In the past 24 months, 46% of organizations have experienced fraud, according to this year’s PwC Global Economic Crime and Fraud Survey. This loss translates to $400 billion, or 6% of total annual revenue. Unfortunately, a significant contributor to fraud is dishonest employees. Employee theft is poised to increase in the aftermath of the pandemic and the ensuing economic downturn.
This blog will examine why workers steal and what companies can do to prevent employee fraud and theft.
A well-documented framework
Employees commit fraud to extract financial or personal benefits. It could be any employee, from the clerks and managers with easy access to cash to corporate accountants who can subtly move money without attracting attention.
The reasons for employee fraud and theft can be explained by the fraud triangle, which includes the following:
- Motive — A driving force, such as a need for money beyond a wage
- Opportunity — Something that gives access to sensitive information, like an unlocked door or a computer left logged into
- Rationalization — Justifications used to explain away an employee’s actions, like being underpaid or the idea that all employees would do the same.
Employee fraud and theft are a much more significant threat than many organizations realize. Researchers have developed the 10-10-80 rule, which states that 10% of employees will never steal, 10% will always steal, and 80% could go either way, depending on circumstances. When looked at in this way, it becomes clear that 90% of employees, as a rule of thumb, are at risk of committing fraud against an organization.
Also read: A Great Employee Retention Plan Starts with Recruiting
Types of employee fraud and theft
There are many types of employee fraud and theft; any list is incomplete due to criminals constantly finding new schemes. However, the most common types include:
- Theft: Employees steal company assets, merchandise, money, supplies, or data for personal use or resale. It includes everything from staplers to scissors and company funds.
- Bribery: An employee accepts money for preferential treatment.
- Embezzlement: Employees who control company finances steal funds for personal gain.
- Payroll: Employees steal time from an organization by adjusting their timesheets to show that they have worked more hours than they did.
While this is an incomplete list, it illustrates the wide variety of threats facing businesses today. Organizations the world over have been frauded by employees that were highly trusted and placed in positions of leadership. Because of this, fraud can go unnoticed for a long time, sometimes years, because trust has been built between the employee and the company.
Smaller organizations are particularly at risk because they often do not put extensive safeguards in place while also lacking the resources to absorb extreme cases. However, with proper preparation and investment, there are ways to reduce the instances and effects of employee theft significantly.
Also read: Managing Ethical Dilemmas as an Accountant
How to prevent employee fraud and theft
With most employees having the capacity for theft, it’s an organization’s responsibility to discourage it in the workplace actively.
Demonstrate that the company holds everyone to the same standard—from the CEO to the lowest-paid employee. Establishing a code of ethics is vital. While it won’t prevent criminal behavior, it demonstrates a commitment to ethical behavior that inspires employee confidence and trust. However, this belief is shattered if a supervisor or executive disregards the rules without punishment, which is why the rules must apply to everyone.
Carefully screen employees before hiring. Employers should thoroughly vet a candidate by performing background checks, double-checking references, and using the internet to conduct further research.
Make sure there are anti-theft policies in employee agreements. Putting the consequences of stealing in writing helps workers understand there are severe consequences and contextualizes them.
Place security cameras in the workplace to actively monitor employees while they are working. When employees know their actions are being recorded, they are less likely to commit fraud motivated by opportunity. The perpetual presence of cameras reinforces that they cannot get away with theft even when no one appears to be looking.
Also read: Remote Work and Safeguarding Against Theft in the Workplace
Is insurance the answer?
Even with a thorough understanding of employee theft and fraud and adequate measures in place to prevent it, there is still a high chance that it will occur in any organization. Insurance covering employee dishonesty is a worthwhile investment considering its low cost compared to the billions lost to employee fraud every year.
McGowanPRO’s Employee Dishonesty Liability Insurance protects businesses from the financial impact of internal fraud and theft. Coverage includes losses involving money, client property, and credit card forgery—with options to include theft from non-employees and more. With decades of experience providing highly customizable professional liability, errors & omissions, and similar insurance products, McGowanPRO’s support will give you peace of mind and the confidence you need to focus on growing your business.
To learn more, contact us today