Employee Theft Prevention

Employee theft, fraud and embezzlement are also known as occupational fraud and generally reflect the full range of employee misconduct through which businesses lose money. A formal definition of occupational fraud is when someone uses his or her occupation for personal enrichment through the deliberate misuse or misapplication of the organization’s resources or assets.

According to the 2010 Association of Certified Fraud Examiners (ACFE) “Report to The Nation on Occupational Fraud and Abuse,” a typical organization loses 5% of its annual revenue to fraud. Most notably, according to the report, small businesses are particularly vulnerable to fraud because they tend to have fewer internal controls and resources in place to protect their assets, thus increasing their risk and reducing their profits.

In addition to the ACFE’s findings, the U.S. Department of Commerce reports that 85% of all theft and fraud in U.S. businesses comes from employees and not outsiders. It also reports that employee dishonesty costs American businesses in excess of $50 billion annually; the U.S. Chamber of Commerce estimates 75% of employees steal at least once during their employment, many being repeat offenders.

Oftentimes, the person responsible for the theft is a long-time employee who is well-liked and trusted. Sadly, some are even relatives and childhood friends of the owner or manager.
According to Cressey’s Fraud Triangle Theory, there are three factors that, when combined, lead a person to commit occupational fraud. The first is a perceived financial need, the second is a perceived opportunity and the third is the person’s ability to rationalize or justify the illegal conduct. Of the three factors, reducing or eliminating the opportunity for a person to commit fraud is usually the most effective way to reduce risk.

Additionally, there is the 10-80-10 theory, which suggests that 10% of employees will not steal no matter the opportunity, a second 10% will steal no matter what you do and the remaining 80% will steal depending on how they rationalize a given opportunity. Opportunity is the key operative point in this theory, as well.
Many investigations and internal reviews, conducted after a loss, discovered some of the same factors: lack of prevention, awareness, training and internal controls. In fact, the ACFE Report to the nation found that employee education is the foundation to preventing and detecting occupational fraud.

Given the fast pace of today’s business and the focus on running the day-to-day operations, owners and managers often do not have time to be proactive and discover the loss before it’s too late. There is some credence to the saying: “An ounce of prevention is worth a pound of cure.”
As a manager or owner, avoid becoming a victim or another statistic. Take some time to review the checklist below to see how vulnerable your business is. Remember that taking proactive measures now can be your “ounce of prevention.”

Quick Fraud Risk Checklist
- Have you had a risk/security assessment of your business conducted recently to identify risks or outdated security measures?
- Do you have a loss prevention program? Does it consist of more than an alarm system, security cameras and access control?
- Is your business experiencing unexplained losses or inventory shortages? Have profit margins been reduced? Do you have suspicions about theft or potentially dishonest employees?
- If you suspect employee theft, drug usage or other misconduct, do you have the time or resources to investigate or respond appropriately?
- Do you have employee training programs? Do they include security, ethics and workplace violence?
- Do you have a fraud prevention program in place?

This article was recently published in the Columbia Business Monthly. It can be viewed here;

http://www.bizmonthly.com/12_2010/25.shtml

Be Sociable, Share!

Tagged with: • • • • • • • • • • • • • • • • • • •

Filed under: Workplace Fraud

Like this post? Subscribe to my RSS feed and get loads more!