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Anne Wallace, Esq.


Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

In a small business, it’s like marital infidelity in a group of close friends. Ugh, we’re sick. Everyone feels slimed. Who knows who to talk to?  Somebody has been unforgivably stupid.

Many employers are completely blindsided when they must finally confront the terrible evidence that an employee is stealing from the company. It’s not just the business owner. It's awful for everyone –the community of coworkers and the whole trust thing. 

It also happens with some regularity.  A typical business may lose between five and six percent of revenues from employee theft. According to the Department of Justice, nearly a third of employees engage in some form of theft.

Of course, there is a huge difference between inadvertently pocketing a pen, which is forgivable error,  systematically looting the accounts, which is a crime, and the many things that fall in between.

Employers need to figure out how best to deal with big and little stuff when it happens, how to be proactive in protecting the business against it in the future and how to rebuild after an ugly thing happens.

Let’s take this in three pieces: the mess in front of you, how to never go there again, and what to do next.

8 Steps to Take When You Believe an Employee is Stealing

  1. Don’t rush to judgment. This is a very serious situation and your actions could open your business up to expensive legal liability if your suspicions are wrong.
  2. Nonetheless, investigate promptly and fairly, without favoritism to some groups of employees or heightened suspicion of others. Many managers are the last to know what is really going on. Retaining an outside security firm may be best, both to control information leakage and to preserve objectivity. Your insurance company may be able to recommend an investigator. The first information about workplace theft may come from other employees, a financial audit, video monitoring or firsthand observation.
  3. Document the evidence on which your suspicions are based. Your company may need this in the event the employee sues. The documentation should include a description of every incident of theft, including date, time and what was stolen. Include any supporting artifacts, such as video of the theft or inaccurate financial statements.
  4. Review your range of options, depending on the severity of the offense and the employee’s position within the company.  If by “theft” you mean wasting time chatting rather than working, that’s a cultural difference and you should back down.  A simple reprimand may be sufficient. If this is full-blown embezzlement, on the other hand, criminal charges may be appropriate. Consult with legal counsel about your range of remedies, including termination, a civil suit or a police report and the likely consequences of each course of action. Does the employee have access to sensitive information or passwords? Is there a risk of retaliation? Is the employee covered by a non-compete agreement and, if so, is he or she likely to honor it if terminated? Think through the damage control steps before you act.
  5. Confront the employee with your suspicions in the company of a third person and security personnel, if necessary.  Give the employee an opportunity to respond. Document the meeting, what occurs and what is said. Consider allowing the employee to bring legal or personal representation, especially in a unionized setting. Then act swiftly in the manner that you have determined is appropriate.
  6. If you decide to terminate the employee, consider doing so for violation of company policy or mishandling of financial transaction — something other than “theft” to give you some cover in the event of a defamation suit. If the situation is serious enough to merit a police report, that is not an option, of course.
  7. Collect keys, badge and anything else that would allow the employee access to proprietary information. Do not allow the employee to return to his or her workstation but arrange for a supervised, weekend or evening opportunity to collect belongings. Escort the employee off the premises. Make sure that all security codes are changed during the course of the termination interview.
  8. Learn from your mistakes, re-think systems and plug holes. Information should be handled confidentially, but many people may have a sense of what has happened. You may have to work to rebuild the kind of business culture where trust is well placed.

10 Ways to Prevent Workplace Theft

Of course, this is what you should have done in the first place, but many managers don’t get to this step until some damage has happened. Prevention is really the less painful and expensive route. Here are ten steps to make sure it doesn’t happen again.

  1. Expect theft. You may want to like and trust your employees, but there is no reason to be foolishly unguarded.
  2. Build a company culture of honesty. Happy employees rarely steal; “sharing” is not always understood in the same way, and you can do a lot to prevent misunderstandings by making clear what your expectations are about the handling of company property and personal use of working hours. You may be able to cut relatively innocent incidental losses by quite a bit, just by explaining that the budget is tight and asking employees not to take things home, exceed lunch hours or spend working time on personal googling. However, make clear your zero-tolerance policy about expense reports, time sheets and other financial reports. Review these policies periodically and set an example through your own very visible sterling conduct.
  3. Limit access to trade secrets and other intellectual property on an as-needed basis. Make sure that your intellectual property is appropriately protected through trademark, copyright and patent filings. Take the further step of ensuring that employees who have access to this information are bound by enforceable confidentiality agreements. That will not restore the value of a trade secret that is misappropriated, but it may slow the potential perpetrator down.
  4. Especially in situations where employees are using social media or personal equipment or are developing products in the performance of their jobs, make clear through prior written agreement, who owns what, if and when the employment relationship ends
  5. Insure against employee theft. Employee dishonesty coverage is something that some smaller employers decide to forego, but given the prevalence of in-house stealing, this may be an unwise economy. Make sure that it covers volunteers and other unpaid workers, as well.
  6. Do a thorough reference and background check on potential employees, especially those whose position may allow them to handle financial transactions.
  7. Consider a fidelity bond for anyone who handles cash or other valuables. In the event of a large-scale embezzlement, this may provide the cash to keep your business operating. Embezzlement is a common cause of small business failures.
  8.  Know your margins and recognize the warning signs of theft. These may include revenues that are not on track with last year's financial activity, bounced business checks, unexpected declines in profits or increases in expenses, slow collections or unusual write-offs of bad debts.
  9.  Establish internal controls. Most fraud is committed by individuals working in accounting, operations, sales, upper management, customer service, and purchasing. Fraud or embezzlement detected through internal controls generally result in smaller losses than those found through external measures. These internal controls may include requiring all checks to be countersigned by two people, and endorsed “for deposit only,” establishing protocols about the frequency of bank deposits, having someone other than the treasurer or comptroller open and go through the mail, not giving the authority to write off bad debts to the same person who has the authority to pay bills, making sure that the person responsible for ordering goods is not the same person who is responsible for receiving and paying for them, setting up an internal tip line for anonymous reporting of suspected theft and trying not to become a business that depends on one or two people to handle all financial activity.
  10. Establish external controls. Certainly your business should be doing an inventory of physical property at least annually. The same goes for an external financial audit. Two sets of eyes are far more likely to uncover a problem than one.

 The Value of a Culture of Investment

This is the real issue for small and middle-sized businesses. How did it happen that you have dishonest employees?  You may have to monitor operations more closely, but what can you do, other than playing policeman, to protect the value of your business?

There's a lot of self-justifying psychology behind theft. Employees who feel disgruntled, slighted, under-rewarded or desperate are the most likely to steal. There are many cultural forces at play, but is the workplace one of those? It's a question that may be worth examining.

Employee theft is a big and multi-faceted issue. Small businesspeople cannot choose to remain unaware since the business consequences can be dire. Nonetheless, the response should be attuned to both causes and consequences.

Although your business should probably assume that there are some losses attributable to bad employee conduct, the ultimate goal is to have a community of workers striving toward the same goal. Keep that in mind as you try to deal with the issue of employee theft.

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