By William J. Lynott
Employers place a great deal of trust in their employees, but it’s important to keep your guard up. The unfortunate fact is that employee theft is the fastest growing crime in America, according to FBI statistics.
To an employer, employee theft occurs when a worker steals merchandise, money, property or even time while on the job.
From a legal perspective, a theft is committed when an employee takes something with the intent of depriving the merchant of the stolen item’s value. Devastating damage to a business can result from employee dishonesty, especially when it affects customer relationships.
The importance of hiring procedures
According to Joseph T. Wells, founder and president of the Association of Certified Fraud Examiners, minimizing the chances of employee theft begins with the hiring process. “Before hiring anyone,” he says, “you should conduct a background check to find out as much as you can about the employee’s previous experience with employers and law enforcement.
At a minimum, check the background of any prospective employee who will have constant access to cash, checks, credit card numbers or other items that are easily stolen. Before hiring an employee, check as many of the following as possible:
- Past employment verification. Most employers will verify only position and dates of employment when you call to check a reference, but you can usually tell by the tone of voice what that person thinks of the employee. Ask previous employers whether the applicant is eligible for rehire.
- Criminal conviction checks. Most public records services (such as Nexis) have criminal conviction records for almost every large county in the United States. If not, search the criminal conviction records in the criminal courts division of the employee’s county of residence.
- Drug screening. Many companies now conduct drug screenings for potential hires and current employees. Drug users can be more prone to theft and fraud.
- Reference checks. Few employers bother to call the references provided by a job candidate. However, applicants will list important-sounding individuals as references with the hope that you won’t call to verify. People sometimes assume, incorrectly, that a former supervisor or co-worker will provide a good reference.
- Obtain the consent of the applicant. Federal and state laws, such as the Fair Credit Reporting Act, govern the gathering and use of information for pre-employment purposes. Many of these laws require that you obtain written consent from an applicant before gaining information about them. It’s a good idea to obtain a signed authorization and release from a potential employee. Consult with your attorney about the laws applicable to your business to obtain the proper authorization forms.
Policies and procedures to deter fraud
“Developing anti-fraud programs can be one of the most important things that you can do for your business,” says Wells. “Prevention, in the long run, is always cheaper than recovering your losses.” He suggests these precautions:
- Perception of detection. Increasing the perception of detection may be the most effective fraud prevention method. Internal controls do little good in forestalling theft and fraud if their presence isn’t known. Let employees at all levels know that programs are being used to detect internal theft.
- Proactive programs. Some useful programs cost very little; others may require a significant commitment of resources. In most cases, anti-fraud programs will more than pay for themselves.
- Employee education. Every company should have some mechanism designed to educate managers and all other employees about the serious consequences of internal fraud. This can be done as a part of employee orientation, or accomplished through training programs and intra-company communication. The goal is to make others within the company your eyes and ears. Education efforts should be positive and non-accusatory. Emphasize that illegal conduct eventually costs everyone—including employees—through lost profits, adverse publicity, decreased morale and lower productivity.
- Enforcement of mandatory vacations. Many internal frauds require constant manual intervention, and are often discovered when the perpetrator is away on vacation. The enforcement of mandatory vacations can aid in the prevention of some types of fraud.
- Job rotation. Some frauds are detected during sickness or unexpected absences because they require continuous, manual intervention. It can be helpful to rotate potentially sensitive jobs whenever possible.
- Split responsibility. Wherever possible, don’t allow the person who handles incoming cash and checks to do the accounting for that money.
In a small business with loyal and trusted employees, some of whom may even be relatives, it may seem natural to dismiss any thoughts about employee dishonesty. In most cases, however, both you and your employees will benefit from policies and procedures that create an environment that openly discourages dishonest behavior.