How to Detect When Employees Are Stealing from Your Company

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Are you feeling suspicious about an employee or seeing potential signs of theft and embezzlement, such as discrepancies in inventory counts and cash or missing merchandise? You’re not alone among employers. Employee theft and embezzlement are on the rise, affecting 95% of businesses in the U.S.

Just consider the following statistics:

  • 3 out of 4 employees admit to stealing from their employers at least once
  • 3 out of 10 employee theft cases lasted for more than five years
  • 7 out of 10 employee theft cases occurred in organizations with fewer than 500 employees
  • 89% of occupational fraud is asset misappropriation with a median loss of $114,000
  • 67% of retail companies reported an increase in inventory shrink in 2019
  • A typical business loses 5% of its revenue annually

Employees steal for various reasons, from lack of ethics to unrestricted access to believing they are justified because they were passed over for a promotion or conflict with their manager. Knowing this wide range of reasons makes it easier to be realistic than idealistic about your employees. Since there’s almost always a bad apple or two in the bunch, it’s critical to apply proven methods to detect potential cases of theft and embezzlement. Here are a few that are particularly important for small and midsize businesses:

Keep critical tasks separate for checks and balances

Often, employee theft occurs, in part, because there are opportunities to exploit. One way to minimize loopholes that unscrupulous employees look for is to keep tasks in these record-keeping and accounting areas separate:

  • Record keeping: Make sure one person gets the check signed, and another creates the invoice.
  • Authorization: Make sure one person approves the vendor bill, and another sends a customer invoice.
  • Bank reconciliation: Make sure one person reconciles the bank statement, and another credits and/or edits the invoice.

Watch out for payment and expense record discrepancies

If one employee is repeatedly involved in incidents in which vendors claim they were never paid, customers claim they already paid a bill, or financial documents are missing, or if there is a pattern of payment irregularities, you have a potential theft case. An embezzler can log a payment but write a check to themselves or a fraudulent entity. They can steal customer payments and keep balances marked “unpaid.”

Keep an eye on employees showing these red flags

People who steal often and in large amounts exhibit certain red flags that they cannot (or foolishly do not) keep hidden. Look for large purchases that seem inconsistent with their earnings, such as fancy jewelry or a luxury car. Thieves often prefer to work independently and avoid team settings where there is more accountability. They may also take work home to commit their crimes out of sight. You may also notice a change in work patterns as they start to steal from the business. If they start coming in early or leaving late for no apparent reason, this could be a red flag.

Missing cash

One of the easiest and most common signs of employee theft is patterns of missing cash, especially those that can be traced to a single individual or pair of conspirators. Cash is the low-hanging fruit, and that’s what most low-level thieves are after. If you see a pattern, install cameras above the registers and investigate immediately. Seeing that you’re on to them, your culprit may quit, and then your investigation should shift into high gear, involving the police.

Missing inventory

Every business should have an inventory management software solution for several reasons, including deterring and detecting theft. Inventory management software integrated with comprehensive enterprise resource management solutions can easily detect suspicious patterns when items go missing. Also, consider that thieves have networks and talk to one another. They look for easy targets, and companies that only use accounting software for inventory management are attractive to the career criminal.

Whenever you begin to notice the slightest potential signals of employee theft and embezzlement, start to document everything. Talk to the employee, ask for explanations, install cameras, and make it known to anyone else considering criminal activity that your workplace will track their behaviors, investigate, prosecute, and put them behind bars.

ECI Staff Contributors

About the Author

ECI Staff Contributors love to share their insights and expertise on a variety of topics including sales, marketing, cloud, ERP, and SMB development as well as on product specific education. With offices throughout the United States, Mexico, England, the Netherlands, Australia, and New Zealand, more than 40 employees contribute to blog on a regular basis.