The world of fraud has been busy, especially for employers who must identify and deal with elaborate schemes of thefts in the workplace.
The impact of workplace theft in America is great, as studies put the annual loss between $10 billion and $200 billion annually.
On the lower end, the American Management Association conservatively puts the loss at over $10 billion annually while the US Department of Commerce estimates workplace costs businesses about $50 billion annually.
On the higher end, the American Society for Industrial Security estimates $100 billion annually. The Federal Bureau of Investigation is not exactly sure, but the Bureau estimates that shrinkage due to employee theft and error costs US businesses anywhere from $10 billion to $150 billion annually.
Meanwhile, Statistic Brain Research Institute reported that employee theft leaves US businesses with a gaping fiscal hole of $50 billion annually. Data experts at Statista concur and put the loss at roughly $47 billion annually. So far, these reports seem most refined and accurate compared to the lower and higher-end reports. Nevertheless, the fact remains that millions of employees steal billions of dollars worth of goods and services from where they work every year.
Who Does Employee Theft Affect?
Depending on the corporate structure – and in no particular order – employee theft in the workplace affects the following individuals:
- Other (honest) employees
A typical business is organized into top and middle management levels. While top management is responsible for the overall business performance, middle management is responsible for the performance of specific units or several units in a business.
So, how does employee theft affect management? For one, workplace theft affects the business’ bottom line, which undercuts top management. Furthermore, since profit is often a measure of performance, employee theft can affect middle management performance, potentially putting those managers in trouble.
Shareholders & Partners
Shareholders are individuals – and entities – who have a stake in a business. These shareholders equally have a stake in the consequences of employee theft. Take a cue from how employee theft affects overall performance, which is an indicator of a business’ value. High profits and better year-on-year performance mean increasing share price, which translates to an increase in the value of a shareholder’s stake.
But because workplace theft cumulatively affects a business’s performance, low profits – and even loss – depresses the worth of a business. Consequently, the market reacts, and the business’ share price drops, thereby shortchanging individuals with equity in the company. Of course, this is equally true for non-publicly traded businesses whose value depends on annual sales and profit margin.
The US Chamber of Commerce estimates that workplace theft costs American businesses between $20 billion to $40 billion a year. To cover this deficit, every working-class American inadvertently contributes more than $400 per year or roughly a dollar and change each day.
Employees who have stolen products or siphoned business resources often transfer the debt burden to customers whenever they can. A 1 to 10% surcharge may not seem like a lot, but it adds up. Eventually, a customer may decide the tariff is too high and patronize another business that offers the same quality service or product for a comparatively lower price.
Theft in the workplace does not just mean a loss to management, shareholders, and customers. Other [honest] employees bear the brunt too. For one, the loss or low profitability means the business cannot afford to increase wages, give bonuses, contribute towards 401ks, improve working conditions, or invest in employee training.
Forms of Employee Theft
The National Federation of Independent Business (NFIB) identifies seven prevalent forms of workplace theft, including:
- Tampering with checks
- Fake billings
- Payroll manipulation
- Expense reimbursement
- Business secret theft
- Converting business resources
This form of workplace theft is most common. Here, an employee outrightly steals from the employer or converts the stolen money, product, or service for personal use. Workplace stealing occurs when an employee has legal access (embezzlement) or has no legal access (larceny). For example, a cashier in charge of the cash register takes $10 from the cash register every other day – this is embezzlement. On the other hand, if a cleaner employed at the store steals from the cash register every other day – this is larceny because they have no legal access to the cash register.
Skimming is another form of workplace theft where an employee steals cash or products before the bookkeeper records them. It is often referred to as “off-the-books” stealing because, unlike in workplace larceny or embezzlement, the stolen item or money technically does not exist. Going by the previous example, if the cashier takes $10 from a customer as payment for the product or service, never records the sale, and pockets the money, this is skimming.
Here, an employee pays themselves by writing a check addressed to themselves and deposits the checks in a personal account. Most times, the employee forges the business accountant’s signature outright. Less often, they reissue the old outstanding checks, but this time, they alter the payee’s name to themselves or an accomplice.
This scheme is like check tampering, but it is more elaborate. Usually, the employee sets up a false vendor account and bills the company for nonexistent products delivered or services. The employee charges insignificant amounts to avoid suspicion, so the accountant or authorized check issuer is none the wiser. Unlike tampering with a check, the check issued here is authentic, but it is issued to a fictitious company or vendor.
This workplace fraud is common among employees who work in the payroll department. It involves inflating the amount on a check, invoice, or cashing a check more than once. Besides inflating checks, the employee may also create a ghost employee who is on the business payroll. Of course, the ghost employee is not an actual human. The profile is only a front for another employee to cash checks issued to the nonexistent worker.
Expense Reimbursement Schemes
This type of workplace fraud is arguably the most effortless theft to execute in a workplace. Here, an employee marks up the cost of an expense, includes expenses that were never incurred, or adds personal expenses to their expense report. The business then reimburses them for the expenses.
Business Secret Theft
Here, the employee steals high-value information such as customer lists, trade secrets, or software. The employee then sells the valuable information to competitors or converts it for personal use. The only recourse for businesses whose employees stole trade secrets or exploited sensitive business information is filing a claim under the Uniform Trade Secrets Act.
However, going to court is does not make good publicity for a business. Most businesses settle out of court and take preventive measures from allowing the theft to happen in the first place. The most effective way to prevent business secret theft is to have every employee sign confidentiality and non-disclosure agreements. The business may also have employees sign a non-compete agreement to maintain their market advantage for a while, especially if an employee has in-depth knowledge of business operations.
Converting Business Resources
Here, the employee uses the business’s assets for personal use or to run their own side business. The employee may also assign other employees to work on non-business projects for personal gain.
How to Identify Employee Theft And Fraud In The Workplace
No one wants to lose their jobs and get a bad reputation along with it. So, employees who steal do so in clever ways and take great care to cover their tracks. Still, an employer who knows what to look for can identify theft or fraud. Here are a few tips:
- Know that there is no stereotypical profile.
- Watch out for employees who live above their means or have bad spending habits
- Watch out for territorial employees, e.g.,
- Watch out for unrealistic reactions from employees, e.g., employing refusing desirable promotions or transfers.
- Watch for unusual behavior
- Unauthorized access to computer and company files
- Use anti-fraud technology, e.g., artificial intelligence software and video systems.
- Hire a fraud investigator to perform routine checks
This list is by no means exhaustive, and an employer can only look out for so many signs at any time. So, it is best to prevent fraud from happening in the first place.
Preventing Employee Theft In The First Place
The first line of defense is the hiring process. A business owner must make sure a prospective employee is not only qualified but also trustworthy to boot.
First, set at a minimum policy and procedure for hiring and keeping employees. If the position is a sensitive one, which gives an employee access to company finances and assets, consider seeking the job applicant’s permission to perform a credit check.
Then, the employer must perform their due diligence on the applicant, starting with an internet-based search to confirm some of the details on the prospective employee’s application. A quick search can help you confirm prior employers, the business name, and the addresses provided actually exist. You can also use an internet-based search to verify the applicant’s education history and credentials.
Meanwhile, consider performing a basic criminal history check on job applicants who get to the final stage of the hiring process. Unlike a credit check, you don’t need an applicant’s permission for this search. In fact, you can perform a background check online using local newspapers and commercial database services. Most state law enforcement and judiciary also let you access criminal history reports and court records for a nominal fee.