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How Much does Employee Theft cost Your Business?

Accounting

Employee related theft is a significant challenge for businesses. In 2015, it was identified that $60 billion is lost to shrinkage every year by US retailers, and employee theft is the single biggest cause of loss to retailers. The US Chamber of Commerce estimates that 75% of all employees will commit at least one theft in their working life and half of these will repeatedly steal from their employers.

The government agency also states that one out of three business failures could be a direct result of employee theft. The trouble is that it can take an average 18 months for employee theft to be identified by the company. However, sometimes, the deception can happen over a longer period and 75% of all employee thefts will never be discovered by employers.

Previous High Profile Cases

Over the recent years, there have been several high-profile cases of employee theft. Here are some of the cases that demonstrate the different ways that workers steal from their employers.

Quest Diagnostics – David Smith, a former manager at Quest Diagnostics, managed to get himself reimbursed for $1.2 million of fake expenses. He created fake companies, invoices and expense reports.

Block Communications – Former embezzler, Barry Webne, was hired by Block Communications as a theft-prevention specialist. However, rather than protecting the company, Webne discovered a way to steal from them. He would write himself checks on company stock, sign them with a signature stamp of a co-worker and then destroyed the cancelled checks. His spree meant that the company lost $1.1 million.

USPS – Joseph Winstead claimed he was serving on a jury for 144 days on a complicated federal trial. He used fake paperwork to support claims of $40,000 from his employers. He was caught when he attempted to repeat the fraud three years later.

Directory Plus Employee – A former employee didn’t deliver directories and instead hid them way in storage units. The losses for the firm were estimated to be over $500,000.

Calgary Transit – David Hamilton stole nearly $200 per day in quarters, dimes and nickels by hiding them in a bag. It is estimated that he stole nearly $375,000 from the company over seven years.

IKEA – Surai Samaroo would issue himself refunds for purchases made by customers and covered his tracks by altering stock records. In less than a year, he stole just under $400,000.

Bookshop – An independent bookstore in NC discovered that their bookkeeper, Anna Susan Kosak was writing and cashing checks written out to herself. During her tenure with the business, she stole $348,975.

Time Theft Is Another Concern

Another, harder to detect and protect against, type of employee theft is ‘time theft’. This is when an employee either:

a) Accepts payment for time not actually worked, or

b) Uses work time for play time (i.e. browsing social media, shopping online, making personal calls).

As a small business, the costs to you are in the form of inflated payroll and lost productivity – something that can have a far reaching impact in the long term. While it is challenging to place an exact cost of time theft on the US economy, research has shown that even the 10 and 15 minutes here and there add up to more than $400 billion losses in productivity every year.

In addition, three-quarters of employers experience payroll losses when one employee punches another employee’s timesheet. Nucleus Research states that about 2.2% of gross payroll can be lost due to buddy punching.

Most companies think that this isn’t a serious problem. However, research by the American Payroll Association discovered that the average employee steals just over four hours every week. Another survey conducted by Robert Half International found that four and a half hours were stolen by every employee per week.

Preventing Employee Fraud and Theft

Jack L Hayes International, a loss prevention and inventory shrinkage control consulting firm stated that in 2014, 1.2 million shoplifters and dishonest employees were caught by just 25 large retailers. This led to the recovery of $225 million, but the figure was 7.1% greater than the figures from 2013.

As theft directly affects your cashflow and the financial security of your business, you need to consider ways to minimize your losses to employee-related theft, and checking their property as they enter and exit the building might not be good enough to protect your business. After all, sometimes employees work in teams or use those not employed by the company to smuggle property and cash off your premises.

So what are the best ways to minimize employee theft? Here are some of the best tips:

1. Background Check Your Potential Hires

While potential hires may seem ideal, there can sometimes be a hidden past or attribute that can be fatal to your business. There are numerous background checks you can complete to make sure that your leading candidate is not a bad choice. Some of the checks recommended by the US Small Business Administration include:

•       Credit reports

•       Criminal record reports

•       School records

•       Workers’ compensation records

2. Receive Numerous Candidate References

A candidate is most likely to provide you with references that they know are going to give them a good report. Therefore, going for just one referral is not going to give you a clear picture of the candidate’s potential, skills and personality. To get more information, get at least two references and, if possible, three.

3. Create a Better Management Environment

One of the main reasons why employees get away with so much theft is a lack of strong management. Proactive and active managers will deliver trusted leadership that actively engages employees. Engaged employees are less likely to steal from the company. Also, active managers have more control and awareness of performance and financial issues. This enables them to discover discrepancies sooner, minimizes losses and increase the chance of recovery.

4. Control Cash Intake

While most purchases are made via debit or credit cards, there are still many purchases made by cash. These cash purchases are easier to manipulate and there are numerous opportunities for theft to occur. To help control the risk of theft, make sure that there is more than one person responsible for counting the cash takings and that the takings match the register receipts.

5. Be Aware of New Stock

Theft can happen before stock makes it to the sales floor. Therefore, when inventory comes into your warehouse, make sure it is accounted for and entered into your system. There should be more than one person to oversee this process.

6. Hire an Accounting Firm

An accounting firm can be a great investment. They can check on records independently and spot inconsistencies. This can lead to the earlier identification of theft. They can also advise on ways to prevent staff from making illegal withdrawals or other financial transactions

Conclusion

Employee related theft is a significant problem for your business. But by ensuring you have the right processes in place, you can reduce the cost and impact of employee-related theft. The main points to take away are that a professional manager and a buddy system can prevent employee theft and ensure your cash flow is not disrupted.

Do you have problems with employee related theft? Are you aware of the financial cost? Speak to a member of the Ragain Financial team to discuss how we can help.

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