HPG article 2018-08

From HPG – Guard against Losses from Employee Theft

Tasha D. Dyson Compliance, Embezzlement, Fraud, Security Program Development, Theft, Theft, Embezzlement, and Fraud


HPG article 2018-08Theft by employees costs companies billions of dollars a year. This poses a very serious threat to profitability if left unchecked. Every business needs to set up some internal controls to thwart this type of fraud. This article from Hughes Pittman & Gupton, LLP entitled “Guard against Losses from Employee Theft” looks at a few simple steps to take that will help protect your company against purloining staff members.

As an investigator, I love this article. I love it because I can think of specific investigative cases that would have been prevented or had the impact reduced by each suggestion.

  1. Values. One thief thought she could mix personal and business expenses because she saw her bosses do it. She didn’t realize (probably deliberately) that her boss, a company owner, was steadily reimbursing the company for his personal expenses. The line between business and personal should have been made clear to her. Checks, balances, and accountability are critical and should be in writing. Training and awareness support better outcomes.
  2. Internal controls and segregation of duties. One thief was responsible for managing petty cash. She received receipts, created totals, and issued checks to herself (for petty cash). She then had to obtain two signatures for each check. In a fairly small organization, there were about a dozen department heads who were authorized to sign a check. Many of them didn’t or couldn’t review the backup documentation appropriately. After her theft was discovered, the company greatly reduced the number of authorized signers and provided training about their roles and responsibilities as signers.
  3. Behavior. One thief was discovered because he appeared to be living well beyond his means. One key individual realized that the clothes, cars, and trips of the thief were not typical for someone in his salary range. Along with other warning signs, this caused the company to take a closer look at the thief’s work. “See something, say something” is a powerful security tool for any business.
  4. Be prepared. In addition to bonding employees, review your insurance coverage as it relates to employee theft. Many insurance policies will require that the company institute reasonable protection measures as a component of their coverage. If a company suspects an employee of wrong-doing, an investigation and loss containment are the priority. Knowing what your insurance policy covers and the standard of proof that will be required may help you mitigate losses via insurance. Other considerations to minimize the risk of loss are pre-employment background screening, an emergency response team, and security policies and procedures.

It’s easy to look at a situation after the theft has occurred to see what went wrong. The trick is to apply lessons learned from other victims to hopefully prevent theft from occurring at your organization.