Employee Theft: Are You Blind to It?

Last Updated Jul 14, 2011 2:12 PM EDT

You know your employees well. You hired them, after all. They wouldn't steal. Besides, it's a small company and if someone were stealing, you'd know it. Wouldn't you?

Not so fast. A few statistics might change your mind.
To prosecute or not prosecute
We've seen business owners get completely blindsided by employee theft and it's never pretty. But once you find out about it, what's the best way to respond? There's no one solution.

In one instance, a CEO we worked with found out that a project manager stole $156,000. At a 5% bottom line profit margin, it would have taken more than $3 million in new sales to recover. Confronted with overwhelming evidence, the project manager immediately resigned and agreed to try to pay back some of what he took.

The CEO considered his options and their potential consequences. The manager had been privy to proprietary information and signed a nondisclosure agreement. Would he honor that if prosecuted? What blowback would there be from the staff? Could he even afford the financial and time commitment required to prosecute? In the end, he decided it wasn't worth it.

Another company we worked with was experiencing a downturn for the first time in its 20-year history. The owner dug into each line item of his budget to see where he could cut back, but the more he looked the more he saw things that didn't make sense. He brought in both his business coach and accountant to examine the numbers and they confirmed his worst fears: His bookkeeper had been posting bogus expenses on a systematic basis for more than a decade and it added up to just over a quarter of a million dollars.

When confronted, the bookkeeper first tried to justify and then finally confessed to the crime. She asked for forgiveness and for the owner not to prosecute, as it would ruin her reputation in the small community where everyone knew one another. On the advice of his business coach, the CEO ultimately prosecuted.

Protect yourself (as best as you can)
Here are some basic steps to minimize the risk of employee theft in your business:
  • Expect it. As Oscar Wilde said, "I can resist anything but temptation." People are human. We're sure your employees are likeable people, but no one is above reproach.
  • Make it clear you have a zero-tolerance policy. Whether or not you prosecute criminally is one thing. Continuity of employment will absolutely guarantee continuity of theft. Even more so, it will lower the bar (or open the vault) for every one else in the organization.
  • Put in place internal and external checks and balances. Always have a second set of eyes -- both inside and outside the company -- checking your numbers.
  • Know your margins. We can't stress this enough. Know what your margins should be, and if they're shrinking, find out why.
Deciding whether to prosecute an employee for theft is one of the most difficult dilemmas a CEO may be forced to confront. Would you have prosecuted in the situations above? Have you been in a similar situation? How did you respond? Let us know in the comments.
  • Rich Russakoff and Mary Goodman

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