“My employees would never steal from me…”
If you’ve ever had that thought or something similar, hopefully you have come to the realization that nothing could be further from the truth.
Employee theft is a real and common occurrence in every type of businesses. A CBS report found that a typical company loses 5% of its revenue each year because of employee fraud. According to the 2014 Global Fraud study, small businesses are hit especially hard, being “disproportionately victimized by fraud.”
There isn’t one simple method that will prevent your employees from stealing from you. But there a several actions you can take, and when used in conjunction, will dramatically decrease the amount of fraud that is committed by your own staff.
1. Conduct a Background Check
One of the first things you can do is perform a background check on each of your potential employees before they are hired. This might sound like a daunting task, but it doesn’t have to be a complicated process.
There are actually many affordable online services, like this one, that will conduct the background check for you. Most offer several pricing levels, based on the depth of the information that is being researched. Basic ones include a Social Security Number trace and address history, along with a look into criminal and sex offender records. More advanced packages include a check of the domestic terrorist watch list, school verification, and former employer verification.
It’s important that all of your potential hires are subject to the same test. Do not discriminate based on race, sex, national origin, religion, or anything else. Also make sure that each prospective employee agrees to the background check in writing.
Looking into a person’s past is not going to tell you everything you need to know. Just because a person has never committed theft before, doesn’t mean something won’t happen while they’re working for you. But the statistics are on your side. According to the 2014 Global Fraud Study, in 92% of the fraud cases that were reviewed, at least one behavioral red flag was discovered before the person actually committed fraud. Examples of these red flags include past employment-related problems, past legal problems, and divorce/family problems. A background check might not always uncover these red flags, but it’s a good place to start.
Even a simple investigation into an person’s past can provide at least some peace of mind when hiring a new employee. It’s not a perfect process, but you can rest easy knowing that you’ve done your due diligence and started the hiring process off on the right foot.
2. Create a Zero-Tolerance Policy
People of all ages respond to consequences. In a small business environment with limited resources, there needs to be clear consequences that are swift and severe.
You don’t have to run your business like a maximum-security prison. Good relationships with your employees are important. But when it comes to theft, you have to make it clear from the very beginning that there will be no warnings and no second chances. Your staff needs to know that if they’re found stealing or committing some other type of fraud, their employment will be terminated immediately.
This should not be mentioned casually during the interview or as part of the orientation/training program. It should be put in writing and the employee should sign it. Make it as clear as you can that stealing from the company is not tolerated.
These statements should be backed up with a conversation on how your company monitors fraud and theft. Clearly communicating your expectations while also explaining how it difficult it will be get away with anything, should help deter any thoughts or plans that they have to steal from you.
3. Develop Solid Relationships with Your Employees
As a business owner and manager, being best friends with your employees is not part of your job description. To gain respect from your employees and avoid being taken advantage of, it’s important that you consistently display your authority and make it clear that you are the boss.
That’s not an excuse to be an insufferable dictator. That type of behavior only leads to frustrated employees who show up for work simply to collect their paycheck. They have no interest in the success or failure of your company and care little about performing well. In the worst cases, it results in severely disgruntled employees who will behave in extreme ways (e.g. stealing from you) just to get even.
A Hollinger and Clark study of 12,000 employees in the workforce concluded that the happier an employee is on the job, the less likely they are to get involved in fraudulent activity.
The relationship between you and your employees should be based on mutual respect that considers the goals that each side wants to achieve. When that is respect is realized, the chances of fraudulent behavior decrease significantly.
No one is going to love every minute of their job. But you can do your best to provide an environment where your staff is reasonably happy most of the time. Pay your employees a fair wage and reward them for excellent performance. Ask them how their day is going. Buy them lunch every once in a while.
If they are having performance problems, try coaching them instead of just telling them what they’re doing wrong. Maybe even ask for a few suggestions on how you could make their job easier or more satisfying.
4. Design a System of Checks And Balances
You’d like to be the eyes, ears, and conscience of your business. Unfortunately, your to-do list makes it impossible to keep track of your employees at all times.
You need a way of controlling things and minimizing employee theft without hiring a team of security guards or installing a massive surveillance system.
One of the best ways to achieve this is with a strong system of checks and balances that is designed specifically to help your employees keep tabs on each other.
Giving one employee in your company sole control over one area of the business is a major mistake. Whether it’s a friend you’ve known for 30 years or someone with an amazing resume who just started last month, you never want to put too much trust into a single person. You don’t know when life’s difficulties will lead them to committing a desperate act. One that could cost you your business.
Whenever possible, major tasks should be divided among your employees. This is especially important when it comes to financials. Accounts payable, accounts receivable, payroll, and account/bank reconciliations should be split between at least two different people. There are many ways to set this up, but the important thing to remember is that your employees must be accountable to each other and to you.
Once you have the process set up, you’ll need to review it from time to time to make sure that everything is running the way it’s supposed to. It’s also a good idea to have a trusted outsider review your financial statements and other analytics to ensure that the numbers are where they’re supposed to be.
5. Invest in a Point of Sale System
To process sales quickly, effectively manage inventory, and develop strong customer relationships, it’s critical that you have a top-notch point of sale system for your business.
But many owners don’t realize that a point of sale (POS) system also helps minimize employee theft.
By allowing you to specify the areas of the system that your employees can access, a good POS limits the amount of trouble your employees can get into. Your workers won’t be digging into financials. Or viewing reports that have no business looking at. Or adjusting inventory levels. Fraud statistics being what they are, this type of control is essential.
A good point of sale system also tracks the sales transactions made by your employees. If discrepancies are found when analyzing the numbers, you can trace each action back to a specific employee. Not only does this help you get to the bottom of things, it also is a deterrent for the employee who is thinking of committing a fraudulent act.
Employees can steal money and goods, but they can also steal time. A Time Clock feature lets you keep track of when your employees come in and when they leave. If they’re stealing 20 minutes here or 20 minutes there, you’ll know about it.
6. Set Up an Easy Way for Employees to Report Theft
When it comes to reporting fraudulent activity, the old adage, “Don’t be a snitch,” just doesn’t apply.
The 2014 Global Fraud Study found that 42% of fraud cases were discovered by tips from other people. And of that group, 49% of the tips were from fellow employees.
Because theft negatively affects the company they work for and ultimately their own job security, many employees have few reservations when deciding whether or not to report fraudulent activities committed by their co-workers.
This is especially true if they are able to report the behaviors easily and anonymously. One way to accomplish this is to create a simple online form that employees can fill out to report fraudulent activity. A tool like Google Forms is free and easy to set up.
Today, most people would rather text or email than pick up a phone. By creating an online form with just a few fields to fill out, you’re making the process of reporting fraudulent as easy as possible on everyone. Considering how many cases of theft are discovered in this way, it should be a necessity for your business.
Employee theft is something that you will constantly battle when running a business. There’s no magic solution to eliminate it and your efforts to prevent it are not something you can just put on auto-pilot. Combining the suggestions described in this article is a good way to minimize the fraudulent activity that occurs with your employees.