Detecting Employees Who Steal

Employee fraud is on the rise, soaring from $400 billion in lost revenue forU.S. businesses in 1996 to an estimated $600 billion in 2002. But there arepreventive measures that HR executives can take to spot employees who might bestealing.

    First, recognize that small businesses are most vulnerable to employee theft,says Dick Stackpool, a consultant with Aon Risk Services in Minneapolis. In asmall firm, a single employee has more responsibility, and therefore often hasmore access to company information and finances than an employee in a largebusiness.

    There’s also less managerial oversight in small companies and a morefamilial atmosphere. Many small-business owners refuse to believe that theiremployees, who have been treated as friends and family, would ever turn on thecompany, Stackpool says.

    Aon and the Association of Certified Fraud Examiners, in Austin, Texas, haveidentified several trends that can help HR managers detect employees who mightsteal:

• The majority of employees who steal–68.6 percent, according to ACFE–haveno prior criminal record.

  
  

• More of them are males–53.5 percent versus 46.5 percent females–who havea high school education or less. “Losses are strongly related to theperpetrator’s position, and in many organizations, the vast majority ofmanagerial and executive positions are still held by males,” states ACFE’s 2002 Report to the Nation.

  
  

• As the employee’s education level rises, the incidence of theft declines:56.9 percent of thieves have a high school education or less, 32.7 percent havea bachelor’s degree, and 10.4 percent have a postgraduate education.

  
  

• Watch for employees who are struggling financially or suddenly make largepurchases far beyond their means. Stackpool poses this question: “Are theygoing through a difficult time in their lives–possibly a divorce, or theirspouse is laid off– or do they have a mountain of debt?” Although mostemployees undergoing a personal or financial crisis don’t steal, he says, “sometimesthey find themselves in a situation where they are just taking some cash to getthem over the short-term hump, and that short-term hump moves into a long-termhump . . . and gets out of hand for them.”

  
  

• Also watch for an increase in fraud prior to, or in the midst of, merger andacquisition activity. “Employees get the ‘I’m going to get mine while Ican, I don’t have a career here’ attitude,” he says.

  
  

    Most fraud and theft can be prevented with a few simple internal controls:

• Background checks, which could include criminal checks as well asdouble-checking of references, are a simple preventive measure. “At a minimum,I would think that checking the past employment would be obvious. Many companiesnever do reference checks or background checks,” Stackpool says.

  
  

• The duties of employees should be segregated, so that one employee does nothave all control and oversight over the finances and/or inventory. “Does theindividual who makes bank deposits also reconcile the books, so they can hidethe fact that the cash was not deposited?” he asks.

  
  

• An internal accounting system, or a system of checks and balances wherebytransactions are reviewed and approved by managers, is essential.

  
  

• An internal anonymous hotline for employees to report fraud can also behelpful. “Tips from employees led to the highest percentage of cases beingdiscovered (26 percent, according to ACFE),” Stackpool notes.

  
  

• Corporate kindness goes a long way. “Share the wealth,” he adds. Rewardscan range from buying pizza for employees to giving them bonus checks. “Itmakes it more difficult for them to steal in a place where they’re valued.”

  
  

Workforce, November 2002, p. 31 — Subscribe Now!