February 20, 2014

Employee Theft Statistics: Why Entrepreneurs Should Worry

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For entrepreneurs and small business owners, employee theft can be a difficult subject. No one wants to think the people they've chosen to help make their vision a reality could have their hands in the cash drawer. And no boss wants to have to confront a subordinate about grabbing too many pens from the supply cabinet.

The truth is, employee theft is a reality that all kinds of businesses have to deal with. It may take the form of a cashier “forgetting” to swipe a friend’s purchase or a CFO funneling thousands of dollars into a personal account. To figure out how to prevent, or respond to, these kinds of losses, it’s important to understand the problem.

CreditDonkey.com has gathered some of the most reliable information out there to help shed light on the problem of employee theft.

The Scope of the Problem

A full 95 percent of employees steal from their employers, according to a 2013 anonymous survey of 500 retail and service industry employees by Kessler International. That’s up from 79 percent in 1999. Do those figures sound a bit high to you? They’re more believable once you realize you could be part of the problem, at least according to Kessler’s methodology. The survey counted personal use of a computer or phone during working hours as “time theft” - something 80 percent of workers admitted doing.

Other figures provide upsetting results as well. A survey of 23 major retailers found they apprehended 71,095 dishonest employees in 2012, according to Jack L. Hayes International’s Annual Retail Theft Survey. That means one in 40 retail workers at those establishments was apprehended for theft.

All of these incidents can cost a business serious money. A survey by the National Retail Federation found that loss due to employee theft, shoplifting, paperwork errors and supplier fraud added up to $34.5 billion, or 1.41 percent of retail sales, in 2011. Employee theft made up 43.9 percent of those losses, more than the 35.7 percent caused by shoplifting.

On the other hand, the Hayes survey found the amount recovered from nabbed employees at the companies surveyed - more than $50 million - was significantly less than the total recovered from shoplifters caught in the act - $138 million. On a per-case basis, the employees stole 5.5 times as much as the shoplifters.

What Types of Theft

Kessler found that more than half of workers - 52 percent - copped to stealing office supplies. Most of this theft was small-time stuff like swiping pens or using company printers for personal purposes, but some took home bigger-ticket items like USB drives and computer accessories. More than 30 percent of workers had falsified their time records, such as by writing in earlier arrivals or later departures, or having a co-worker clock them in or out, while 18 percent stole corporate intelligence like client lists, marketing lists or proprietary business information.

Kessler notes that while fewer workers engage in corporate intelligence theft, it’s an area that can be particularly expensive and difficult for employers to address.

Another way employees can cost their workplaces huge sums of money is through fraud and embezzlement. A worldwide 2012 report by the Association of Certified Fraud Examiners found that the typical organization loses 5 percent of its revenues to fraud each year, which adds up to a global annual fraud loss of more than $3.5 trillion.

The ACFE found the typical fraud case cost $140,000, and in more than 20 percent of cases, it was at least $1 million. The head honchos with unethical mindsets tend to cost the money: Fraud by owners or executives typically cost companies $563,000. Compare that finding with $180,000 for fraud by managers and $60,000 for fraud by employees.

About 87 percent of those who committed fraud against their employers had never been previously charged with that sort of offense.

What Can Employers Do?

There are plenty of steps you can take to stop employee theft. Many employers view background checks as a must for new hires, especially those who will have financial responsibilities (in fact, some will even do a credit check).

In retail, security cameras and careful controls over cash drawers are obvious first steps. Bosses in office environments might consider partially blocking Internet access to cut down on “time theft,” but another, less morale-deflating option is to focus on measuring what workers get done, rather than trying to monitor their every keystroke.

After all, you don’t want to sacrifice productivity gains because of theft fears and lack of trust. A 2012 study published in the Journal of Accounting Research found that better-paid employees are less likely to steal; higher wages promote social norms that discourage workers from conspiring to steal inventory. That finding suggests some hope that workers who are treated well may repay their employers with honesty.

Still, it’s probably best for any employer to keep an eye on the supply cabinet.

Other Resources:

  • “Caught in the Act: How to Handle Employee Theft,” National Federation of Independent Businesses

  • “Thinking About the Unthinkable: How to Guard against Fraud and Embezzlement in Your Firm,” American Bar Association (this resource is geared toward law firms, but the advice is generally relevant to all types of businesses)

  • “6 Tips for Preventing Employee Theft and Fraud in the Workplace,” U.S. Small Business Administration

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