Employee theft prevention

Employee theft is considered the most serious crime affecting businesses, with losses estimated in the hundreds of billions of dollars. This report explains how a business can assess its operations to determine its vulnerability to employee theft and presents strategies that can be utilized to limit losses from this crime.

Introduction

The key to reducing employee theft rests in the hands of management. Management should begin by admitting that theft is possible and then create an environment that makes stealing as difficult as possible. By analyzing the opportunities for theft within a company, strategies can be developed to reduce or limit the exposure.

The strategies for controlling employee theft generally come under the following four categories: pre-employment screening, procedures that make theft more difficult, improving employee job satisfaction, and maintaining a policy of apprehension and prosecution.

This report provides information on methods and actions that can help to prevent employee theft. These actions are not directed at honest employees, but will serve to protect them and their jobs from the destructive effect of employee theft.

Preliminary analysis

Before implementing an employee theft prevention program, certain basic questions should be asked about the business and its operation.[5] The answers to the following questions will provide insight as to which strategies should be applied by the business:

• Is company merchandise of the type that makes it desirable to steal?
• Is company merchandise or property easy to steal?
• Are all job applicants thoroughly screened prior to employment?
• Are there controls on petty cash disbursements, bank deposits and withdrawals, issuance of checks, payrolls, reconciliation of bank statements, and the paying of invoices?
• Can shipping and receiving documents be altered?
• Can employees enter or leave the facility without being seen?
• Can employees who are caught stealing be successfully prosecuted?
• Is there a mechanism for recovering losses from employee theft, such as a restitution program or fidelity bonds?

Pre-employment screening

The first line of defense against employee theft is to hire honest employees at the outset. This is best accomplished through a program of pre-employment screening. By performing in-depth checks of an applicant’s job history and references, management can reduce its exposure to theft while creating an environment of honesty. A thorough screening process will convey to employees that management is concerned with ensuring the highest level of integrity in the workforce.

Employers should be familiar with applicable federal and state laws regarding employee screening. Employers must ensure that the screening protects candidate privacy and does not run afoul of the Federal Fair Credit Reporting Act (FCRA) or standards set by the Equal Employment Opportunity Commission (EEOC).[4]

The applicant's references and previous employers should be checked. Depending on the importance or sensitivity of the job, criminal checks and credit checks should be performed on a prospective employee. The Consumer Protection Act provides the general guidelines that employers must follow when performing background investigations.

Procedural controls and devices

Procedures and devices that make theft more difficult or apprehension more likely are opportunity-reducing. They are intended as a means of limiting the opportunity for theft. In any event, the application of these procedures and devices should be performed with the knowledge of employees; otherwise, there may be a damaging effect on employee morale and productivity.

Employers should develop a set of written procedures, regarding security, that also outlines the company’s policy for dealing with an employee caught stealing. A copy of the security procedures, as well as other company policies, should be provided to each employee and a signed statement of its receipt should be obtained. A notice should be posted, in a conspicuous location, stating that dishonesty will not be tolerated and that all offenders will be dismissed.[2]

Management should ensure that responsibilities and functions are separated so that no one employee has control over all parts of a given transaction. Workflow should be organized so that the work of one employee acts as a check on that of another.

Employers should account for merchandise through inventory control. A program should be established of regularly scheduled inventories, combined with unannounced or “surprise” inventory checks performed by someone other than stockroom personnel.[3]

A badge identification system should be implemented to identify all employees and to regulate the movement of visitors. All employees should be required to enter and exit the facility through a single employee entrance, monitored by a guard, where feasible. Employers should establish a policy that allows for searches of employee packages and lockers.

Employers should supervise shipping and receiving operations, and should use camera monitoring surveillance in the areas to deter theft. All incoming merchandise should be checked against purchase invoices and all outgoing merchandise against shipping documents. An area should be designated within the facility, if possible, for the collection of trash prior to its disposal.

Apprehension and prosecution

Although its effectiveness is often debated, a policy of apprehension and prosecution is considered a control strategy because of its role as a deterrent. The fear of being caught, coupled with dismissal, possible prosecution and the threat of jail (depending on the severity of the crime), will cause many employees to think twice about stealing.

Some companies, however, feel that they gain very little by an aggressive policy of prosecution. Besides the expense in terms of time, money and effort, there is the fear of bad publicity and the risk of lawsuits for libel, malicious prosecution, and false arrest. It is possibly for these reasons that the rate of prosecution of apprehended employee thieves is so low — less than 1 percent. Nonetheless, where it is warranted, strong positive action should be taken, since prosecution is a recognized deterrent to employee theft.[5]

Management should uphold company policies regarding employee thieves, judging every employee by the same objective criteria. When an employee is suspected of internal theft, local police should be consulted. Employers should be familiar with the evidence that is required and the procedures that should be followed.

An alternative to prosecution is restitution. Most states have “civil remedy” or “civil restitution” laws that permit retailers to bypass the legal system and simply ask the employee thief to make restitution, including some administrative costs.

References

1. The Peter Berlin Retail Consulting Group, Inc. The Peter Berlin Report on Shrinkage Control, Store Managers Edition. Jericho, New York: 2019. https://www.adt.com/business/retail-security.
2. Kehrer, D. 10 Ways to Prevent Employee Theft and Fraud. Bizbest Media, 2014. https://www.score.org/resource/10-ways-prevent-employee-theft-and-fraud.
3. National Retail Federation. 2018 National Retail Security Survey. https://cdn.nrf.com/sites/default/files/2018-10/NRF-NRSS-Industry-Research-Survey-2018.pdf. 
4. Society of Human Resources Management. SHRM Resource Page: Background Checks. Alexandria, VA: SHRM, 2019. www.shrm.org.
5. "Theft and Fraud Prevention in the Workplace." Protection of Assets, Security Management Manual. Alexandria, VA: ASIS International, 2012.

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