Did you know that a whopping 75% of employees admit to stealing from their employers at least once? If you’re a business owner, supervisor, or even a regular employee, that statistic can be a tough pill to swallow.
You may think of your company as your “family.” You may spend as much time with these people as you do at home. You form friendships and establish trust with your co-workers and employees.
These feelings can do lots of positive things for your business, but they can also leave you vulnerable to employee theft, fraud, and dishonesty. To add insult to injury, many thieves take advantage of the trust you place in them. Even a company’s most beloved, senior employees may betray your company.
While many thefts are small-scale, some can bankrupt businesses. Unfortunately, that goes double for small businesses. These companies may lack adequate resources to fully deter employee theft or the financial resources to recover.
Dealing with theft and employee dishonesty is key to your company’s survival. But this problem often requires a multi-prong approach. Read on to learn more.
Conduct Background Checks and Ask for References
Many employees who steal eventually wind up getting caught and fired—though not before they’ve done a lot of damage!
That means you have to be vigilant during the hiring process. An employment termination that the candidate explains away may actually be a theft-related firing.
Ask for and follow up with references to get a complete picture. Background or credit checks may also be appropriate for some positions. Be aware that many state laws stipulate certain procedures and disclosures for employee background checks.
It’s possible, of course, to find applicants with a theft history who are genuinely remorseful and ethical. It’s also possible to find a repeat offender with a good sob story. Thorough reference checks can help you tell the difference between the two.
Don’t Tolerate “Minor” Theft
That 75% figure might have taken you by surprise. A few bad apples among your employees can still do a boatload of damage. But are three-quarters of your workforce truly untrustworthy?
Employee theft tends to start small. An employee may borrow a few bucks from the tip jar, give a family member a free meal, or take a package of pens home from the supply closet.
Many of these small infractions feel so minor that employees hardly think of them as “bad.” That may explain why such a shockingly high percentage of people admit to theft at work. Many of the thefts barely feel like thefts at all.
But these small thefts can still harm your company in many ways. That’s especially true if your employees think small thefts are easy and consequence-free.
If everyone is doing them, your cumulative losses can be substantial. Think of “death by a thousand cuts.” Small thefts can also encourage escalation into more serious fraud. Many employee theft insurance policies won’t cover theft committed by known offenders, even if their prior offenses were minor.
The solution to this problem isn’t to fire everyone who snags a free fry or takes a pen home. But you should create (and enforce) written policies that show your employees you take even small theft incidents seriously. Think of it as reducing the temptation for your less theft-prone employees and reducing escalation opportunities for more criminally-minded ones.
Implement Cash Handling Procedures
In many businesses, physical cash is a prime candidate for employee theft. Often there’s little or no paperwork trail to follow when physical items disappear, whether that item is inventory or a dollar bill. For some kinds of theft, such as a waiter taking cash from a tip pool jar, it may be hard to prove the stolen asset existed in the first place.
Basic cash handling procedures can mitigate this kind of theft substantially. Cash-heavy businesses should use regular cash drops. Restrict cashiers from taking over each other’s tills or waiters from taking over each other’s tabs.
Track Inventory to Minimize Shrinkage
Investing in proper inventory management is a must for a bunch of reasons. You can monitor stock levels, identify low-selling items, and predict upcoming stock shortages.
It’s also crucial for minimizing inventory shrinkage. A good inventory management system doesn’t just detect inventory shrinkage. It also helps you identify and address shrinkage causes.
Shrinkage can come from paperwork errors, inventory damage, shoplifting, and yes, employee theft. Employee theft causes almost half of all inventory shrinkage.
Build redundancies and thorough record-keeping into receiving and stocking procedures to reduce employee theft. Automated tracking using barcodes and RIFD tags can help you keep better tabs as well.
Keep an eye out for business shrinkage avenues specific to your business type. Restaurants and bars, for example, can see a lot of liquor disappear mysteriously thanks to employee theft. Tracking liquor inventory is a better investment of a bar owner’s time than counting bar napkins.
Employees may hide stolen inventory in the trash (to “take out” later) or stash goods in their bags. Create specific, written policies around handbag checks, end-of-night trash handling, and other major shrinkage sources.
One of the simplest ways to reduce employee theft is to create accountability. And one of the best ways to create accountability is to double-up employees working on theft-prone tasks.
This doubling-up practice can (and should) take many different forms. If one employee is responsible for cutting payroll checks, another should be responsible for verifying and signing them. Employees intaking new inventory in teams are less likely to pocket items in front of a witness.
Multi-person trips to the bank while depositing cash are safer for the same reason. Employees can count each other’s cash and calculate tips as teams to create accountability. The more vulnerable the activity is to theft or fraud, the more accountability you should create around it.
Of course, thieves may collaborate instead of holding each other accountable. Rotate positions of accountability when possible, or create multiple levels of oversight. If you suspect an employee team of collaborating on theft, break that team up (and keep an eye on each member).
Insure Yourself for a Worst-Case Scenario
So you’ve done everything you can think of to reduce employee theft.
The good news is that these measures can make a huge difference. The bad news is that no number of anti-theft policies can totally eliminate your risk of employee fraud and dishonesty.
That’s why you should consider employee theft insurance coverage. These policies protect you from direct losses related to employee theft. They can make the difference between bankruptcy and survival for a small business that experiences employee fraud.
You may think you already have employee theft covered under your crime insurance policy. But check again: many crime policies only cover non-employee incidents.
Employee theft coverage generally comes in two forms: loss sustained and discovery. Loss sustained covers losses that occurred during the policy’s coverage period. Discovery covers losses discovered during the coverage period.
Businesses that are more prone to employee theft may face higher premiums. You can sometimes reduce those premiums by enacting robust theft prevention practices.
Employee theft policies often have coverage exceptions, so read your policy carefully. Your policy likely won’t cover theft committed by an employee previously caught stealing. Theft by a founder or executive usually isn’t covered.
Your policy typically won’t cover theft by a non-employee (even if an employee helps them). Most policies only reimburse direct losses, not indirect ones such as legal fees.
Employee theft insurance is sometimes called a fidelity bond. A special type of fidelity bond, called an ERISA bond, is often legally required for companies with retirement plans. These bonds protect the company and employees from pension fund fraud.
Customers Need Employee Theft Protection, Too
What if you’re a janitorial or cleaning company?
These businesses often send employees into their clients’ homes and workplaces. That means the business itself isn’t the victim of employee theft. Instead, it’s the customers.
Employees stealing from customers can be even worse than employees stealing from the business. Customers who discover the theft can make claims against you. Theft can also destroy your reputation—no one wants to hire a janitor who steals things!
Employee theft insurance and crime insurance don’t always cover this kind of employee dishonesty. That’s why you may need an additional business services coverage policy.
These policies pay your customers for losses if your employees steal from them. Just like with standard employee theft policies, premiums are higher for higher-risk businesses.
Contractors, janitors, home aides, and many other kinds of employees face unique working conditions. That means they may require unique insurance policies. You can get theft coverage from a policy package designed for your industry.
Don’t Let Employee Theft Destroy Your Business
Employee theft can feel like a multi-headed hydra. Just when you think you’ve addressed one source, another springs up.
As a business owner, you want to trust and value your employees. But worrying about theft constantly can make you feel distrustful of even your most senior hires. It’s enough to make anyone paranoid—and it’s seriously demoralizing.
A combination of robust theft prevention protocols and insurance coverage can lift that heavy burden. At EPG insurance, we specialize in a wide array of insurance policies for a wide array of businesses. Employee theft policies, janitorial business coverage, contractors insurance—no matter what kind of insurance your business needs, we can help you get it.
Once you’re less worried about thieves, you can get back to enjoying running your business. Contact us today to learn more about finding the right policy for you.