Did You Know...

That employee theft is a significant business problem?

Employee theft impacts every industry and is committed by all kinds of employees, from entry-level to executive. While theft is most frequent in low-level employees, higher-level employees do the most damage, since they typically have greater access within the company. Thefts range from small office supplies, personal photocopies, and long lunch breaks to embezzlement or shoplifting. In one recent U.S. case, an employee, inspired by the 2002 movie, "Catch Me If You Can," obtained do-it-yourself business forms from the Internet, worked from an executive's signature found on a regular paycheck, and allegedly stole 1.9 million shares of stock from the Kmart Holding Corporation. In another, an Indiana hospital worker was charged with stealing more than $200,000 in medical equipment and selling it on eBay.

"Inventory shrinkage" is the term used by retailers to capture losses due to shoplifting, employee theft, vendor fraud and administrative error. Surveys of retailers in the U.S., Canada, Mexico, Australia, New Zealand, and Western Europe typically report shrinkage rates ranging from 1.3-1.8% of inventory. The economic losses are staggering. A 2002 report from the Centre for Retail Research at Nottingham University estimated shrinkage costs European businesses $29 billion annually. In the U.S., data from the National Retail Security Survey suggest retailers lose $31 billion annually.

Total shrinkage includes both customer and employee theft. Studies in the U.S. and Canada show that employee theft accounts for nearly 50% of shrinkage, while shoplifting accounts for 30%. A study of U.S. supermarkets found 4% of employees were apprehended for theft or fraud.

According to the Association of Certified Fraud Examiners:

  • Employee theft and fraud costs U.S. businesses $660 billion annually;
  • The average company loses 6% of its annual revenue to fraud and abuses by employees;
  • More than 46% of workplace fraud happens to small businesses with fewer than 100 employees; and
  • On average, fraud accounts for more than 69 percent of the cost of all crime in Australia, with an estimated national price tag of AUD$13.7 billion—3.4 percent of their gross domestic product (GDP).

The U.S. Chamber of Commerce reports that:

  • 75% of all employees steal at least once and half of those employees will take company property at least twice;
  • Up to 75% of employee theft goes unnoticed; and
  • Only 2% of business owners report these crimes due to embarrassment.

What You Can Do ...

A clear employee ethics policy that directly addresses the issue of employee theft may be enough to stop the basically honest employee who is tempted to pilfer office supplies. Other employees will be undeterred. To guard against employee theft:

  • Use background checks to screen applicants;
  • Implement internal controls (separation of duties and restricted access);
  • Perform unscheduled audits on a regular basis;
  • Involve employees in ethics policy development and ethics training;
  • Encourage employees to report suspicion of wrongdoing; and
  • If you suspect you have a problem, hire an investigator or a forensic accountant.

Employees are less likely to steal from those they admire or respect, so take time to cultivate relationships with your employees. If you find an employee guilty of theft or fraud, report it to legal authorities for prosecution. In one recent case, the bookkeeper for a Washington dentist swindled $130,000 from the company, gave herself a $20-an-hour raise, and falsely reported working 50-hour weeks. Her employer dismissed her but did not report the crime. Instead, he provided solid references and helped her get another bookkeeping job. Crimes against businesses will continue unless employees are held accountable.


Sources:

Barnes, Rosemary. "Employee theft can ruin firm." San Antonio Express-News, 1L, January 15, 2006.

"Ethics programs help curb employee theft." USA Today 131(2691), December 2002.

Gillentine, Amy. "Knowing is half the battle, especially for new hires." Daily Record (Kansas City, MO), March 19, 2006.

Gross-Schaefer, Arthur; Jeff Trigilio, Jamie Negus and Ceng-Si Ro. "Ethics education in the workplace: An effective tool to combat employee theft." Journal of Business Ethics 26:89-100, 2000.

Muller, Joann. "Your Name Here." Forbes 175(4):38, February 28, 2005.

Pickens, Brian. "Some operations are just criminal." Modern Healthcare, 35(32):36, August 8, 2005.

"Shoplifting, Employee Theft Continue to Steal Profits from Retailers, Says Study." Progressive Grocer, September 30, 2005.

"While stocks last." Economist, 364(8291):64, September 21, 2002.

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