How to handle suspected employee theft at your business

Have you ever suspected an employee was stealing from your business? As your business and workforce grow, your business risks also grow – including the risk of employee theft.

According to a roundup of employee theft statistics by Business.org, 22% of small businesses have experienced employee theft. The Federal Trade Commission (FTC) reported that nationwide losses to fraud topped $10 Billion in 2023, and that’s not all. Here are some more alarming statistics regarding workplace theft:

• 75% of employees are likely to have stolen from their employer at least once
• 28% of employee theft cases affect companies with less than 100 employees, making small businesses the most vulnerable to workplace theft
• 30% of small businesses fail due to employee theft

Unfortunately, employee theft is something all businesses should expect to occur at some point, but there are tactics you can put in place to help identify and respond to this risk.

Employee theft may be hard to identify, even in small businesses. Those bold enough to steal from an employer are also often savvy enough to conceal their dishonesty.

Because of this, workplace theft comes in many forms, such as:

• Stealing money from the cash register
• Embezzlement of petty cash or from company accounts or credit cards
• Stealing merchandise, products, or office supplies
• Stealing credit card information from clients and customers
• Data theft from company computers
• "Time theft" through misrepresenting hours worked
• Using company time and resources toward personal ends

It’s tempting to believe that as a small business owner, you know your employees and trust them not to steal. However, it can often take between two to five years to discover employee theft. By the time you are aware of the theft, it has likely been ongoing for some time and might have become ingrained employee behavior.

Once a shortage, account discrepancy, or unusual employee behavior raises suspicion, it’s tempting to feel betrayed and react to the urgency of the situation before you have all the evidence you need.

Investigating theft or an employee suspected of theft requires careful action. A mishandled response to staff theft could result in any of the following:

• Create a hostile work environment for honest employees
• Bring false accusation or harassment allegations against your business
• Create conflict with an employee’s union or violate collective bargaining agreements
• Expose your business to costly defamation or discrimination lawsuits

However, there are a few steps you can follow to protect your business from employee theft, as well as reduce exposure to bad outcomes due to a poorly conducted response.

Maintaining a consistent set of company policies, including an anti-theft policy, is the first place to start. Ideally, your anti-theft policy should outline:

• What your business considers theft, including specific examples
• Steps your business will take to prevent theft
• How your business will investigate suspected employee theft
• Disciplinary actions, legal actions, criminal charges, and other consequences
• Procedures for employees to report a coworker’s suspicious activity

All new employees should receive and sign this policy as part of their onboarding process. It might also be beneficial to have employees reread and sign this policy each year.

Consistently enforcing these policies for all employees is key. If not, you may establish a history of leniency, which can expose your business to legal challenges when you do respond to employee theft.

A good way to prevent theft is to use security technologies and best practices to place barriers between your company’s assets and any employee who would steal them. Some best practices to consider are:

• Point of Sale (POS), inventory management, and accounting systems that require two-factor authentication
• Limited access to physical inventory and strict control of who has access
• Strategic placement of security cameras
• Regular, informal audits of accounts, inventory, and policy compliance
• Keystroke loggers and other time-theft prevention technologies
• Strict division of responsibilities that prevents any single employee from having end-to-end access to funds or inventory
• Background checks as part of the hiring process
• Robust documentation and record keeping, especially of financial data

Employees should be aware you have security measures in place and that you pay close attention to them.

As workplace theft takes many forms, it can also leave many signs of it taking place, including:

• Account discrepancies or registers not totaling
• Missing or vague reporting
• Inconsistent security policy compliance
• Inventory, supply, and merchandise discrepancies
• Secretive or defensive employee behavior

When you suspect an employee is stealing from you, there are two things you should find out before approaching them:

• How are the suspected thefts occurring
• Who is committing the thefts

If you can identify where or how a theft is occurring, you may be able to shore up your security procedures. This could be as simple as restricting who has keys or other forms of access to the affected inventory or finances. Additionally, you could install a security camera in the loading dock or break room.

Some other anti-theft steps to consider:

• Conduct regular, unannounced reviews of account balances, financials, transactions, logs, supplier lists, and CCTV or other surveillance footage
• Review company policies for vulnerabilities and places where one employee has sole access to a system or asset
• Call an all-hands meeting to reiterate your company's anti-theft policies

If the thefts stop and you decide that little damage was done, you may choose to leave the matter there. In more serious cases, you may still need to identify the culprit for disciplinary, legal, or criminal consequences.

Gather all the evidence you can. You’ll likely need to prove how the employee theft occurred in court or provide the evidence to law enforcement if you need to prosecute.

When gathering evidence, take stock of everything including:

• CCTV footage
• Account statements and financial records
• Witness statements
• Reports that shows discrepancies in physical stock or inventory