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Detecting and Preventing Employee Theft: The Ultimate Guide

Ensuring your workplace environment and processes are both physically and emotionally safe can reduce your risk of employee theft.

Posted by Ann Snook on February 25th, 2020

US businesses lose around $50 billion to employee theft each year. But it’s not just one big fraud scheme that’s responsible for those losses. Three-quarters of employees say that they’ve stolen from their employer at least once and nearly 38 per cent have committed theft two times or more.

Employee theft affects many aspects of the workplace, not just your company’s finances. It can also impact employee morale, company culture and your company’s reputation. Use the tips in this guide to reduce your risk through strong detection and prevention measures.


Download our eBook, “The Employer’s Guide to Detecting and Preventing Employee Theft,” to learn 10 tips for protecting your workplace from internal fraud.



Employee Theft Detection


Set Up a Reporting System


Did you know that tips are the number-one detection method for workplace fraud? Often, other employees are the best source of information about employee theft because they share a work environment. They may notice their coworker acting strangely or note that supplies are missing as they go about their daily tasks.

Implement a hotline where employees can report suspicious behavior and:

  • Offer the option to report anonymously. In addition, assure potential whistleblowers that you value their confidentiality and will keep their identity a secret, where possible, whether they state their name or not.
  • Set up a variety of reporting avenues, including a webform, phone number, email address and physical complaint box. Make each one easy to use and find. Check them all frequently so you don’t miss any tips.
  • Remind employees that the hotline exists. Use company-wide emails and common-area posters to jog their memories about how and when to report theft and other misconduct.
  • Implement an external reporting system. Allow non-employees (e.g. customers, vendors, clients) to report suspected theft and fraud. Set up a webpage explaining what should be reported and the contact information (such as phone number and email address) to do so.


Encourage Whistleblowers


While most employees are loyal and want to do the right thing, don’t depend on that to garner hotline tips. They may fear retaliation if they’re found to be a “snitch” or just not want to get involved. In order to encourage employees to report theft and other wrongdoing:

  • Inform employees of the consequences. Knowing about a theft or fraud scheme and failing to report it is almost as bad as committing it. Include the consequences of failing to report in your anti-theft and/or fraud policy.
  • Establish a company culture of ethics. Encourage managers to get on board with anti-fraud procedures. Emphasize the importance of ethical behavior and putting honesty above company growth.
  • Offer incentives to whistleblowers whose reports help you uncover misconduct. These can be in the form of financial bonuses, extra vacation days or even a simple recognition at a company-wide meeting.
  • Stress the company’s commitment to confidentiality. Ensure employees that, where possible, you’ll keep their identifying details a secret.
  • Have a way to correspond with anonymous whistleblowers, such as an anonymous two-way communication platform.
  • Report on findings. This shows you’re taking tips seriously and listening to employees’ concerns.


RELATED: Theft in the Workplace: Prevention, Detection and Investigation


Conduct Surprise Audits


Conducting regular audits is a helpful fraud detection method. However, if clever fraudsters learn your audit schedule, they’ll find ways to hide their crimes. To catch them by surprise:

  • Hire an external accountant audit your financial records unexpectedly. A different schedule and different auditor are likely to catch the thieves off guard.
  • Conduct random counts of petty or register cash. Take inventory of supplies, equipment or retail products when employees aren’t suspecting it or don’t realize you’re doing it.
  • Review returned or damaged products to spot return fraud. Notice if one person is making frequent returns or if many of your returns are high-value.
  • Conduct reviews of financial records. Look for anomalies that could point to fraud.
  • Use Benford’s Law to look for red flags. Legitimate data sets follow different number patterns than fabricated ones.
  • Audit vendor files. Look for duplicates, addresses that match employees’ and changes to regular payments.


Don’t Ignore Red Flags


The ACFE report notes that 85 per cent of fraudsters display at least one red flag of fraud. Paying attention to small changes and inconsistencies in behavior or company data can help you detect employee theft before it snowballs into a major problem.

First, look for employee-level red flags, such as:

  • Changes in spending habits, especially when they don’t match the employee’s salary (e.g. luxury vacations, designer clothes, new car)
  • Working long or odd hours
  • Preferring to work alone
  • Changes in mood, behavior, focus, attendance and productivity
  • Refusing to take vacation
  • Coming to the office when ill instead of taking sick leave


In addition, check for inventory and financial anomalies, including:

  • Inventory shortages
  • Frequent cash balance discrepancies
  • Missing supplies, equipment or tools
  • Inconsistencies in financial records


employee theft


Employee Theft Prevention


Promote a Positive Work Environment


The easiest way to prevent employee theft is to establish a positive work environment. Employees who feel valued, heard and appreciated may take more pride in their work and stay loyal to their employer.

  • Promote a workplace with a positive atmosphere. A good attitude should trickle down from managers to their staff. Maintain a balance between transparency and positivity.
  • Provide good benefits. When employees don’t have to worry about medical bills for themselves and their families, they are less likely to steal from their employer out of need or a feeling that they “deserve it.”
  • Offer perks that help keep employees motivated throughout the day. Something as small as a snack closet, casual dress code or flexible hours can make the difference between a satisfied employee and one who feels comfortable committing theft.
  • Reward employees for good work. Anything from recognition in a meeting to an annual monetary bonus can boost spirits and encourage employees to stay honest and loyal to the organization.
  • Pay employees properly. Offer competitive salaries and paid sick days. Ensure they always get paid on time.


Know the Reasons for Theft


Knowing why people steal from their workplace can help you prevent employe theft. Top motivators include greed, vindictiveness and financial need, according to corporate security expert Timothy Dimoff.

After you’ve figured out the thief’s motive, address the root causes wherever possible. For example:

  • Pay employees fairly. Fair wages reduce the risk of financially-motivated theft.
  • Offer mental health resources. Employees may fall on hard times due to addiction, an ill or deceased family member or an unemployed partner. They may also feel slighted or upset about their job. Inform employees about resources they can reach out to for help and include therapy and counselling in your insurance plan.
  • Check in with employees often. If they show warning signs of distress, especially financial, work with them to find a solution before they turn to theft.


Segregate Financial Tasks


Building theft prevention into your processes and job descriptions reduces employees’ opportunities to steal. A simple system of checks and balances helps detect theft faster and prevent it from happening in the first place.

  • Segregate duties so that one employee isn’t responsible for completing all parts of a financial transaction. One person shouldn’t be tasked with both writing and signing checks, or working and reconciling a cash register.
  • Implement checks and balances. Require managers to review their employees’ work before a financial task is considered complete. This helps detect theft faster and prevent it from happening in the first place.
  • Rotate financial duties periodically. This makes it harder for potential thieves to set up a scheme unnoticed.


RELATED: 6 Action Steps When Confronting Employee Theft


Implement Security Measures


Use security measures to make stealing more difficult. These tools not only physically restrict potential thieves, but may also deter them from even attempting to steal. Try one or more of these methods:

  • Lock up high-value inventory items, tools, cash and medicines. Luxury retailers and medical facilities should take extra precautions, such as two-step access (i.e. a passcode on an exterior door, then a physical lock on a safe inside).
  • Restrict access to financial and personal data. The fewer people who can access sensitive information, the lower your risk of theft.
  • Install security cameras. Position them to monitor break rooms, warehouses, stock rooms, cash registers and isolated areas of the workplace.
  • Order a security audit of your operations. Use the results to address your organization’s weak points. For example, if employees share access cards, switch to a passcode lock system instead. Or, if there’s a low-visibility spot in your camera coverage, reposition them or install another.
  • Install keypad or swipe card entry doors. Securing offices reduces the risk that an employee’s external fraud partner or a former employee can gain access to the office.


Don’t Forget About Data Theft


When you think of employee theft, fraud and inventory loss probably come to mind. However, you also need to protect your organization against data theft. Employees may steal trade secrets, clients’ or employees’ personally identifiable information or customer lists.

Data theft may cost your organization financially, but can also hurt your clients or customers, and, as a result, damage your reputation. To build data security into your everyday processes:

  • Follow good disposal practices. Shred sensitive documents, delete computer files and wipe devices before passing them onto another employee.
  • Restrict access to data. Reduce the number of employees who handle or work with sensitive information, both from your company and customers. Require passwords to access financial files or programs.
  • Protect devices with strong passwords. Require employees to set passwords with at least one capital letter, one lowercase letter, one number, one special character and eight characters in length. Remind them to change these passwords frequently (around every three months).
  • Remove access for terminated employees. Immediately restrict access to networks and computers so they don’t steal data or funds as revenge.


RELATED: 5 Types of Employee Theft and How to Prevent Them


Write Strong Policies


Clear, well-written and comprehensive policies go far towards anti-theft efforts. Make sure your workplace policies on theft (and data theft) are strong and that you communicate them widely.

  • Include specific examples of behaviors that won’t be tolerated. Outline scenarios from taking home office supplies to leading a group fraud scheme.
  • Explain why even the smallest theft incident can harm both the organization and the employee. Note the ways that the employer will suffer (reputation damage, financial harm) as well as the individual (discipline, trouble finding another job after getting caught, loss of coworkers’ trust)
  • Outline the consequences for violating the policies. Explain the levels of problematic behavior and the potential disciplinary actions for each.
  • Emphasize consistency. Explain that regardless of an employee’s position or length of service, they’ll face the same consequences if they commit theft.
  • Communicate your policies well. Provide annual anti-theft training to review them and send out company-wide emails with the policies attached whenever you update them.


Having a plan in place can help you detect theft and fraud faster and prevent it better. Download our fraud response plan template to get started.


Screen Out Potential Thieves


Finally, keep employee theft out of your workplace by screening out potential thieves during the hiring process. The easiest way to reduce risk of theft is to avoid hiring people with a history of bad behavior.

  • Perform background checks and criminal record checks. These will help you rule out applicants with a history of fraudulent or otherwise criminal behavior.
  • Run credit checks to spot applicants with troubling financial habits. Do your research before you start the process to ensure this practice is legal in your state.
  • Call the applicant’s references. Ask about their behavior and reputation in their previous workplaces.


Learn more about preventing and detecting employee theft in this free webinar from security expert Tim Dimoff.

Ann Snook
Ann Snook

Marketing Writer

Ann is a marketing writer at i-Sight Software. She writes about issues related to investigations of fraud, employee misconduct, corporate security, Title IX, ethics & compliance and more.

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