Employee Theft

EMPLOYEE THEFT
Billions of dollars are lost and stolen annually from businesses, because of employee
theft. Employee dishonesty and theft costs businesses over $50 billion dollars annually.
National estimates show that 75% of all employees steal from their employers at least
once throughout their careers. The same statistics show that at least half of these 75%
steal multiple times from their employer. It is plain to see that the businesses cannot
continue to function if they let employees steal from them.

The intent of this article is to give supervisors and business owners a better understanding
of employee theft. We will first be defining employee theft, next we will reveal the
causes of employee theft, then state the facts about employee theft and finally suggest the
measures that should be taken to prevent employee theft.

Definition: Employee theft – any stealing, use or misuse of their employer’s assets
without permission to do so.

To further add to this definition it is also important to point out what employees normally
steal from their employers:

Money
Money is one of the most common assets that are stolen from employers.

Theft of time
Theft of time occurs when an employee is paid for time which they did not work. Usually
this happens through the falsifying of time records. Technically theft of time can also
include employees who are not working while on the job, though legally this is more
difficult to prove.

Theft of supplies
Theft of supplies is another prevalent form of employee theft. Common examples of this
form of theft are office supplies (paper, computers, cabinets, etc.) and restaurant supplies
(food, condiments, silverware, etc.).

Theft of merchandise and company property

Theft of merchandise refers to products that are to be sold. A good example of theft of
company property is product displays.

Overcharging customers and then pocketing the extra cash

This can drastically affect a business’ reputation, because it affects not only the employer
but the customers as well. If the customers find out that a business is overcharging them
it can hurt that business’ public relations. This is very common in restaurants because
most private restaurants do not keep a close eye on their employees’ actions.

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Information
This is probably the most damaging of all the forms of theft that were mentioned earlier.
Common examples of this are theft of product design and trade secrets. Businesses
should be fully aware of how theft of information can cripple their business operations.

Causes of Employee Theft

Amazingly, employees questioned as to why they stole often rationalize their action and
state the opportunity of theft presented itself through lax policies, controls and
management indifference. Moreover, many employees cite opportunities created by
management, not their financial need, as their primary motivation to steal. Another
significant reason employees give for stealing is their perceived belief management was
stealing so it was okay for them to also do so. This condition proves the point that, if
management wants a theft free work environment, it must set the example of honesty and
adherence to policies.
Some other common examples of employee rationale for theft include:
• I am underpaid and I only take what I deserve.
• Everybody does it, besides, they can write it off.
• The company makes a large profit and I deserve some of it.
• The company angered me and I got back at it.

Rarely do most employees steal from their employer because of need. Thefts usually
because an opportunity to do so has presented itself. It stands to reason that an employee
will only steal from their employer if the chances of getting caught are low.
There are many other basic reasons why employees steal:
• Low morale at the workplace. This is also a major reason why businesses
suffer from low production.
• The employee feels that the business or company has wronged or mistreated
them in some way.
• The employee feels that they are underpaid [and under-appreciated] for the
"hard" work they do.
• The consequences for theft are minimal. The company has no punitive
procedures or policies regarding employee theft. If there are no set
consequences to employee theft then employees will continue to steal,
because they think that they won’t be punished.
• Lack of control over inventory. It is easy to steal because the employer does
not have preventive measures to stop them. Preventive measures are crucial to
reducing the risk of employee theft. If preventive measures are not existent
then the opportunity to steal is very high.

Facts about Employee Theft

Since there are as many signs of theft as there are ways to steal the list of warning signs is
endless. The key is for management to realize that certain conditions or incidents may not
be the result of carelessness or incompetence, but indications that theft is in progress. All
irregularities or deviations must be evaluated with an open mind and creative mind.
Inventory or product found near employee exits or dumpsters, sensitive documents

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discovered in copy machines, employees in key positions who refuse to take time off,
photo-copied documents used in lieu of originals have been signs of past theft and may
be indications of existing dishonesty.
Some other facts about employee theft are as follows:
• A majority of employee theft goes undetected by supervisors and management.
• Opportunity remains the leading cause of employee theft.
• Employee theft is responsible for 33% of all business bankruptcies.
• Other employees often ignore the theft and don’t do anything about it. Employers
should not count on other employees to report employee theft, unless they can put
a system in place that keeps the "reporter" anonymous and/or a reward program is
set up.
• Employee theft is prevalent in every type of business.
• Business owners must be aware of these facts in order to detect employee theft. It
is a common fact that most employers do not suspect their employees of theft.
Another fact that is important for owners and supervisors to keep in mind is that the
majority of the people who are stealing are those who have a close relationship with their
boss.

With reference to A Report to Business from the Baltimore County Police Department
published in April 2002 some interesting facts regarding Employee theft are illustrated
below with the title,

“WHO DO YOU TRUST? BEWARE OF EMPLOYEE THEFT!”

Let's play true or false based on a study done by the Department of Commerce and the
American Management Association.

1. Most theft is caused by non-employees. False. Quite the opposite. According to

John Case, a security management consultant, 95 percent of all businesses are
affected and hurt by employee theft.
2. Well-paid employees or senior employees are trustworthy, loyal and don't steal.
False. Oftentimes these employees are the most dangerous because they take
advantage of the trust that has been placed in them. These employees are
opportunists, that is they steal when the opportunity is right and not always for
financial reasons. They feel little remorse because they believe that insurance will
take care of the loss. Or maybe an individual feels they deserve it because they are
not paid as much as they think they are worth.
3. Honest employees can be counted on to report employee theft. False. Even honest
employees may feel strange about reporting on a fellow employee.
4. Employee theft is easy to spot. True. Depending on how vigilant you are.
Management must keep track of inventory. If merchandise is found near a dumpster
or exit, chances are it didn't get up and walk. Someone had to have put it there. If
you notice sensitive paperwork in a copier or copies used instead of originals, that is
also a sign that something may be wrong. Don't delay - check out these situations
immediately.

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5. You needn't formally tell employees that theft will not be tolerated. False. Your
message regarding intolerance to theft must be made before hiring anyone. Inform
potential hires that they will not only be fired, they could be prosecuted.
6. Employee theft is a contributing factor in some bankruptcies. True. As a matter of
fact, nearly one third of bankruptcies are a result of employee theft.
7. Employee theft is in the billions of dollars. True. According to the National Retail
Security Survey, U.S. retailers lost more than $13.2 billion from employee theft in
2000.Another study by the Department of Commerce and the American
Management Association shows numbers at a billion dollars a week.

To stem the flow of employee theft, management must take measures that will prevent
loss.
• When hiring, it is important to do a background check. Don't just ask for
references and then file them away. Follow up on them and call the references
listed.
• Talk to employees and explain the repercussions of employee theft. Remind them
that what affects the company, affects them too! They have no job if the company
goes under.
• Develop a loss prevention program that will ensure an ongoing effort to prevent
and detect dishonest activity.
• Use video cameras for monitoring customers and employees.
Not everyone is dishonest, but given the right circumstances, anyone is capable of theft.

Myths about Employee Theft

The most important way to deter employee theft is to be aware and prepared for the fact
that it happens. Dishonest employees avoid prosecution when managers refuse to accept
the idea that trusted employees are targeting them. To encourage awareness, author and
security professional John Case offers these myths and realities.

Myths and Misconceptions

• Management doesn’t need to tell employees about policies on employee theft
because they already know.
• Well-paid employees are less likely to steal.
• Honest and loyal employees will report other employees who steal.
• Losses from shoplifting are higher than losses from employee theft.
• Newer employees commit employee theft, while senior employees can be trusted.
• Employee theft is conspicuous and can be detected in its early stages.

Eight Tips to Prevent Employee Theft and Fraud

One of the most serious threats to the success of a small business is employee theft.
Misplaced trust, lax hiring and supervision, and a failure to implement basic financial
controls can lead to an environment that is ripe for internal theft and fraud.
Small business owners can help protect their businesses from employee theft and
fraud by following these eight recommendations.

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I. Create a positive work environment. A positive work environment encourages

employees to follow established policies and procedures and act in the best interests of
the organization. Fair employment practices, written job descriptions, clear organizational
structure, comprehensive policies and procedures, open lines of communication between
management and employees, and positive employee recognition will all help reduce the
likelihood of internal fraud and theft.
II. Implement internal controls. These measures are designed to ensure the
effectiveness and efficiencies of operations, compliance with laws and regulations,
safeguarding of assets, and accurate financial reporting. The controls for safeguarding
assets and financial reporting require policies and procedures addressing:
• Separation of duties. No employee should be responsible for both recording and
processing a transaction.
• Access controls. Access to physical and financial assets and information and
accounting systems should be restricted to authorized employees.
• Authorization controls. Develop and implement policies to determine how
financial transactions are initiated, authorized, recorded, and reviewed. Internal
controls will reduce the opportunity for fraud.

III. Hire honest people. Of course this is the goal of every company, and is easier said
than done. But if you have weak (or nonexistent) internal fraud controls, it is even more
important to make sure your employees are honest. Dishonest employees will ignore your
attempts to provide a positive work environment and search for ways to defeat even the
most comprehensive internal controls.
Pre-employment background checks are an excellent way to cut down of hiring dishonest
employees. A thorough pre-employment background check should include:
• Criminal history for crimes involving violence, theft, and fraud
• Civil history for lawsuits involving collections, restraining orders, and fraud
• Driver license check for numerous or serious violations
• Education verification for degrees from accredited institutions
• Employment verification to verify positions, length of employment, and reasons
for leaving.

IV. Educate your employees. You need to inform your employees about your policies
and procedures related to fraud, the internal controls in place to prevent fraud, the
organization's code of conduct and ethics policies, and how violations of these policies
will be disciplined. Every employee should sign a form to verify receipt of this material.
Employees should receive annual training on these topics and sign an acknowledgement
each time.

V. Implement an anonymous reporting system. Every organization should provide a

confidential reporting system for employees, vendors, and customers to anonymously
report any violations of policies and procedures. Promote and encourage the use of the
reporting system whenever possible.

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VI. Perform regular -- and irregular -- audits. Every company should have regular
assessments, but random, unannounced financial audits and fraud assessments can help
identify new vulnerabilities and measure the effectiveness of existing controls. It also lets
employees know that fraud prevention is a high priority for the organization.

VII. Investigate every incident. A thorough and prompt investigation of policy and
procedure violations, allegations of fraud, or warning signs of fraud will give you the
facts you need to make informed decisions and reduce losses.

VIII. Lead by example. Senior management and business owners set the example for the
organization's employees. A cavalier attitude toward rules and regulations by
management will soon be reflected in the attitude of employees. Every employee,
regardless of position, should be held accountable for their actions.

FINDINGS
In a sample of 25 people, among which 15 were male and 10 female, were asked to give
their opinion about what they knew about employee theft. The sample included people
relating to every field of life, most of them were being related to different public and
private sector organizations. The results were as under:

1. What employee theft is?

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2. Main reasons behind employee theft….

As shown in graph the main reasons why an

employee turns to employee theft is Low salaries offered by the employer, secondly the
dishonest nature of the employee who instead of being paid accordingly engages himself
in employee theft and last but not the least financial background of employee, which
persuades him to involve in this unethical act.

3. Types of businesses suffering from employee theft…

The types of businesses suffering
because of employee theft are every type
of profitable and non profitable
organizations. Among these Government
organizations are thought to suffer to a
greater extent because of employee theft,
and thenas the size of the organizations
grows this act also increases as shown in
the graph.

4. Are well paid employees involved in theft?

As shown in the pie-graph 36% of the subjects

think that well paid employees are involved in
theft while 28% don’t agree. And the rest of 36%
think that they are sometimes involved in
employee thefts.

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5. To what extent employee theft affects businesses?

Employee dishonesty and theft costs

businesses over $50 billion dollars
annually. But according to most of the
subjects representing 44% think that
employee theft affects businesses to the
least while 28% say that it causes huge
losses and 20% think that it’s the main
reason of company’s bank ruptcies.8%
of the subjects responded that the effect
of employee theft on businesses is negligible.

6. Are managers supposed to tell employees about the policies on employee

theft?

Managers are supposed to tell

their employees about the
policies of employee theft as
52% of the subjects think so.
8% opposed this statement
while 40% suggest that no need
to tell employees as they
already know the consequences
of being invloved in employee theft, that they may get fired or even may face some legal
proceedings as the policies on employee theft are the same in every organization.

7. Do the regular and irregular auditing prevent employee theft?

Employee theft can be preventd by regular and

irregular auditing. By the questionaires filled, it was
concluded that 88% of the sample think that regular
and irregular auditing can eliminate employee theft
from businesses. And 12% contradict this statement
as they think its not that influential in preventing
employee theft.

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8. Are educated employees involved in employee theft?

Asked a question of whether educated employees

are involved in employee theft or not, it was noted
that 44% of the respondents responded in a posative
manner that educated employees are involved in
this type of act while 4% replied no.The remaining
52% showed that sometimes educated employees
are too involved in employee theft.

9. What measures should be taken to prevent employee theft and fraud?

All of these factors are equally

important to prevent employee
theft and fraud. According to the
subjects under study,12% of the
them favoured “Creation of
posative work environment” as the
most important factor, 44%
suggested “Implementation of
internal control”,4% went for
educating employees and the rest
40% marked “Performing regular
and irregular audits” as most
important.

10. “No employee should be responsible for both recording and processing a
transaction.” Is this statement appropriate for businesses?

In businesses no employee should be responsible for both

recording and processing a transaction, because in this
way that particular employee gets a chance to misreport
inventory of the business by taking that home.For this
statement 72% of the responders agreed while 28%
disagreed.

11. While employing someone, rank these according to their importance of

precautionary measures of stopping employee theft.
While employing a new employee one must be very careful and
keep in mind the following precautionary measures. Most of the responders
considered the top most important precautionary measure as to conduct a
background check of the new employee. Second important thing as always asking

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for referrals—and then following up on them. Third to determine whether a

potential employee is under financial strain.72% of the responders agreed on the
above stated order of precautionary measures while others presented different
ranking to the given options.

12. Newer employees commit employee theft, while senior employees can be
trusted.

44% of the subjects agreed on the above statement

while 56% rejected this statement by saying that
senior employees are equally involved in employee
thefts as newer employees.

13. Why don’t more employees come forward and do the right thing?

Employees don’t come forward and

report the employee theft because of
different reasons. 16% of the subjects
pointed “Fear of being seen as a
snitch”, 32% “Fear of rivalry”, 48%
approved “Fear of abuse” and only 4%
mentioned “Fear of fraud” as the
reason of not reporting the employee
theft seen.

14. Will honest and loyal employees report other employees who steal?

88% of the responders marked “Yes” for the above

statement while only 12% marked “No” saying that
honest and loyal employees will not report other
employees who steal because of the fear already
mentioned and will just continue to be honest and loyal
in their work for the company. They will more
concentrate on their own work.

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CONCLUSION
Although it's not a pleasant topic to discuss, the fact is that theft by employees of
businesses totals nearly $40 billion in a single country each year.
As hard as it is to believe that someone you hire to fill a trusted position in your company
would actually take from you, it happens every day in all kinds of businesses and in a
variety of ways. And it is estimated that up to 75 percent of all employee theft goes
unnoticed.
Some security experts predict that up to 30 percent of the nation's workers will steal at
some time in their career. Difficult economic times, lack of salary increases and the
threats of downsizing and cutbacks make it even more tempting for employees to help
themselves.
Employee theft can take many forms, from stealing office supplies or
merchandise, to stealing time by improperly reporting sick leave and vacation to stealing
intellectual property and confidential information. When employee theft is discovered,
the employer/owner feels violated and often reacts out of emotion. Remembering that this
is a business problem and addressing it as such will aid in quick resolution and
prevention.
If you are the victim of employee theft, the first thing you should do is take a thorough
look at your company processes. Theft usually occurs as a result of a breakdown in
procedure. Do you lack a system for checks and balances? Are employees not following
clearly defined procedures? Are you paying enough attention? Use the situation as a
wake-up call to re-examine the way you do business. Here are some tips:
Do background checks on your employees. In a hurry to find workers, some
employers will just go on a "gut" reaction or assume that because someone is a friend or
relative of a current trusted employee, the same must be true of the new prospect.
Sometimes that theory works; sometimes it doesn't. Check everyone out thoroughly.
Nothing is foolproof, but doing some research should keep you from making an obvious
mistake.
Don't assume that well-paid employees will resist the temptation to steal, or that
trusted employees will report others who steal. Don't assume that new employees are
more likely to steal than those with the most seniority. Remember that things change in
our employees' lives just like they do in ours. Increased debt load from a child in college,
strained personal relationships, an addiction or pressure from peers could all change a
long-time, trusted employee's attitude.
Remove the opportunity to steal. Establish a system of checks and balances and
oversight for key processes that ensures different people are performing tasks and can
routinely check one another's work. Have an outside auditor perform an unscheduled
inspection from time to time. Ensure that employees responsible for accounting and
financial functions take time off routinely so irregularities in their work are more easily
spotted.
Work with your employees to create a plan to discourage theft. Allow them to
help design policy, checks and balances and consequences. Provide a confidential forum
in which they can speak about their suspicions without fear of repercussion. Ensure that

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employees know that management and ownership are subject to the same rules and
processes as anyone else in the company.
Realize that theft often occurs when employees are under personal financial
stress. Create an environment in which they can come to you with such problems.
Incentives such as bonuses for high productivity or sales can help deter theft as well.
Create policies that are clear, consistent and comprehensive in dealing with employee
theft. Distribute the policies in written form. Avoid double standards and overly punitive
reactions. Be mindful of morale among other employees. Keep discussions of problems
confidential and low-key. Deal with issues on a case by case basis, but employ consistent
policies across the board.
Finally, be a positive role model. The tone for integrity and trust starts at the top
of any organization. Talk the talk and walk the walk. Set an example of ethical
behavior and equitable management. Regardless of the level in the organization at
which theft occurs, it must be dealt with quickly and fairly.
If you suspect theft and decide to investigate, do so thoroughly and factually.
Making an accusation toward an employee can permanently damage relationships not
only with that employee but also with those with whom the individual works closely. Be
sure you are on solid ground before you make your suspicions known or state any
accusations.

Employee Theft is the most common problem prevailing in Pakistani organizations and
costing too much. In developing countries like Pakistan, employee theft can prove really
disastrous to the countries economy. As employee theft is mostly common in Pakistani
governmental organizations. Therefore solutions must be sorted for this problem and
every one of us should cooperate in eliminating this evil from our society and put our
country on the highway of development making it one of the most prosperous countries
in the world.

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REFERENCES
• Missouri Small Business Development Centers, Annual Review 2002.
http://www.missouribusiness.net/docs/problem_employee_theft.asp
Author: Mary Paulsell

• www.employeetheft.com

• Media Relations Centre, Baltimore County Police Department, 410-887-2210. Revised

November 21st,2001

• http://retailindustry.about.com/library/uc/uc_case1.htm

• Booklet “How to Identify Dishonesty within Your Business”.

97 major warning signs of employee theft.

• Encarta Encyclopedia standard 2005

• Electronic Journal of business Ethics and Organizational Studies.

By: Hershey H. Friedman (College of the city University of New York)

• The Ethics of faculty Behavior. College Student Journal, Vol. 35, No.3,418-22
By: Morgan B. L. and Korschgen A. J. (2001)

• Saints and Scamps; Ethics in organizations. Totowa, NJ; Rowman and Littlefield.

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