Not so fast. A few statistics might change your mind.
- A typical organization loses 5% of its annual revenue to employee fraud. Applied to the estimated 2009 Gross World Product, this figure translates to a potential global fraud loss of more than $2.9 trillion.
- Nearly one-third of all employees commit some degree of employee theft, according to Department of Justice.
- Employee Theft Solutions, a division of The Shulman Center for Compulsive Theft and Spending, estimate that one-third of all U.S. corporate bankruptcies are directly caused by employee theft.
- The U.S. Chamber of Commerce estimates that 75% of employees steal from the workplace and that most do so repeatedly.
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.