As a business owner, you naturally want to believe your employees are trustworthy and dedicated to your company. So when one of them betrays that trust and steals from you, it can be a difficult and uncomfortable situation.
But it’s more than just heartbreaking. It’s also one of the most serious threats to your business success. The Association of Certified Fraud Examiners estimates the average business will lose about 6 percent of revenues from employee theft. If you run a retail operation, it could be even worse. According to the latest Global Retail Theft Barometer, the U.S. leads the world in retail employee theft, to the tune of about $18 billion annually.
How do you get this risk under control?
You can’t prevent all employee theft, but here are 10 tips for significantly reducing the risk:
- Hire smart. Conduct thorough pre-employment background checks that include criminal and civil history, driving record, education verification, employment verification, and drug screening.
- Create a positive environment. Written job descriptions, fair employment practices, an organized management structure, clear policies and procedures, good communication between management and employees, and positive employee feedback can all help reduce instances of internal fraud and theft.
- Know your staff. Take time to get to know your employees personally and connect with them regularly. Be alert for key indicators of potential theft such as evidence of compulsive gambling; a sudden and uncharacteristic devotion to work and desire to work late; objections to procedural changes in financial, inventory, or supply matters; or drug and alcohol abuse.
- Keep a virtual eye out. Consider using tools such as a video surveillance system to deter employees and catch theft after it happens, and POS exception-based reporting systems that can flag possible fraudulent transactions such as excessive refunds or voids.
- Implement internal controls. Have policies and procedures in place that address separation of duties, access to financial assets and information, and how financial transactions are initiated, authorized, recorded, and reviewed.
- Conduct regular (and irregular) audits. Regular financial audits and fraud assessments are necessary, but random, unannounced audits can help identify new vulnerabilities, measure the effectiveness of your existing controls, and help curb temptation.
- Offer an anonymous employee tip line. Make sure every employee understands the threat that employee theft presents to the company, and provide a confidential way for them to report suspicious behavior. People are much less likely to steal if they know their coworkers are watching.
- Investigate every incident. It’s pointless to have policies and procedures and not follow through. Investigate and report every incident of theft and fraud, no matter how small. A thorough and prompt investigation helps you gather the facts, make an informed decision about a course of action, and let employees know your company is serious about investigating and prosecuting theft and fraud.
- Proceed with caution! If you suspect a problem, be careful about making accusations. You don’t want to get sued. Verify your suspicions with an investigation, determine the extent of any theft or fraud and the methods used, identify the responsible employee, and carefully consider your options. Have a good lawyer handy who can help you avoid legal landmines.
- Be a positive role model. You and your management staff are in the best position to set an example for your employees. If you show a cavalier attitude toward rules and regulations, that attitude is bound to be reflected by your employees. Everyone from the top down should be held accountable for preventing theft and fraud.
Want more tips for protecting your bottom line? Contact your FICOH independent agent for a business insurance tune-up today.
