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Employee Theft: Ways to stop or prevent

09/13/2022 Stephanie Allgeyer

As business owners and managers, we tend to think the best of our employees and their loyalty to the company.  Most would assume their employees would not purposely steal or commit fraud; however, employee theft is more commonplace than you would think. This is due to the low rate of thefts being reported, whether it is stealing cash, altering or forging checks, or stealing inventory, supplies, or property.

Even worse, employees could be stealing intellectual property such as confidential documents or trade secrets. What can you do to reduce or prevent employee theft? Here are some tips to prevent or stop fraud:

Talk openly with your employees about theft and dishonesty. Set an example for ethical behavior.

Be suspicious of any employee with a sudden financial change. (Has someone started buying expensive clothes, gifts, or cars?)

Prosecute offenders. It helps deter further crime. Articulate a zero-tolerance policy in your employee handbook.

Have the bank send all canceled checks and bank correspondence to a different address (for example, a post office box or your home) other than the business address and either sign the original before giving it to the accountant or compare to the one used for the monthly bank reconciliation.

Require employees to sign out and sign in equipment. When a staff member leaves the company, make sure laptop computers, cell phones and other equipment are promptly returned.

Periodically change passwords. Computer passwords should be required to be change regularly, particularly after someone leaves the company on bad terms.

Keep a close eye on inventory. Monitor inventory regularly and watch out for increases in damaged goods or unexplained drops in sales. Complete periodic physical audits of inventory along with random spot-checks.

Use Purchase Orders on all purchases.  The preparation, receipt, and payment on purchase orders should be completely separate functions performed by separate staff. Always verify incoming orders against existing and approved purchase orders.

Visit frequently and unannounced to your warehouse or storage areas. Look for suspicious patterns.

Randomly check deliveries to your business and your customers. There may be hidden stolen goods in them.

Never accept photocopies of documents like invoices and delivery tickets.

Look into unexplained employee absences. At the same time, be suspicious if a staff member never takes a day off. That could mean an employee is afraid that theft will be detected if he or she isn’t around to cover it up.

Have an approved vendors listing and quarterly or annually pull a listing of all vendor payments and verify against the approved vendor listing.  

Conduct unscheduled audits. Do random pulling of documentation on both the purchasing and sale side and validate the information. Also do a review of petty cash randomly to verify all withdrawals are signed off on by two employees.

Require full documentation. Ask for receipts, delivery times and notes on the condition of goods when they arrived.

Pay only for what you receive. Remind staff members that the company doesn’t pay for items not ordered, even if an invoice is submitted. So, verify services and items have been performed and received prior to payment.

Get professional help. Your CPA firm can perform an internal control study and make recommendations to segregate duties and increase key internal controls to help limit fraud and theft.

Hire a bonding company to bond your employees, if possible.

Establish an anonymous tip program that allows employees to report questionable behavior.

These are only some of the steps your company can take to help prevent internal fraud.

If you discover suspicious activity, be extremely careful about accusations or conducting investigations. You need concrete proof, and it is always wise to get legal advice before confronting an employee. A false accusation could irreparably harm employee morale and could result in a lawsuit against your company. For any questions related to this article, please contact Stephanie Allgeyer at sallgeyer@vlcpa.com or 800.887.0437.

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