FORMS OF EMPLOYEE THEFT
Employee theft may be grouped into four major categories: 1) manipulation of company records either to embezzle money outright or to hide the theft of goods; 2) direct theft of inventory, products, or cash; 3) abuse of power in order to aid and abet thievery by partners; and 4) theft of information for sale to others or for direct use (e.g., credit card theft).
Records
Employees directly involved in financial administration and with access to company cheques and corporate records may engage in forging company cheques for personal use. Creating “ghost payroll entries” and then paying “phantom” employees is another method, sometimes quite elaborate in implementation involving phony time cards. Forged billings by non-existent vendors is another method—with the accounts payable clerk writing cheques to him or herself when paying the fake billing. Employees also destroy paper records so that “lost shipments” cannot be traced—or fake orders to cover items missing from inventory through their own thefts.
Direct Theft
In its simplest form employees simply take cash from cash registers to which multiple individuals have access to dip into petty cash resources generally easily accessible to several employees. Direct theft of valuable products or materials invariable relies upon trust (the employee comes and goes, often with a truck, stashes goods away, is never checked) or opportunity (the employee has access to the warehouse and the warehouse is not effectively guarded).
Abuse of Position
In one form of this abuse, known as “sweethearting,” an employee grants a friend a discount or rings up fewer items than are packaged for taking out—or rings up a cheaper item than the item that leaves the store actually cost. The goods acquired in this manner may later be shared. Individuals taking inventory may abuse this privileged status by counting fewer item than are present and, if this “mistake” is not detected, later personally “adjusting” the inventory by taking the uncounted items home.
STEALING INFORMATION
As reported more fully in the Computer Crime essay in this volume, an increasing proportion of attacks on computer systems take place from within the company. The target of this type of thievery is protected personal data, such as credit card information, which, in the wrong hands, can be turned into cash. More sophisticated forms of such theft are conducted in order to sell information to third parties.
Signs of Employee Theft
Managers and small business owners need to be aware of tell-tale signs which, when they frequently repeat, may be the tracks of a thief at work inside the company. A useful checklist to keep in mind mentally includes—
Missing records (such as shipping and/or receiving bills).
Company cheques that bounce or someone is surprised that the company is doing business with XYZ and then adds: “Who is XYZ anyway?”
Customer complaints about missing, late, or short deliveries.
Hefty payments made for “miscellaneous” purposes in employee expense claims.
STOPPING EMPLOYEE THEFT
In the well-run small business employees are trusted to be honest but sensible policies and practices will be in place to detect the loss of product and closely to monitor financial and administrative transactions. Some of the tools include the following:
Clear Policy and Good Example. The company will have and will publish its ethical stance and its managers will be seen to adhere to it strictly in spirit and in action, inside and out, with customers, vendors, and employees alike.
Hiring Orientation. Newly hired employees must leave their orientation session fully aware that the company has zero-tolerance for any kind of irregularity—and the dire consequences that will follow pilfering, never mind theft.
Adequate Controls. Controls will be in place so that physical goods are locked up, protected at night, and closely checked on paper. In a small business particularly, where time is difficult to find, the owner will, nonetheless, show a keen interest in accounting details, probe into them occasionally, and not simply let the “number crunchers” drift unsupervised. Financial controls will include some of the following:
Chequebook will be locked up, and access to cash and checks will be given only to authorized employees.
Few individuals will have the authority to write a cheque, by preference one writing and one signing the cheque.
More than one person will have insight into the total finances so that “lone wolf” strategies are forestalled.
Handling of cash will always be accompanied by documentation.
Books will be audited at intervals not necessarily known to accounting people in advance.
Cash will be rapidly and immediately deposited rather than accumulating in cash registers.
All invoices will be formally checked against deliveries before vendors are paid.
Sources:
http://www.encyclopedia.com/topic/Employee_crimes.aspx