7 Essential Tips to Prevent Employee Theft and Fraud

The U.S. Chamber of Commerce reports that as much as 75% of all employees steal from work, in some way or form, and about a third of all businesses fail each year because of employee theft. Since one of the most serious threats to the success of a business, no matter the size, is employee fraud and lax hiring, some preventative measures must be in place. While it may be hard to keep track of all employees, basic financial controls can help eliminate virtually all employee theft and fraud. Here are some essential tips to maintaining a fraud-free business environment.

  1. Hire Trustworthy Employees

    Often easier said than done, sometimes overlooking a candidate’s background will lead to great trouble down the line. Pre-employment background checks provide some controls in weeding out usual suspects — those with a history of crime, violence theft, and fraud, but it also can’t predict future behaviors. Dishonest employees will find ways to defeat or override even the most comprehensive internal controls, so it’s up to supervisors and managers to put into place other safety measures. For example, key financial accounts must be safeguarded, and access to important company information should be restricted.

  2. Foster a Positive Work Environment

    Businesses with clear organizational structure, fair and comprehensive policies, and efficient procedures are more likely to avoid internal fraud and theft. This is because lines of communication between upper management and employees are open, making the workplace a more pleasant and encouraging place. Companies who recognize employee excellence (this can be in the form of raises, celebrations, or monthly acknowledgements) also tend to reduce the likelihood of employee theft.

  3. Develop an Anonymous Reporting System

    All businesses should have an anonymous system where employees, vendors, and customers report any violations or suspected fraud attempts. This provides another system of checkpoints, and everyone can participate without revealing their identity. Take reports seriously and follow up with a better plan to prevent the same problems from arising in the future.

  4. Implement Internal Controls

    Larger companies rely on internal controls to safeguard their valuable assets, provide accurate financial reporting, and follow regulations. Internal controls must be in place to ensure that no single employee is responsible for recording and processing a transaction. Separating duties is one way to ensure accurate numbers. It also helps to conduct regular (and surprise) audits of processes and activity. Authorized employees should limit the number of people who have access to important information. By putting in authorization controls, a company’s financial assets are more secure.

  5. Have a Clear Company Policy

    Write and distribute exactly what constitutes stealing in your company handbook. The policy should have a zero tolerance for employee theft, and be clear that no fraudulent activity will be tolerated. Studies have shown that the more employees who believe they will be caught, the less likely they will be to try to cheat the system.

  6. Become Familiar with the Common Ways Employees Steal

    Understanding how theft can happen within your business can prepare you to take better action and preventative measures. While theft can get creative in its execution, knowing some common ways theft can happen is a great starting point. Larceny, the actual stealing of property or cash, is the easiest to detect because usually company property has been recorded in some form, and controls are usually in place. Skimming, the embezzlement of cash before it is officially recorded, usually takes further investigation since it can be a result of over-billing, write-off scheming, inflation, and/or altering numbers. Fraudulent disbursements are the most complex, as they can include fake payrolls, check tampering, and extra expense reimbursements.

  7. Take the Right Course of Action If Suspected Theft Occurs

    If you suspect an employee of theft, taking the right steps to see the situation through is essential. Never accuse an employee before you have conducted an investigation and have gathered factual evidence. Figure out the extent of theft, methods used, and possible loopholes. The more you understand the situation, the more prepared you will be in the future to prevent losses from happening again. It’s also a good idea to seek legal advice, depending on the extent of your loss to assess a better investigation plan (and how to deal with the losses).