The True Cost of Small Business Employee Theft

When discussing employee theft with our clients, we always remind them that it’s not a question of “IF” your business will have an issue but about  “WHEN” it will happen.

Internal theft is reported to cost businesses around $50 billion annually. The simple fact is that your small business can’t fall into that pool of statistics and still maintain a healthy profit margin. All businesses are vulnerable to some type of employee theft – but business owners can lower the likelihood of employee theft by practicing ethical habits and leading by example.

If employees see a business owner cavalierly using company assets for personal use, it is easier for them to rationalize stealing from the company. Business owners should treat company assets and benefits exactly how they expect their employees to treat them. For example, if you don’t want your employees to use the company credit card to fuel up their personal vehicles, you probably shouldn’t have your spouse do it, either. Employees have a higher regard for leaders who practice what they preach, so everyone at all levels of the business should be held accountable. That being said, it is still important to have an employee theft prevention plan.

What are Different Types of Employee Theft?

Physical or inventory theft is quite common, and it covers employee theft of physical inventory, workplace supplies, or other physical assets owned by the business. However, several different types of employee theft may not be initially apparent. 

Service theft happens in service-based businesses when an employee uses the services provided without appropriately compensating the business. Under this umbrella, you’ll find offering employee discounts to ineligible customers or using a “premium” service at a lower price without approval.

Data theft: Employees who misuse company data for their gain are considered to be committing data theft. Whether it’s financial information used to commit fraud or healthcare-related data used for blackmail, data theft ultimately harms a business’s reputation in the long run.

Financial theft: For small businesses and retailers that deal primarily with cash payments, financial theft usually happens when employees physically steal cash from the register, tip jar, or petty cash accounts. Larger organizations can fall victim to financial theft when their finance or accounting team defrauds the company during complex banking processes.

Time theft: Businesses with hourly employees are particularly susceptible to time theft, where employees inflate their hours worked to receive more pay despite not working the extra time. There are also payroll defrauding schemes that work similarly but happen during the processing of hours during a pay period.

How to Prevent Employee Theft

Theft prevention plans don’t have to be complex or overwhelming to create, implement, or enforce. There should also be a regular auditing process in place as your business evolves to ensure your current policies offer enough prevention.

Management Leads by Example

If a company has strong employee theft prevention policies, but business owners and managers still use company assets inappropriately, the policy is ignored. Employees will follow what they see leadership doing, so if someone higher up in the company is stealing, employees may do the same. All company levels must be held accountable and participate in theft prevention training and audits. 

Create a Policy

Include a policy in your employee handbook that acts as an initial layer of deterrence. Include information on the types of theft along with examples for each. Add a section that outlines specific consequences for theft and another that clearly states procedures for theft detection and repercussions for false reports.

Educate About Reporting

Regardless of how you decide to create a reporting system, it should be an anonymous and open door. Include different channels for reporting and encourage both employees and customers to understand how to report employee theft. 

Train on Timesheets

Managers and owners who create their employees’ schedules are the first people to see that an employee is possibly committing time theft. Train them to understand how to spot red flags and report or resolve them before that scheduling information gets to payroll.

Conduct Surprise Audits

If employees know about an upcoming audit, they will likely hide signs of theft first. When you conduct unannounced audits, they lose that warning, and you may have a better chance of spotting inconsistencies that are symptomatic of employee theft.

Know the Warning Signs

Even with layers of protection, employee theft can happen right under your nose. While there are several warning signs to indicate employee theft is happening, they’re not written in stone. Pay close attention if your employees are:

  • Living beyond means based on salary
  • Experiencing financial difficulties
  • Unusually close relationship with a specific vendor or customer
  • Irritable, suspicious, or defensive when approached about the subject
  • Bullying or intimidating other employees
  • Having family issues or facing divorce
  • Reporting unusual work hours
  • Unwilling to transition to different tasks or roles

Work With Experienced Partners

It’s not always easy to know where to begin when preventing employee theft, which is why many small business owners turn to outside help for a fresh perspective. First and foremost, shore up your policies and procedures, and bring in experienced entrepreneurs to help audit what you currently have. From there, work with a coach to help offer peace of mind that your margins will stay off-limits to employees seeking to take advantage of your business.

How Your Business Coach Can Help

The Alexander Group uses decades of business experience to guide owners toward fulfilling their visions. For over ten years, we have helped owners navigate high-pressure situations and potential pitfalls, all to come out better than ever on the other side. With The Alexander Group, you can rest assured that you are working with a business coach who has sat in your chair. 

The Alexander Group isn’t your average business coaching company. We focus on providing clients with a more personal, intimate approach to guidance. Coaching isn’t done by phone or even over Zoom — there is no substitute for one-on-one mentoring, and as such, our coaching is always in person. To learn more, contact us online!