Is your business experiencing unexplained losses or inventory shortages? Do your profit margins seem reduced? You may have a problem of employee theft. The typical organization loses five percent of its annual revenue to fraud, according to the Association of Certified Fraud Examiners (ACFE) “2012 Report to the Nations.” And most of it is an inside job.

In May 2012 state police charged an employee of a western Pennsylvania Walmart with stealing at least $56,000 — and possibly as much as $240,000 — from the store over a period of just three months.

The U.S. Department of Commerce reports that 85% of all theft and fraud in U.S. businesses comes from employees, not outsiders. Overall, it costs American businesses more than $50 billion annually.

Why are employees stealing? During these times, when many companies are cutting raises, reducing salaries and health benefits, and increasing workloads, workers feel entitled to taking from the boss. Businesses need to have internal controls and resources in place to protect their assets.

Detecting Dishonesty

What is especially troubling is that in many cases, thefts continue for an average of 18 months before being detected. The theft can range from fake sales transactions and illegal kickbacks to the stealing of office equipment and retail products meant to be sold to customers.

One of the easiest ways to detect theft is by doing routine audits of books and records. Such audits can uncover previously overlooked red flags, such as when an employee begins submitting unusually large expense reports. In other cases, billings can be fudged or even fictionalized. In May 2012 a former Atlantic City Housing Authority worker was charged with allegedly double- and triple-billing the agency for $150,000 worth of construction jobs through shell companies he created — accusations he denied.

Businesses may also find it helpful to go the route of tracking devices and surveillance cameras. Recently, Dunkin Donuts’ employee surveillance cut thefts up to 13 percent, according to an article in The Atlantic.

An Ounce of Prevention

According to AICPA’s “Report to the Nations 2012,” the areas of accounting, operations, sales, executive/upper management, customer service, and purchasing are most vulnerable to employee theft. In addition to regular, routine audits, here are a few more tips to prevent it:

• Put ID numbers and plates on expensive equipment.
• Use cabinet and furniture locks. Keep valuable portable items — such as laptop computers — locked up.
• Ensure all areas of the company have adequate lighting, which can deter thieves.
• Establish an unambiguous policy on theft and distribute it to all employees. The policy should make it understood that your organization does not stand for this type of activity and that any employee who violates the policy will be terminated.
• Split duties of employees so that one employee does not have total control and management of company finances or inventory.
• Develop an internal accounting process or system where all financial transactions are reviewed and approved by an appropriate manager.
• Limit the number of employees who have authority to make purchases or process payments
• Treat all employees the same by developing consistent, company-wide policies. One of the leading causes of employee theft is employees who feel they are not treated equally or fairly.
• Educate your employees about the costs of employee theft. Demonstrate that this affects the success of the company and, as a result, affects their job security and their ability to receive increases in salary and benefits.
• Make employees feel valued by rewarding their efforts and successes. This makes them feel wanted and less likely to steal from their employer.
• Establish and put in place a workplace fraud prevention program.

When it comes to handling theft that has already occurred, it is important to have sufficient proof before you accuse an employee of stealing — or you could risk a wrongful termination suit.