Employee theft is a serious and growing problem for many small businesses in the United States. According to the National Federation of Independent Business (NFIB), an employee is 15 times more likely than a nonemployee to steal from an employer, and employees account for 44 percent of theft losses at stores – more than shoplifting and vendor fraud combined. And the U.S. Department of Commerce reports that more than 30 percent of business failures are directly related to employee theft or fraud.
For business owners, those are scary statistics. NFIB’s Small Business Legal Center says these are the top ways employees steal: larceny (outright theft), skimming (diverting business funds), fraudulent disbursements (billing schemes, inflated expense reports, check tampering), embezzlement of raw materials or inventory, and stealing business opportunities (misappropriation of customer lists or other trade secrets).
Know your employees. Be alert to key indicators of potential theft:
• Sudden, apparent devotion to work and working late.
• Lifestyles well above salary levels.
• Strong objections to procedural changes related to financial, inventory or supply matters.
• Drugs and alcohol abuse.
• Moonlighting with materials available at the business.
• Evidence of compulsive gambling, persistent borrowing or bad check writing.
NFIB recommends that small-business employers perform background checks on potential hires.
You can also use purchase orders. The payment, receipt and preparation of purchase orders should be separate functions and handled by different individuals. Use serially pre-numbered purchase orders and always verify incoming orders.
Also, conduct informal audits. Make unannounced internal audits and have a yearly audit performed by an outside firm.
Computer security measures are also helpful. Understand your computer systems and software, and how they might be used to divert money or inventory. Restrict access to computer terminals and records. Periodically change entry codes and check regularly to ensure that security procedures are in effect and include computer records in audits.
And make sure to track your business checks. Always use pre-numbered checks, with amounts and payees typed or written in permanent ink. Producing all checks from financial software such as QuickBooks is highly recommended. Lock blank checks and a signature machine, if you have one, in a secure place. •
Daniel Kehrer can reached at editor@business.com.
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