Employee Theft: A Silent Epidemic Costing Businesses Billions

Imagine an invisible thief silently draining millions from your company's coffers. Employee theft, a pervasive threat often overlooked, is exactly that.

According to Exploding Topics, a staggering $50 billion is stolen from US businesses annually by their own employees. Companies lose roughly 5% of their revenue due to workers stealing money, physical property, or conducting financial frauds.

Beyond the financial losses, employee thefts erode trust, damage morale, and jeopardize your company's reputation. The truth is, theft in the workplace isn't an isolated problem – it's a looming threat across industries, impacting businesses of all sizes.

This article will act as your guide, illuminating the different forms employee theft can take, its far-reaching consequences, and, most importantly, the concrete steps you can take to prevent and detect it within your organization.

Employee theft isn't a singular crime; it manifests in various deceptive behaviors, big or small, depending on the industry and employee's position. Taking away a block of sticky notes or a pen might not seem a big deal - but, technically, even this is a theft chipping away at your company's resources.

Let's look at what forms of stealing various industries are most susceptible to.

Retail is a fertile field for all kinds of fraud. For example, American retailers lose up to 43% of revenue due to employee theft.

Stealing in this industry includes:

• Cash register theft: workers may handle large amounts of cash daily, which leaves them room for shady schemes. They include skimming funds before they are recorded in the system, often through fraudulent transactions or pocketing cash payments.

  Case 1. Some employees are remarkably creative in such schemes. CleverControl worked with a small offline retailer that offered a bonus card program for loyal customers. An unscrupulous cashier devised a scheme to exploit this system. He would discreetly deduct bonuses from customer cards to cover a portion or even the entire purchase price. However, he'd still charge the customer the full price in cash. This way, he pocketed the difference between the actual cost and the amount paid using bonuses.

• Merchandise theft is stealing products for personal use or resale. Retail businesses are particularly vulnerable to this kind of theft: employees have plenty of opportunities to pocket small items, clothes, food, and even tech gadgets.

• Inventory manipulation involves deceptive practices that distort inventory records. Employees might fake damage reports to claim non-existent products for personal gain. The cashiers might also void legitimate sales transactions, pretending the customer changed their mind. They could then keep the cash or use the voided receipt to process a fraudulent return for themselves or an accomplice. This scheme can also be done with merchandise returns - processing a return without actually receiving the items.

Finance is another sphere most susceptible to theft. Fraud schemes here are the following:

• Embezzlement refers to the misappropriation of entrusted funds or property for personal gain. A trusted employee might divert company funds for their use.

• Expense account fraud involves employees submitting inflated or fake expense reports to claim personal expenses as business costs.

• Manipulating financial records Employees might alter financial records to conceal embezzlement or other forms of theft. These manipulations can make detecting fraudulent activity difficult and have serious legal consequences.

  Case 2. A brazen act of internal theft came to light at a company branch when a former employee contacted the corporate office. The man questioned why he was still receiving W-2 tax forms and owing taxes on wages he never earned. The investigation discovered that the general manager had been fraudulently adding the former employee to the payroll system for two years. She then pocketed the salary paid out under the fake employee's name.

Working in hospitality is often associated with low compensation, poor working conditions, overwhelming stress, and burnout from customer communication. In these conditions, the employee may not resist the temptation when the opportunity presents itself, like a forgotten thing or an open cash drawer.

The most frequent thefts in hospitality include:

• Cash theft from registers is when employees might steal cash directly from restaurant tills or hotel reception desks.

• Pocketing tips meant for colleagues: employees who pool tips might steal a portion meant for their colleagues. Such behavior not only harms the business but also creates tension and distrust among staff.

• Overcharging customers: employees might add unauthorized items to bills or inflate prices for personal gain.

  Case 3. Criminal minds appear in the hospitality industry just like in retail, devising complex schemes for profit, as in the following case.

  The hotel's general manager received a complaint call from a guest regarding a previous stay, seeking a refund. After a brief investigation, he discovered that the guest's stay was missing from the system, with the room in question marked as out of order due to carpet cleaning that day.

  Further inquiry revealed a startling discovery: the night audit staff and a housekeeper, engaged in an intimate relationship, had colluded to pocket payments from cash-paying guests who checked in at night for single-night stays. The night audit accepted cash payments, checked in guests, and marked rooms as 'out of order'. In the morning, the housekeeper cleaned the room and reset its status to vacant/clean.

  That deceitful scheme persisted for five years, undetected by management, and resulted in an estimated loss of approximately $100,000.

Office thefts may take unapparent forms and sometimes seem minor; however, they can lead to severe consequences for your business. Here is what office employees usually steal:

• Office supplies: While seemingly minor, the accumulation of stolen office supplies like paper, pens, or toner cartridges can add up to significant costs over time. Yes, using office printers for personal purposes also counts as theft.

• Equipment: Stealing equipment, such as laptops, tablets, or specialized tools, can disrupt operations and lead to data breaches.

• Data breaches: Employees with access to sensitive information might steal customer data, trade secrets, or intellectual property. This can have severe legal and financial repercussions for companies across all industries, especially those in finance and tech.

• Time theft: Employees who waste time while on the clock, such as taking excessively long breaks or conducting personal errands, essentially steal from their employer. Time theft can be a problem in environments where work hours are not strictly monitored.

Much like in retail and office environments, employees in manufacturing steal materials, tools, or finished products for personal use or resale. These thefts can disrupt production schedules and cause significant financial losses.

Employee theft can significantly impact your business in various ways far beyond obvious financial consequences.

According to TechJury, 75% of employees have stolen from their employer at least once; over 37% did it at least twice. Three out of ten employee thieves have been doing it for years.

As a result, employee theft siphons off an astounding $50 billion annually from businesses and causes over 30% of bankruptcies in the US.

Employee theft is the reason for 28% of inventory losses and 43% of lost revenue in retail, with each dishonest employee costing a business $1,551.66 on average.

An embezzlement incident leads to $357,650 in losses on average. This amount includes not only direct fraud losses but also indirect ones, such as expenses on employee layoffs and hiring, increased spending on audits and security, and lost customers.

Time theft is subtle and innocent at first glance, yet it leads to tangible losses - around $400 billion per year, affecting 75% of businesses. More than 40% of employees commit one or another form of time theft, from inflating their work hours to taking frequent breaks while clocked in.

Employee theft can erode customer trust and damage your company's reputation. When customers discover that employees have been stealing, they become concerned about the security of their information or the overall integrity of the company. Reputational consequences also include lost customers, shareholders' distrust, and lower profits.

Internal theft can breed suspicion and distrust among the staff. Honest employees who discover theft may feel discouraged and question the company's commitment to fair treatment. Theft can negatively impact morale and workplace culture, lead to increased employee attrition, and even higher recruitment costs to make up for the spoiled company reputation.

Combating employee theft requires an all-encompassing approach that combines preventative measures with effective detection strategies. Here are some key steps you can take:

• Establish clear and concise company policies outlining acceptable and unacceptable behavior. They should explicitly address employee theft and its consequences.
• Implement a system of segregation of duties. This means separating critical tasks like authorizing payments, handling cash, and reconciling accounts to minimize opportunities for a single employee to commit and conceal theft.
• Conduct regular internal audits to identify any discrepancies or suspicious activities.

• Utilize security cameras in strategic locations to deter theft and monitor employee activity.
• Implement access control systems to restrict access to sensitive areas and information based on job roles and responsibilities.
• Invest in modern point-of-sale (POS) systems with features that track individual employee transactions and prevent unauthorized voids or discounts.
• Employee monitoring software, such as CleverControl, can be another tool in your defense against employee theft. While it shouldn't be the sole solution, it can provide valuable insights into employee activity. By monitoring computer use, internet browsing history, keystrokes, screenshots, and using face recognition, you can detect suspicious behavior that might warrant further investigation. Additionally, the awareness of being monitored can deter those considering theft in the first place. The software that tracks employee productivity is also perfect for combatting time theft. It is crucial to implement clear policies and gain employee consent before using such software.

• Promote a company culture that emphasizes honesty, integrity, and ethical behavior.
• Lead by example – demonstrate ethical conduct from the top down.
• Create anonymous reporting channels to encourage employees to report suspected wrongdoing without fear of retaliation.

• Conduct regular training programs to educate employees about company policies on theft and fraud.
• Inform employees about the different types of employee theft and their consequences.
• Highlight the importance of safeguarding company assets and protecting sensitive information.

By implementing these preventative and detective measures, you can significantly reduce your vulnerability to employee theft and protect your business from its devastating financial and reputational consequences.

Employee theft, though often hidden, can inflict significant damage on your business. The financial losses, reputational harm, and erosion of employee morale highlight the critical need for proactive measures. The good news is that you're not powerless. By implementing the strategies outlined in this article, you can build a fortified defense against employee theft.