness is key. Setting up ways for employees to report suspicious behaviour is a good prevention method.
The most important approach in addressing employee theft is to be observant and vigilant. Pay attention. If something is off...it probably is. Follow through on any red flags or suspicious behaviour that arises. Small actions now can prevent big losses later.
What action would you take in dealing with employee theft at your workplace? Let us know in the comments.
