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Employee Theft and Loss Prevention Best Practices

In today’s struggling economy, employee theft is one of the fastest-growing and most costly problems facing businesses today. Ever-changing economic development, advances in technology, and international expansion of businesses have made this threat of loss all the more ominous, to the point that it can be very unfortunate for those who do not have coverage in place.

Employee Theft Statistics:

  • The FBI calls employee theft “the fastest-growing crime in America”
  • The U.S. Chamber of Commerce estimates that 75 percent of employees steal from the workplace and that most do it repeatedly
  • One third of all U.S. corporate bankruptcies are directly caused by employee theft

The cost of employee theft and fraud goes way beyond the devastating impact of loss of money and property. In most businesses, employee theft losses are commonly committed by long-term and well regarded employees. Employers are often victimized by the wishful thinking of “it will never happen to me,” or, “my employees are too loyal to steal from the district.” Workplace theft not only affects employee morale, it also creates bad publicity which extends to customers, suppliers, taxpayers, and the community at large.

Even worse, employers are usually the last to know. Fellow employees may recognize or suspect theft, but never mention or report it. Oftentimes, employees don’t want to believe that their coworkers are stealing, so they assume innocence even when the activity grows. Other factors that can lead employees to ignore and not report suspicious activities are:

  • Fear of termination
  • Fear of getting involved
  • Fear of retribution
  • Fear of being blamed for the problem

Of course, there are also employees who simply do not think it’s a big deal.

It truly behooves businesses to focus on prevention, such as having best practices in place, because investigating and prosecuting theft can be exponentially more expensive than prevention. As an employer, you can gain some control over employee theft exposures by exercising the following:

  • Procedural controls – begin with good accounting procedures. These can effectively discourage employees from stealing by creating an audit trail to point out those who do. Separating sensitive job duties make it more difficult for an individual to cover his or her tracks. For example, bank accounts should be reconciled by someone not authorized to deposit or withdraw funds. Procedures should also require a counter-signature on all checks. The security should be subject to joint control of two or more responsible employees.
  • Background checks – employers often overlook this important step or only perform a cursory review on a potential new hire.
  • Strict policy – you should have a clear, zero-tolerance policy with respect to employee theft. You should also be consistent in how the policy is enforced. Some businesses require employees to sign a Code of Ethics as reinforcement of their policy.
  • Insurance – make sure you have the appropriate coverage to guard against losses from theft and fraud. Understand the reporting requirements of your policy and report claims immediately.

As you know, the cost of theft eventually comes out of every employee’s paycheck – it is income that your business never had the opportunity to earn. When employee theft affects a business’ bottom-line, it is in everyone’s best interest to keep an eye out for inappropriate actions or behaviors.

To assist your district in setting up protocols, the CSD Pool has purchased an annual HRSentry subscription for the entire membership. This HR web portal will help educate your district on employee policies and procedures. You can find more information on HRSentry here. Remember, education is key.

For more coverage information, please consult the CSD Pool Coverage Handbook and Reference Manual and refer to the Financial Internal Controls Best Practices section, or contact us at 1-888-313-7322, if you have any further questions about your Crime coverage.

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