Kevin Ian Schmidt

The statistics of internal theft are staggering: 

• The latest National Retail Security Survey states that 33.2% of losses to retailers are attributed to theft by employees.
• The Association of Certified Fraud Examiners (ACFE) reports that 5% of revenues of a typical organization are stolen by company workers.
• The average internal fraud scheme goes undetected for 18 months.

Small businesses are particularly vulnerable since they don’t have the resources or the processes in place to avoid and/or detect fraud activity.  With no formal loss prevention programs in place, many owners and managers rely on their experience and expertise to react to incidences of employees stealing.   Others rely on their beliefs, perceptions and ideals that their employees would not steal from them for a number of reasons. The following are myths associated with those ideological thoughts:

My employees would not steal from me because …

1. They Like Me – While it is true that good relationships with the boss may deter a small percentage of employees from stealing, research has shown that dishonest employees are driven by a number of factors.  Loss Prevention professionals cite the presence of the Theft Triangle as the breeding ground for employee theft. When these elements are present in the workplace, employees may be tempted to steal or become involved in other counterproductive behaviors.

Theft Triangle
a)    Motive – Potential gain and use for the cash or product
b)    Opportunity – Ability to quickly and safely steal the cash or product
c)    Low Risk of Detection – Perception of low probability of getting caught

The employees may genuinely like the manager or owner, but if the three factors are present in the work environment, the temptation to steal may override friendship.

2.  They’re My Best Employees – Many managers and employers perceive that because certain employees are self-motivated, hard workers, they do not have any integrity issues.  They are above reproach simply because they exceed expectations in their performance.  And because of that belief, those employees are not scrutinized for compliance to the rules, nor suspected of counterproductive behavior or theft.  Without accountability to the rules, even the best of employees may take advantage and steal.

3.  I Show That I Trust Them – It is essential that trust be developed throughout any organization.  It is the foundation of every great relationship.  In the world of business, the trust must be validated with accountability.  Unfortunately managers and owners may interpret showing trust as not checking up on employees.  Without a check and balance process or audit system, employees may perceive that there is low risk of getting caught.  All incidences of employee theft violate trust.  Show your employees that you trust them, but follow up on the performance expectations you have established.

4.  They Have a Clean Background – Pre-employment background checks are significant in establishing a comprehensive loss prevention program.  Hiring employees without criminal convictions may be a good start in creating an environment of honesty and trust.  High integrity must permeate the organization.  With a culture devoid of strong policies and procedures supported by compliance processes and effective supervision, employees may steal with a compelling motive, opportunity and the perception that they won’t get caught.  The ACFE reports that of the 1388 internal frauds investigated by Certified Fraud Examiners in the past year, 87% of them were perpetuated by first time offenders.  They cited the lack of internal controls as the key factor in the crimes that triggered the criminal behavior.

5.  I Pay Them a Higher Wage – Assumptions are made that paying employees a higher wage than their counterparts with other companies will make them happy.  If employees are happy with their wages they won’t steal.  It’s another myth.

Sociological studies have shown that employees are influenced by the culture established by the work environment.:

• Approximately 10% of the employees are morally incorruptible.  They don’t bend or break the rules.  They don’t steal given any opportunity to do so.
• Additionally, approximately 10% of employees bend and break policies and procedures with regularity and are prone to steal.  They are the challenge of Human Resource personnel in medium and larger size businesses and a big problem for the smaller companies.
• The remaining 80% of the employee’s behavior in the workplace is influenced by the culture and attitudes.

If the rules are clear and compliance is expected, employee behavior gravitates to following those rules.  If the counterproductive behavior of the small percentage of the problem employees is not addressed and allowed to flourish, other employees will be influenced by that behavior.

90% of the workforce can be positively influenced to compliant behavior with well written rules, clear expectations, and effective follow-up.

We want to believe that employees won’t steal from us.  We really do.  We use these reasons to support our views.  But, on their merits, these views are indeed myths.

Check out: Tips to Identify Internal Theft

Sociological studies on workplace behavior, criminal investigations on employee fraud, and anecdotal stories have proven that the workplace environment must be controlled to avoid counterproductive behavior and theft.

• Policies and procedures must be well written.
• Compliance to the rules and behavior expectations must be clear.
• Internal controls must be established and audited.
• Counterproductive behavior must be addressed effectively.
• The elements of the Theft Triangle must be eliminated.

It must be known in the work environment that opportunities to steal are low and the probability of getting caught is high.  You then might be right when you say; my employees won’t steal from me.

Type of Employee Theft

The Small Business Chronicle noted that there are five common types of employee theft, and four of them can be grouped under the category of direct theft. These four types of employee theft are:

• Cash Theft. As its name implies, this type of theft, most commonly seen in retail businesses, involves the theft of money and can be done in multiple ways. It does not just involve employees physically taking money out of the cash register; it also includes overcharging customers and keeping the difference for themselves.
• Supply Theft. This type of theft entails taking company property without permission. Some employees choose to take a series of smaller items – such as pens or paper – which add up over time, while others go after larger items such as furniture or computers. If this is allowed to continue undisturbed, it can heavily cost your company in replacing the supplies.
• Merchandise Theft. This type of theft occurs when employees swipe merchandise that is meant for the customer, whether it is done during the workday or during the distribution process. Like supply theft, this can easily add up over time and cost your business a great deal of money.
• Information Theft. One of the less tangible forms of employee theft, this particular action occurs when employees forcibly obtain access to confidential information – such as customer lists – in order to use it for their benefit. In addition to potentially costing your business, this breach of confidentiality can cause distrust in your business.

Employee Fraud

There is one type of employee theft that was not mentioned in the previous section, and while this final category does not involve any physical theft, it is no less damaging to your company. In addition to taking money away from your business and negatively affecting your finances, employee fraud can irreparably damage your business’s reputation. Some of the prevalent types of employee fraud include:

• Payroll Fraud. In this action, employees falsely claim compensation for work they have not done. This includes claiming reimbursement for non-work purposes and falsifying their time sheets.
• Bribery and Corruption. Some employees have been found to accept bribes or other benefits from third parties in exchange for an advantage.
• Asset Misappropriation. One of the most common types of employee fraud, this includes any activity that makes use of the company’s assets for personal gain. In addition to the physical thefts mentioned above, this also includes workers’ compensation fraud, paycheck forgery, and insurance fraud.