At some point in the life of your business, it’s bound to happen.
It may be a hard reality to face and you may not want to believe your employees or colleagues would steal from your company, but it happens more than you think.
Here’s an alarming statistic: according to the U.S. Chamber of Commerce, employee embezzlement costs businesses in America between $20 and $40 billion per year. Research has shown that 1 out of every 3 employees is ready to steal if an opportunity comes up. And out of the employees who do steal, 75% of them don’t get caught.
So, as a business owner, what should you do? The key is to focus on preventing employee embezzlement instead of pretending that it can’t happen to you.
Understanding the Facts about Employee Embezzlement
Here are some fast facts about employee embezzlement.
● According to Marquet International’s 2013 Report on Embezzlement, 81% of embezzlement cases were carried out a by a single individual.
● The average embezzler was someone in their 40s.
● Women were more likely to steal from their companies; however, men were more likely to defraud a company of larger sums of money.
● Embezzlers often hold positions as bookkeepers or other finance jobs.
● The typical method of stealing involves check forgery or unauthorized payments.
One of the most surprising things the Marquet International study revealed about embezzlers was that they were thought to be loyal, long-term employees who had a great deal of trust from others. These employees had a reputation of being dedicated and worked long hours, and they were viewed as “too good to be true” employees.
The impact of embezzlement and fraud is especially troubling when it comes to small businesses. Preventing embezzlement at a small company is much more difficult due to the lack of resources.
According to the Association of Fraud Examiners, small businesses are the most victimized by employee theft. It’s thought that 64% of small businesses have lost money due to embezzlement. Why are smaller companies so vulnerable? It’s simple: fewer employees’ means greater autonomy and less supervision. This is the perfect recipe for employee fraud.
Know the Reasons Why Employee Embezzlement Happens
Preventing employee embezzlement is possible if you know why it occurs. Here are some of the main reasons why so many workers steal from their employers:
● Opportunity – In many cases, it’s easy for an employee to quietly take advantage of you. Employees entrenched in the thick of your company finances have plenty of opportunities to create a false invoice or transaction, write an unauthorized check or make a forged payment slip.
● Greed – Good, old-fashioned greed often motivates some people to steal. There’s not much more to it.
● Financial Hardships – Some embezzlers may be experiencing money problems at home and steal to help support their family. In other cases, there could be a different issue at hand that is causing financial troubles, like a gambling addiction or substance abuse problem.
● Money Pressure – Your employee’s friends or family may be driving them to steal by demanding a specific lifestyle that’s beyond their means. Sometimes, there may be a large amount of debt involved as well.
● Rationalization – Some employees may see themselves as being owed something. They may feel like they’ve been treated poorly or unfairly and by stealing, they’re getting their due share. Other times, it may be a situation where they tell themselves they’re only borrowing the money for a while.
Start Taking Steps to Combat Employee Embezzlement
If you want to know how to get started with preventing embezzlement, here are some simple steps to take right now:
● Invest in good hiring practices. Before you bring someone onto your team, make sure you run thorough background checks. Another idea is to look into pre-employment assessments that help predict a person’s attitudes and values.
● Get to know your team. Be present in your employees’ lives. Be aware of what is happening – including the good, the bad, and the ugly. Offer support when things get tough. Be ready to celebrate when things are going well.
● Strengthen your system. Ensure you have strong standard operating procedures that include careful checks and balances of your financial transactions. Build in methods of checking accuracy and spotting discrepancies before they become a problem.
● Clearly define each employee’s role and responsibilities. Offer each new worker an employee handbook that includes a job description and duties. Make sure your employees know your expectations about money handling, checks, and other financial matters before a problem occurs.
● Inspect what you expect. Provide routine quality and accuracy checks with your employees. Communicate clearly your expectations and hold them accountable. Make sure each person is following through with what is supposed to happen. If someone isn’t meeting the standard, make it clear that his or her behavior and performance needs to change.
● Communicate with each other. Create a system where employees can easily communicate up and down the company hierarchy. Establish a system that lets them speak up if they see something that doesn’t seem right. These methods are best when workers can anonymously report fraud or other problems they might encounter.
Preventing employee embezzlement is possible if you take the time to learn about the issue. Knowing why it happens, how it happens, and the common surrounding circumstances can help you be better prepared to fight this common problem that plagues too many businesses.
Want to find out more about keeping your business protected against employee theft? I offer free one-hour consultation calls. Contact me today by filling out my online form and I can help you get started.
A special shout-out to my friend, colleague, and loss prevention expert, Bob Serenson. Bob’s contribution to this article was significant. His leadership and expertise prevented millions of dollars in losses in our former business. If you need a loss prevention expert, contact Bob.