First Reference Talks

What to do about employee theft

Author: Adam Gorley

Posted on Thursday, February 4th, 2010 at 09:00

Have you experienced theft at your business? Who did it—an outsider, a new hire or the long-term employee you’d never have suspected? It could be any of them, and you shouldn’t be surprised if it’s the latter.

A 2004 study conducted by The Retail Council of Canada found that 48 percent of retail losses came from employee theft, compared to 31 percent from external theft (and 19 percent from administrative errors). Not only that, but a 2008 study found that 87 percent of small and medium businesses had experienced some sort of theft. Other studies have found that employees commit the most serious frauds, with management making up the larger share of that group.

Smaller businesses, where the boss knows and works directly with pretty much everyone, can suffer the most—not just because they have fewer resources that they can afford to lose, but because of the sometimes irreparable damage to employer-employee relationships and trust. When a trusted manager has been siphoning off funds or lifting equipment, and is found out, the employer will likely be devastated.

I don’t mean to frighten anyone! Except maybe in the most extreme situation, the last thing an employer should do is treat every employee as a suspected thief. Small and medium-sized business owners have enough on their plates already; they don’t need to add excessive paranoia to the menu.

There are two sides to employee theft: the business and the employee. The business wants to stop or reduce theft as well as it can, and probably doesn’t understand why its employees are stealing. The employee has a reason for stealing that likely has something to do with the culture at the business; either employee theft is so common that everyone does it, employer-employee relations are lacking so the employee wants to get back at the employer, or the employee feels that he or she is not adequately remunerated and steals to bump up his or her earnings. Trusted employees, too, can suffer from these feelings or pressures, and they often have greater or easier access to the business’ money or equipment, and the means to cover up fraud.

(Surely, there are other reasons why employees steal from their employers, and I’d like to hear about them from you.)

For any theft-reduction response to work, the employer has to understand the reason behind the theft. It should be clear from the variety of motives above that a blanket approach—such as extensive and intrusive surveillance, strict and heavy-handed control and monitoring of equipment and supplies, or threats—could never be effective over time. These types of reactions are simply likely to demoralize employees, reduce process efficiency and labour productivity, and add extra expense for potentially little gain. A nuanced approach, based on an investigation that attempts to uncover the cultural factors behind the thefts will allow the employer to deal with only the employees involved and avoid offending others, and can also help the employer institute targeted changes that enhance employer-employee relations rather than damage them.

Employers who suspect or uncover internal theft have options that don’t involve knee-jerk reactions, yelling fits, threats and indiscriminate firings. Any of these actions could land an employer in legal hot water.

Organizational psychologist, Bob Sutton, describes a strange experiment in reducing employee theft: an employer that was experiencing significant losses due to employee theft hired an external investigator who performed confidential interviews with employees. The employees informed the investigator that they generally stole equipment just for the thrill of it—they didn’t even need or use the equipment they stole! This was a culture of competitive theft.

The investigator came up with a simple strategy to remove the thrill of stealing equipment: the employer would allow workers to borrow any equipment they wanted outside of working hours. The plan worked immediately. There was no more thrill in stealing something that the workers were allowed to take whenever they wanted. This response might not work with pens and paper, but it could easily work for laptops or projectors—provided that the program has a sound policy to back it up, covering damage, loss, privacy and so on.

Here are some things employers should consider when it comes to employee theft:

• Avoid reacting (e.g., punishing, firing) based on suspicions or rumours; investigate and follow the law when you discipline
• Avoid judging and condemnation in your investigation; nobody wants to tell the truth when it might get them fired
• Review your work culture to see if it encourages inequality, resentment and disrespect
• Review your policies to see how they protect your business from theft:
  • Do you have explicit policies on employee theft, discipline, surveillance?
  • Have you applied the policies consistently in the past?

For a more detailed look at the compliance side what to do in the event of employee theft, including terminations and discipline, read Yosie’s article “Dealing with Employee Theft” on HRinfodesk (requires subscription). And please, feel free, to let us know your thoughts.

Adam Gorley
First Reference Human Resources and Compliance Assistant Editor

Tags: Bob Sutton, employee fraud, employee theft, loss, surveillance, theft

This entry was posted on Thursday, February 4th, 2010 at 09:00 and is filed under Employment Standards, Human Resources, Internal Controls, Privacy and Security. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.