Thieves Among Us: Employee Theft is Often Bigger Problem Than Shoplifting

June 20, 2016|

Business man hiding money in jacket pocketBy Eddie Kennedy, Owner, Great Deals on Furniture

“Trust, but verify.”—Ronald Reagan

Many businesses have to deal with shoplifting, and have some type of security system in place to prevent those losses. But national statistics show that employee theft and dishonesty is a much bigger problem for most businesses than shoplifting.

My first experience with employee dishonesty and theft was an eye-opening experience. Twenty years ago, a customer arrived at our warehouse to pick up a recliner they had recently purchased, but our warehouse employees couldn’t find it. I knew it was there, as I had seen it just a few days before.

But when I went to locate it, I found they were right, it was gone. I was able to get the customer another one, but I realized that I had a problem in my warehouse. I did a quick inventory and discovered I was missing 12 recliners.

I reviewed the receiving documents, customer receipts and questioned all the warehouse employees and managers. No one knew anything about where the recliners were or what had happened to them. I ended up working with a detective from the Richmond County Sheriff’s Department, and we were able to catch and prosecute the employees who were involved in the theft.

Many of the employees involved were trusted, loyal employees – or at least I thought they were.

Through the years, I’ve heard similar stories from other entrepreneurs and small business owners. Some involve companies losing hundreds of thousands of dollars. In some cases, companies have closed as a result of the losses. Employee dishonesty affects all businesses, but a small business is more vulnerable to dishonest employees, because they have fewer employees and often fewer controls in place to prevent it.

How big of a problem is employee dishonesty? According to the 2016 Report on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners (ACFE), it is estimated that the typical organization loses 5 percent of its revenues as a result of fraud. The median loss in the cases studied for the 2016 survey was $150,000.

The ACFE found that smaller organizations (those with fewer than 100 employees) experience the same median loss as the largest organizations (those with more than 10,000 employees); however, losses of that size often have a greater impact on the smaller businesses.

Small organizations are more likely to experience check tampering, skimming, payroll and cash larceny fraud than larger organizations, because they do not have sufficient fraud prevention and detection plans in place. More than 75 percent of the incidents reported were committed by employees who held finance, accounting, sales, operation, customer service or management positions.

Employee dishonesty and theft can happen several ways:

Larceny – Taking cash or property from the business.

Embezzlement – Theft of cash or property by someone in a position of trust, like a bookkeeper or manager.

Payroll schemes – Falsifying timecards or records to get paid more than the hours worked or for vacation time not earned.

Billing Schemes – Setting up fake vendors to pay for nonexistent goods and services.

Experts say that the best way to prevent employee theft is to eliminate the opportunity to commit fraud by establishing a system of strong internal controls. Here are a few ideas:

Establish a Code of Ethics – While this doesn’t stop thieves, it sets a clear benchmark for every employee to follow and communicates the company’s standard for ethical conduct.

Review hiring procedures – Most small business losses are to first-time offenders, but it is still a good idea to check out those who will be handling money.

Set up an anonymous fraud hotline – Statistics show that employee tips are the most common way fraud is discovered.

Start a training program – Managers should be taught to recognize the warning signs for fraud, basic fraud prevention techniques, and the proper procedures for reporting fraudulent activity.

Set up internal controls – Separate cash-handling and bookkeeping duties. Review payroll checks before they are distributed. Set up a system for tracking vacation time and personal time off.

Do your own risk assessment – Install security cameras if needed. Put GPS tracking systems on the company vehicles.

If you take credit and debit card payments, make sure you have set up alerts on your account for any unauthorized returns or credits.

While you cannot prevent all the fraudulent transactions that may occur at your business, with a few controls in place, you can make them harder to commit and easier to detect.

Eddie Kennedy is the owner of Great Deals on Furniture in Augusta.  Eddie will be sharing ideas and principles he learned in over 37 years of involvement and management in small business. Contact him at

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