Learning that a trusted employee is stealing from your company can be a shocking experience. At first, you may feel like looking the other way or reacting violently. Neither is a good response. Looking the other way encourages further issues, not just with the thief but with other employees. A violent reaction could get you into legal hot water.
Let’s look at why and how employees decide to steal and what your best recourse is to mitigate your losses. Developing and implementing protection against theft before it ever happens is your best path.
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EMPLOYEE THEFT
Employees commit various types of theft. The most common is stealing cash through pocketing loose bills to embezzlement. Embezzlement is defined as “theft or malfeasance (bad actions) by employees or other trusted individuals within the business.”
In general, embezzlement is theft or diversion of company funds to the employee/thief.
Money isn’t the only thing that gets stolen. Physical assets from notebooks and pens to products can go missing. A crime that is becoming more common is data theft or theft of intellectual property.
WHY DO EMPLOYEES STEAL?
Stealing is about money in some form, either through stealing cash or selling assets and pocketing the proceeds. Like all crime, employee theft requires both motive and opportunity.
Opportunity appears when a business owner delegates daily financial operations to one or more employees who appear or have been trustworthy.
- Bookkeeping
- Banking
- Accounts receivable
Once they have delegated a task, many owners don’t think any more about it, becoming too busy to pay attention to the details until a financial crisis occurs. Opportunity is also available in businesses where basic accounting and bookkeeping controls are not put in place as the business grows.
Employees who steal also have a motive:
- Unexpected addiction to drugs, gambling, or another vice
- Living beyond their means and justifying taking a little from the company to maintain a lifestyle
- Feels disrespected from being passed over for promotion or being demoted
- Proving they are too smart to get caught
Strikingly, most employees justify or rationalize their theft while stealing even larger amounts.
HOW DOES EMPLOYEE THEFT HAPPEN?
An employee can commit theft with a variety of methods:
- Stealing cash
- Using company credit cards for personal purchases
- Stealing company checks and forging a signature or, if employee is an authorized signatory on the account, writing checks for personal use
The theft can be more sophisticated:
- Creation of fictitious vendors or employees
- Kickbacks from clients or vendors in exchange for contracts
- Subordinates coerced into performing services for the thief
With 20/20 hindsight, you can often see something that could have clued you into the problem.
DETECTING EMPLOYEE THEFT
Employees who steal often provide warning signs that something is amiss.
Here are some warning signs that could tell you an employee is helping him or herself to your money:
- Excessive personal spending beyond what the income would support
- Employee refuses to take a vacation in case the replacement detects the theft
- Employee wants to take work home or continually works overtime
- Petty cash disappears too fast
- Employee has an unusually close relationship with one or more vendors or are related to independent contributors who work for you
- Employee is suffering financial difficulties
- Employee has excessive control issues
If you notice an employee is suddenly driving an expensive car or has spoken about being in financial straits, it is possible theft is an issue.
WHAT TO DO IF AN EMPLOYEE STEALS FROM YOUR COMPANY
Your first step is to contact an experienced intellectual property attorney that can help you determine the best course of action and guide an investigation. You have several options for dealing with the employee. All but one could create difficulties in the future.
A written warning, probationary period, and repayment all sound like appropriate disciplinary measures until you think about the impact on the rest of your employees. Not only will these remedies send a message that the theft was not serious, but you are also allowing someone who stole from you once to have the opportunity to do so again.
Termination, as harsh as it sounds, is your only real choice for employee theft. To build the case for termination you need to:
- Gather evidence. Video and digital evidence are strong. A witness is also appropriate.
- Audit the computer files and financial records.
- Preserve documents, computer files, and emails.
- Maintain a chain of custody to prove there was no tampering with the evidence.
If you perform interviews or any other investigation, document everything you learn. You will need it when you report the theft to the police and to make an insurance claim to recover losses.
Your attorney can help you with civil liability even if the theft is not prosecuted as well as assist in the termination process, especially if the employee is a union member or part of a collective bargaining agreement.
As an entrepreneur or small business owner, learning that an employee has stolen from your company can feel like a threat to your child. Take measured steps to gather evidence to prove the wrong-doing on the advice of your attorney. To prevent future issues, put a policy and basic accounting controls in place.
