How to prevent employee theft and protect your bottom line.
How to prevent employee theft and protect your bottom line.
Alan Bridges never thought it would happen to him. But since he founded Allpoints Equipment in Tampa in 1992, he's been robbed on almost 50 occasions--by his own employees. One staffer in accounting paid part of Allpoints' utility bills each month, then set aside a few hundred bucks to cover her home electric bill. A top finance executive included his family vehicles on Allpoints' auto insurance plan. And another worker stole $24,000 worth of tools, equipment, and scrap metal from a job site; he was caught hawking some items at a pawnshop.
Bridges eventually fired his sticky-fingered employees, but not before Allpoints, which sells racks, forklifts, and other warehouse supplies, took some damaging financial hits. Bridges has been burned so many times that he's co-writing a book tentatively titled 50 Ways to Leave Your Money. "I was shell-shocked when it happened to me, and then I started digging and found out just how extensive the problem is," Bridges says. "Most business owners are blind to this and I can assure you most of them say, 'It won't happen to me."
In fact, the average business loses the equivalent of 6 percent of revenue to fraud each year, and employees are the main culprits, according to the Association of Certified Fraud Examiners, a trade group based in Austin. And though dipping into the company till isn't a new phenomenon, technology is creating new and potentially lucrative opportunities for graft. Meanwhile, corporate scandals, most notably the Enron collapse, have triggered widespread mistrust of corporations and prompted many workers to become less loyal. Timothy Dimoff, president of SACS Consulting & Investigative Services, an Akron-based company that investigates workplace theft, says he has noticed a distinct attitude shift the past few years. "What is really changing is the number of employees who think that what they are doing is okay," Dimoff says. "They figure the company can damn well afford it."
Smaller businesses, which often rely on one person to handle major responsibilities like bookkeeping, tend to be at greater risk than larger companies, according to Dimoff. And, surprisingly, veteran employees are often the culprits. Bridges, for his part, received his wake-up call when his outside accounting firm discovered that one of Allpoints' most trusted employees--his payroll manager--was stealing from the company. The employee was using complicated bookkeeping systems that shielded him from suspicion. "Confusion is the thief's top tool," Bridges says. "The more confusing the system, the easier it is for people to funnel out money."
To create more checks and balances, Bridges implemented a new accounting system that made the company's books easier to understand and cross-trained employees so that several sets of eyes were examining the financials at any given time. And he now spot-checks Allpoints' books and bank statements. To cut down on equipment theft, he now requires workers to sign out company tools before taking them to job sites. "It becomes the ultimate chess game," Bridges says. "You block as many of the ways you could be getting ripped off as possible. Can you plug every hole? No. But you can plug most of them."
Many companies simply have "sloppy controls," according to Dimoff. For example, he worked with one manufacturing company that was experiencing a tremendous amount of theft during the night shift. It didn't take him long to pinpoint the problem: His client's employees could exit the building through 14 different doors with little or no supervision. Dimoff advised the client to close off the majority of exits, install security cameras at each working exit, and assign managers to supervise the night shift. The theft was all but eliminated.
Focusing on prevention is a smart idea, considering that employee theft is often difficult to prosecute. When Bridges confronted the finance executive who put his family members on Allpoints' auto insurance plan, the staffer claimed that he had negotiated the perk when he was hired. A lawyer advised Bridges against pursuing the case, saying that it was a "he said, she said" situation. It would be particularly hard to prove that the insurance wasn't a negotiated perk, the lawyer told Bridges, because the practice had gone on for more than a year. Allpoints did prosecute one employee successfully: The worker who stole $24,000 worth of equipment, tools, and scrap metal was sentenced to five years' probation and ordered to pay the company $3,000.
Of course, the best way to prevent employee theft is to hire people who aren't likely to steal. When performing background checks, pay as much attention to credit history as criminal history, advises Scott Gane, regional vice president at Initial Security, a corporate security firm in San Antonio. Individuals who are saddled with debt are more likely to succumb to financial pressure, warns Gane. "If there are repossessions or multiple accounts closed, it shows there may be a need for monetary gain," he says.
For existing employees, the first line of defense is a well-written theft policy. "A policy eliminates the gray area," Dimoff says. In the policy, explain your company's code of ethics and include specific rules regarding the use of office supplies and company-owned equipment. Stipulate, for example, that laptops used for working at home or on business trips must be returned if an employee leaves the company. Make it clear that employees caught stealing will be prosecuted. Then require each staffer to sign the agreement.
Having a frank discussion with your staff can also go a long way. When you explain how theft by some workers affects the company's bottom line and, in turn, the salaries and perks of all employees, "you start getting good employees coming forward and reporting what is happening," Dimoff says.
Bridges took the straight-talk approach three years ago, after firing the finance executive involved in the auto insurance scheme. He gathered his employees for a meeting and gave them an overview of what had happened. Many of them seemed surprised, he recalls. Then he explained how employee theft was bad for the company's bottom line, and morale, and outlined the measures he planned to take to combat it. There's no surefire way to stop theft, Bridges admits, but now his staffers know that he's watching.
Associate editor Nadine Heintz shares her thoughts on employee theft at www.inc.com/keyword/oct06.