Entrepreneurs risk everything to start their businesses. Sadly, at least half of them will fail within the first few years. There are numerous reasons for business failures, but one of the biggest and underrecognized is employee theft (or shrinkage).
According to ACFE's 2014 Global Fraud Study, 30% of all business failures are caused by employee theft. The median loss for a single occupational fraud incident is $145,000.
Joseph Schmidt ran the real estate business his father started. He didn’t pay much attention to the daily operations, so he didn’t realize that the bookkeeper was embezzling $650,000 from the company. The company was forced to file for bankruptcy after being one of the most prominent real estate companies in the Bronx for 114 years.
As a business owner, stories like these are very disheartening. You want to trust your employees, especially since you work with them every day. Unfortunately, you must have the right controls in place to prevent against employee theft.
Here are some guidelines that you need to follow to minimize the risk of employee theft.
1. Minimize Employee Access as Much as Possible
You don’t want to give every employee unfettered access to your entire business. Only certain managers and financial professionals should have any access to your company’s financial information. If employees aren’t required to handle cash, you shouldn’t let them do so.
It’s also important to minimize employees’ access to the company while they aren’t on the clock. You may want to look into using a wireless security system like SimpliSafe. SimpliSafe monitors every room in your building for potential security threats with an easy-to-use installation, that will have your business safeguarded in a matter of several minutes.
If an employee attempts to access your company when they shouldn’t be there, SimpliSafe will trigger an alarm and record their activities.
2. Screen Employees Before Hiring
You won’t eliminate every potentially unscrupulous by vetting them, but it’s a good start. You want to thoroughly screen every possible employee. Here are some things to pay attention to:
- Criminal records. You don’t need to discriminate against employees with one or two underage drinking or drug infractions, but you want to avoid hiring anyone with more serious records. Employees that have been arrested for theft should never be hired.
- Credit scores. Always be careful hiring anyone with a very poor credit score. They are more likely to be desperate for money to pay off their bills, which increases the likelihood they will steal or accept bribes. They also have a track record for making poor choices.
- Statements from previous employers. Most employees that steal never get charged, due to lack of evidence or because the prior employer feels bad about ruining their lives. However, the employer may still let you know if they fired someone they suspected of fraud.
Always do your due diligence during the hiring process. You aren’t just looking for employees that have the competencies to do the job. You also want to hire someone that you can trust.
3. Conduct Routine and Surprise Audits
It’s important to conduct both routine and surprise audits. If you routinely audit the company’s operations, employees will be more likely to realize that you are looking out for internal fraud, which can act as a deterrent.
Surprise audits also help you catch potential thieves off guard, so they don’t have time to cover their tracks. They can be one of the best ways to identify and stop a thieving employee before the costs add up too much.
Preventing Employee Theft MUST be a Priority
The only thing worse than suspecting your employees of stealing from you is letting them drive your company into bankruptcy. You need to pay very close attention to everything that goes on in your company, because theft can ruin your business.