7 Sneaky Ways Employees Steal And How To Prevent It

You might think your employees would never steal from you, but you couldn't be more wrong--employee theft costs U.S. businesses up to $200 billion each year. Learn how to protect your business.
Getting Small Businesses Unstuck, Shafran Moltz Group
November 12, 2013

Most employees are very honest. But unfortunately, inside many companies, there are a few workers looking to steal money or products from the company. Employee theft costs U.S. businesses up to $200 billion in annual losses, according to one estimate by Tatiana Sandino, an associate professor in accounting and management at Harvard Business School.

A very real threat, employee threat can do serious damage to a small business's bottom line. How can you prevent it from happening to you? Be aware of these all-too-common practices, so you know how to protect your business.

1. Set up fake vendor accounts. Thieving employees will set up a fake vendor account and submit phony invoices to the company and issue checks to this vendor. They will then deposit these checks into a bank account or sign over these checks to themselves. A variation of this is that they pay a vendor $500 and write a check to themselves for $100, but code the expense of the entire $600 to that vendor. Employees also set up fake payroll accounts for workers who have quit or retired.

Solution: Purchase orders need to be tracked in numerical order. Separate out the responsibilities of who can set up a vendor account, who verifies invoices and who writes checks. Make sure multiple people know how to use the company’s accounting system.

2. Steal checks. Anyone can sign a company check and cash it. Banks rarely take a look at the signature.

Solution: Keep checks locked up and issue them sequentially. Ensure the cash accounts are reconciled with the bank statements at the end of every month. Attorney and fraud examiner Richard Witkowski advises that “bank statements should be opened and reviewed by the primary check signer to ensure that only authorized checks have cleared the bank.”

3. Steal money from the register. They accept a cash payment and then void the transaction later to make sure their drawer balances.

Solution: Track the number of voids for each register. Video cameras that stream over the Internet can also be installed to watch the registers.

4. Falsify expense accounts. This is probably the most common form of theft in any business. Employees submit either phony expenses or the same expense receipt multiple times.

Solution: Insist upon a receipt for each expense and ensure it has not been submitted before.

5. "Buddy punching." Time theft is very popular as a result of one employee punching in or out for the other. Employees also fill out time cards for days they were not present.

Solution: Biometric time keeping solutions (fingerprints) should be used so buddy punching isn't possible.

6. Steal or falsify inventory. Look for complaints about missing items. An alternate scam is that the employee sets up a fake supplier who never delivers the product, but is paid.

Solution: Take physical inventory often or practice cycle counting. Note missing inventory and use RFID tags to track expensive items.

7. Steal data. This can take the form of customer records or any other digital assists.

Solution: Track all access to any computer program and force users to change passwords frequently. Discontinue accounts of former employees. Restrict access by job function. Cloud-based solutions in general will have much better security in these areas.

Have you had employees steal? How did you find out and what did you do about it?

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