Bonus Content

Trust Everyone (But Stay Alert)

By William Lynott

It’s only natural to place a great deal of trust in employees. “We’re like one big family” is a refrain often heard in entrepreneurial ranks. That’s as it should be—but be careful. The harsh fact is that employee theft is a national problem, and a difficult economy isn’t making things any easier. According to the FBI, employee theft is the fastest-growing crime in America. And nowhere is this more true than in a retail environment.

To an employer, employee theft occurs when a worker steals merchandise, money, or property while on the job.  Even wasted or stolen time is a form of employee theft.

From a strictly legal perspective, a theft is committed when an employee takes something with the intent of depriving the merchant of the stolen item’s value. Even more important than legal considerations is the devastating damage to the business that can result from employee dishonesty.

Even if one is confident that employee theft is not a problem in his or her operation, it’s important to recognize the telltale signs and know how to build and maintain an environment that will help your staff to avoid temptation.


The Importance of Hiring Procedures

According to Joseph Wells, founder and president of the Association of Certified Fraud Examiners, minimizing the chances of employee theft begins with the hiring process. “Before hiring anyone,” he said, “you should conduct a background check to find out as much as you can about the employee’s previous experience with employers and law enforcement.” He added that, at a minimum, check the background of any prospective employee who will have constant access to cash, checks, credit card numbers, or any other items that are easily stolen. Investigate as many of the following as possible:

  • Past employment verification. Even though most employers will only verify position and dates of employment, it is usually evident by tone of voice what they think of the employee. Also, ask the previous employers whether the applicant is eligible for rehire.
  • Criminal conviction checks. Many public records services (such as LexisNexis Risk Solutions) have criminal conviction records for almost every large county in the United States. If not, go to the courthouse and search the criminal conviction records in the criminal courts division of the employee’s county of residence (or other counties in which the applicant previously resided).
  • Drug screening. Many business owners are now conducting drug screenings for potential hires as well as current employees. Obviously, people who are frequent drug users can be more prone to theft or fraud.
  • Reference checks. Surprisingly, very few employers bother to call the references a candidate provides, apparently operating on the assumption that an applicant wouldn’t provide a bad reference. However, many times applicants will list important-sounding individuals as references with the hope that they won’t be called. Moreover, people often assume, incorrectly, that a former supervisor or co-worker will provide a good reference
  • Always obtain the consent of the applicant. Numerous federal and state laws, such as the Fair Credit Reporting Act, govern the gathering and use of information for pre-employment purposes. Many of these laws require that written consent is obtained from the applicant before gaining some of the types of information listed above. It is also a good idea to obtain a signed authorization and release from a potential employee. Consult with an attorney to ascertain the laws applicable to the business and state to obtain the proper authorization forms.


Policies and Procedures That Help Deter Fraud

“Developing anti-fraud programs can be one of the most important things that you can do for your business,” said Wells. “Prevention, in the long run, is always cheaper than recovering your losses.” He suggests these precautions:

  • Perception of detection. Employees who perceive that they will be caught engaging in occupational fraud and abuse are far less likely to commit it. Increasing the perception of detection may well be the most effective fraud prevention method. Internal controls, for example, do little good in forestalling theft and fraud if their presence is not known by those tempted to steal. This means letting all employees and supervisors know that programs are in place for actively seeking out information concerning internal theft.
  • Proactive programs. Becoming proactive in anti-fraud efforts can be one of the most effective steps taken to prevent fraud. Some useful programs cost very little while others require a significant cost commitment. In most cases, anti-fraud programs will more than pay for themselves.
  • Employee education. Every business should have some mechanism designed to educate all employees about the serious consequences of internal fraud. One way to do this is to make it part of orientation for new employees.

Any education efforts should be positive and non-accusatory. They should emphasize that illegal conduct in any form eventually costs everyone, including employees, through lost profits, adverse publicity, decreased morale, and lower productivity.

  • Enforcement of mandatory vacations. Many internal frauds require constant manual intervention. Some are discovered only when the perpetrator is away on vacation. The enforcement of mandatory vacations will aid in the prevention of some frauds.
  • Job rotation. Some frauds are detected during sickness or unexpected absences of the perpetrator because they require continuous, manual intervention by the offender. That’s why it can be helpful to rotate potentially sensitive jobs whenever possible.
  • Split responsibility. Wherever possible don’t allow the same person who handles incoming cash and checks to do the paperwork accounting for that money.
  • Trash control. Make random checks of dumpsters and trash bins for goods that may have been placed there for later pickup. Use clear trash bags for easy inspection and keep lids of outside dumpsters locked after business hours.
  • Conduct frequent inventories. Do product inventories often and at random times. Examine records of purchases and sales daily. Assigning inventory control responsibilities to specific individuals helps to establish accountability which, in turn, helps to discourage theft.
  • Consider video surveillance. Technological advancement has greatly reduced the cost of video surveillance putting it in the reach of even the smallest distributorships. Installing strategically placed cameras can be a strong deterrent to employee theft. However, it’s important to emphasize the program in a positive light, pointing out that the cameras have been installed for the protection everyone including employees.


Watch for Signs of Theft

Despite the best of internal programs, it’s important to keep onesself aware of early warning signals of possible employee dishonesty. Watch for such signs as:

  • Any hint of substance abuse. An employee with a substance abuse problem will need extra money to finance the habit. This is one of the most common scenarios in employee theft cases.
  • An employee with a disgruntled, belligerent attitude, often complaining about management or job to others
  • Bad temper or unpleasant behavior that tends to discourage or avoid questions
  • Inconsistencies in explaining discrepancies or errors in paperwork or cash register accountings
  • Excessive loitering around the business by off duty employees, ex-employees, or friends
  • Secretive conversations among employees, phone conversations that stop abruptly when you approach
  • Unusually friendly relationships or loyalty between employees and customers or vendors. Watch for customers or vendors who loiter around for excessive times or who meet with employees around closing hour.
  • An employee living a lifestyle that appears to be in excess of what the salary could be expected to support
  • An employee who habitually returns to the work area after others have left to retrieve something supposedly left behind
  • Watch for gifts or favors to employees from vendors or customers


What to do When Theft is Suspected

Despite the fact that sensible precautions can greatly reduce the likelihood of theft by employees, there are no foolproof ways to prevent it. A dishonest employee determined to steal can be difficult to detect. If there is evidence of employee theft (or if it is suspected), call the local police department. Handling the matter on one’s own could lead to false or impossible-to-prove accusations that could expose the company to serious legal liability.

In a business with loyal and trusted employees it’s only natural to dismiss any thoughts of employee dishonesty. Still, both the company and its employees will benefit from a policy that creates an environment that openly discourages dishonest behavior.



Lynott is a veteran freelance writer who specializes in business management and personal and business finance. Reach him at or

Comment on the story

Your email address will not be published. Required fields are marked *