Preventing Employee Theft
By Scott Simmonds, CPCU, ARM

April 14, 2006, Portland Press Herald, Copyright, 2006 Blethen Maine Newspapers, Inc.,
Reprinted With Permission

Employee theft costs Maine businesses millions of dollars each year. Relatively few of these events ever make it into the news.

Many are not discovered by the employer until the employee is long gone from the company. The losses can be devastating. Not only is there the loss of money or property, there is the loss of trust and confidence.

Here are some tips to help prevent and limit your losses.

 Establish a job environment and culture that values honesty. Insist on complete integrity in all dealings with customers, fellow employees, and the company. Management must lead by example. Many dishonest employees rationalize their actions by telling themselves that the boss lies or steals, and therefore it’s OK. Dishonesty breeds dishonesty. Integrity breeds integrity

 Build systems that increase the likelihood of discovery. Accounting and control structures should track cash and merchandise, including shipments. Systems should be widely known by your staff. Well established routines for checking deliveries and inventories increases the perception that thieves will be caught. Review and test your process to find weak points that may leave you vulnerable.

 Deposit cash receipts daily. Mark incoming checks "for deposit only" as soon as received. Checking accounts should be reconciled by someone not authorized to sign checks. Keep bank signature authorization cards up to date. Don’t sign blank checks or authorize the use of a stamp pad.

 Change door locks and computer passwords on a regular basis; certainly when an employee leaves your company. Mark keys “Do Not Duplicate” and control there distribution. Consider installing video cameras at doors and supply areas.

 Track the mileage on company vehicles. Review repair receipts and gas purchases. Supplies and inventory should be monitored. Expenditures for landscaping and fixtures should be audited. Limit an employee’s access to records and data to those issues relevant to their job. Review your vendor lists regularly. Are there companies included you don’t recognize? Are new vendors receiving unusually large orders?

 Clearly communicate your policies regarding searches of lockers, handbags, briefcases, etc.

 Periodically monitor trash. You may be surprised at what is being thrown away. Use clear plastic trash bags and check for pilfered items that may put in the dumpster and picked up after hours.

 Review your employee dishonesty insurance. Are your limits of coverage adequate to protect against a worse case scenario? Give appropriate notice of any claim to your insurer. Knowledge of prior criminal or dishonest acts can make future claims against an insurance policy invalid.

 Screen job applicants. Consider obtaining criminal background checks on newly hired employees. Have your background check procedure reviewed by your attorney. Keep information on criminal records confidential. Do not ask employees about prior arrests or make decisions based on arrest records – keep inquires to convictions. Verify facts thoroughly before taking any adverse action based on any prior criminal record.

 Check references. Consider credit checks on new hires. Review and verify educational background and job history. Many victims of employee theft find, after the fact, that the perpetrator lied on their employment application.

 Act when you suspect embezzlement. Treat suspected incidents consistently, without favoritism or special treatment to any person or group. Remember that proving employee theft or embezzlement will require proof beyond a reasonable doubt. Keep an open mind until proof is obtained. Do not act on assumption or second hand information.

 Obtain written consent before searching any employee. Obtain an admission of theft or embezzlement in writing as soon as the suspect confesses. The thief or embezzler has almost certainly stolen more than he has confessed. Insist on immediate restitution. Keep the issue of restitution separate from the decision to prosecute.

 Do not fire an employee suspected of theft without first conducting a thorough investigation, including careful interrogation of the employee in an attempt to obtain a confession. Review the case with your attorney and / or your employment practices liability insurer.

 Do not discuss an employee's misconduct unless the person to whom you reveal it has a clear need to know and you are prepared to prove what you disclose.

 Do not tell an employee he is being fired for theft unless you are prepared to prove the theft beyond a reasonable doubt. Do not press charges against a former employee unless you can prove those charges beyond a reasonable doubt.

Knowledge of prior dishonest acts invalidates most employee dishonesty insurance coverage. Giving an employee a second chance is done at your own risk.