Small business owners have a lot to worry about - competitors taking their market share, the best way to market their products, how to find and hire the best employees, and more. One thing they may not be worrying about is an employee stealing from them - but they should.

According to the 2017 Hiscox Embezzlement Study, most cases of employee theft occur at small companies. Of the cases involving embezzlement in the federal court system in 2016, 55 percent occurred at companies with fewer than 100 employees, and 68 percent at companies with fewer than 500 employees.

The relationship between an employer and an employee can be described as a circle of trust, especially in a small business. When that trust is breached because an employee steals, the implications for the organization can be severe, including poor morale and a decline in the company culture, not to mention the potentially devastating financial impact.

The typical embezzler may not be who you think they are. Slightly more women than men commit the crime, but the men take more money. According to research, the median age of an embezzler is 48 years-old, and over 37% of cases were committed by employees whose jobs were in accounting or finance.

Watch for warning signs of embezzlement. Those who commit this crime often share common characteristics. They tend to be:

  • Intelligent and curious, with a desire to learn how everything works at the company. This can be construed as ambition, but they're really looking to manipulate the company's processes for their own gain.
  • Extravagant, often living a lifestyle that is out of proportion to their salary.
  • Risk-takers with big egos, inside and out of work.
  • Diligent and ambitious, coming in early and leaving late, and eschewing vacations. This can be perceived as dedication to their job, when in fact it is often a tactic to keep the theft from being discovered.
  • Disgruntled, believing they have been treated unfairly and stealing in an attempt to 'even the score.'

To protect your company from the losses associated with embezzlement, take a three-pronged approach:

1. Institute checks and balances

Make sure no single person has end-to-end responsibility for any money-centric function, and require that more than one person sees every transaction. Consider having the corporate bank statements delivered to the owner's home instead of the company, to reduce the likelihood that they could be altered. Conduct lawful background checks as a condition of employment.

2. Detect fraud early to keep losses at a minimum

Be on the lookout for employees who seem to be living beyond their means, particularly if there are sudden changes in spending habits. Watch out for employees who come in earlier and leave later than everyone else and never take a vacation. Remember that long-time employees, managers, and even executives aren't immune to greed.

3. Mitigate the impact of fraud that occurs

Insure your business against theft, since only a small percentage of the money stolen is ever recovered from the perpetrator. If you find someone has embezzled from your organization, get law enforcement involved. Quietly dismissing the person without pressing charges sends the wrong message to other employees and may allow the perpetrator to do the same thing at another company.

The bottom line is this: all companies, large or small, in any industry, can be targets for embezzlers. Spotting theft early can help to minimize your losses and protect what you've built.

Published on: Sep 29, 2017