Employee Theft Is A Big Problem For Small Businesses

Employee theft, small business theft, startup theft,


Jan. 30 2019, Published 3:07 a.m. ET

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An employee slips merchandise into her purse. Or maybe someone makes a company check out to himself or pilfers supplies from the stock room. Even before you discover the crime, your business may have lost a bundle of money.

A 2016 poll on employee theft found that 80% of embezzlement happens at small businesses.

How Big  of an Issue Is Employee Theft?

According to claims data from The Hartford, burglary or theft is the most common reason for small business insurance claims, accounting for 20% of all claims. In some cases, an employee turns out to be the culprit.

You can mitigate the risk and protect your company by making sure you have business insurance to cover losses due to employee theft. But understanding how and why employees steal may help you head off problems in the first place.

There are a variety of ways an employee can steal from a company, Ken Springer, a former FBI agent and president of Corporate Resolutions, said in a recent Entrepreneur article. For example, workers can steal money, take home items of value, or snag your intellectual property. This can have potentially devastating consequences for your business, especially if it occurs frequently.

Fortunately, you might not have to go through a similar experience if you put basic security measures in place. Here are four steps to take to protect your company from sticky-fingered employees:

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Screen new hires carefully

Preventing employee stealing begins during the hiring process. Checking out an applicant thoroughly can save you headaches and money, and it’s crucial to follow employee screening laws in your state.

For example, you can and should check a job candidate’s social media profiles after you conduct a job interview. But only look at public content, and never ask for social media passwords, which can put you at risk of violating federal law, warns the Society for Human Resource Management. If you want to check a candidate’s personal credit, you’ll need to get permission in writing.

Pre-employment screening companies can do a background check for $50 to $200 per person, Springer says. Make sure you check references as well. Even big companies get burned by failing to find out why a candidate left a previous job. “Maybe they were fired for stealing,” he says.

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Get employees to sign a computer policy

When bringing a new employee on-board, ask him/her to sign a short document stating that the company computer is the property of the business and that you, as the employer, have a right to check it at any time, Springer recommends. “If you have a problem, you can go in and look at the computer after the employee leaves for the day,” he says.

Take steps to beef up security

You should take several actions to reduce opportunities for employees to steal. For example:

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  • Don’t give one employee too much control. For example, if one employee cuts checks, a different employee should sign them.
  • Get hands-on with finances. Put a policy in place that you personally must sign off on payments above a certain amount, recommends Read.
  • Keep a tight hold on the company credit card. Having been burned in the past, Read recommends getting one company card in your name rather than getting employees their own cards. If an employee needs to make a purchase, hand them your card, get it back when they return from the store, and check your account soon after, he recommends. If they need to travel, give them a cash advance and insist on getting receipts for every expenditure.
  • Lockdown goods and checks. Lock up office supplies and, if you sell a physical product, keep strict merchandise controls in place. If you have company checks, keep them under lock and key no matter how much you trust your employees. A cautionary tale: One small business in the maritime industry, a client of Read’s, was shocked to discover that an employee they had raised like a daughter was using company checks to buy her groceries.

Employee theft often starts out small — for example, an employee who’s short of cash for lunch “borrows” $10 from the cash drawer to buy a sub and chips, and they pay it back later, according to Read. Maybe the second or third time, they “forget” to replace the cash, and so on. “The key is to remove the temptation as much as possible, so they don’t get started,” Read says.

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Watch out for warning signs

No matter how much you trust your employees, look for telltale red flags that could suggest something is wrong, Springer recommends. These tip-offs include money problems, a disgruntled attitude, a lavish lifestyle that outpaces their paycheck, personal problems, excessive chumminess with customers or suppliers, and a reluctance to go on vacation or otherwise miss work. Of course, these signs don’t always signal stealing, but might mean that an employee merits closer scrutiny.

If theft happens, take action quickly to mitigate the damage and prevent further losses. If you suspect that an employee has stolen from you, you need to let your insurance company know right away, Springer says. Tell your insurer that you’re investigating the matter and will report back with details and documentation of how the theft occurred. Many of Springer’s clients have been able to get reimbursed by insurance for employee theft, often including the cost of the investigation, he says.

The protection offered by business insurance is important because a stealing employee can rob a small business of thousands — or even tens or hundreds of thousands — of dollars. “That can make or break a small business,” Springer says.

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