Business risk management and insurance

Spotting theft in your business

Theft can be a real drain on businesses. Unfortunately, many remain unaware of workplace theft until it’s too late. So how can you spot it, and what should you do next? This guide will show you how to identify and deal with theft or fraud in your business.

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In this article

Why employees steal

Staff steal for many reasons. In most cases, theft doesn’t occur out of any need but simply because of opportunity and lax business controls, or as a form of 'compensation' because the worker feels poorly treated.

A common rationalisation is: "The business is making heaps of profit and I'm only taking what's really due to me for my hard work."

Theft is not necessarily the realm of lower-paid workers either. Research shows theft can happen in all areas within a company, with a trend towards higher sums and more sophisticated methods at the upper management levels.

Common forms of employee theft

Employees have been known to use a variety of methods to steal from their employer, beyond the obvious ones of stock theft and 'fingers in the till'.

Common forms of employee theft:

  • Removing cash from the till
  • Taking home or consuming stock
  • Discounting to friends and colluding with others (turning a blind eye)
  • Fictitious supplier accounts and invoices or petty cash purchases
  • Taking cash 'commissions' from suppliers
  • Using business facilities and materials for personal gain
  • Giving away or using confidential company information or trade secrets for personal gain.

Signs that theft may be happening

Stock shrinkage and/or reduced sales may be indications of a problem, but you’ll need hard evidence to prove that a staff member is stealing from you.

Evidence of employee theft can take some time to become apparent unless you catch someone in the act. Often you may only have a suspicion that figures just don't seem right. In most established businesses, the gross profit ratio remains relatively constant, so downward trends can be a sign of theft occurring.

Here are some of the things you should also be looking out for:

  • Stock levels lower than your sales records indicate
  • Sales figures dropping on the days a particular employee works
  • In-house rumours of dishonesty.

Other evidence of theft might include:

  • Invoices appearing as copies rather than originals
  • Employees who are reluctant to take holidays (as evidence may be discovered in their absence)
  • Missing documentation
  • Stock left near exits.

Invisible theft

Not all forms of theft involve the direct stealing of stock or materials. Employees can also steal time from the business by taking much longer over tasks than necessary, or spending excessive time on non-work activities like breaks, personal emails, social media, and watercooler chats. 

Computers and information technology have opened up whole new areas for dishonesty. For example, an employee could sell your database of customer names and details to a competitor. A computer expert can email your latest marketing plan or pricing system to the opposition, or rig the accounting system so fraud goes undetected for some time.

What not to do if you detect theft or fraud

The first and most important rule is never summarily dismiss an employee. Get expert advice first.

It’s important to follow proper procedure, or else you may open yourself up to legal action. Also, keep in mind that things might not be what they seem – as this case study illustrates.

Case study: Jumping the gun

A camera shop owner caught an employee taking a camera home from the shop and promptly dismissed him for theft. However, the employee took out a personal grievance for unjustifiable dismissal. His defence was he had taken the camera to show a friend who was interested in buying it, but unable to visit the shop. 

In the end, the owner was advised to reach an out-of-court settlement or take the employee back. 

The owner made two avoidable mistakes: 

  1. Improper procedure in dismissing the employee so quickly without an opportunity to state their side of the story.
  2. Rules should be clear to everyone. If taking stock out of the shop without the owner's permission is cause for dismissal, this should be clearly stated in the shop's operations manual and employment agreements.

If you fail to follow proper procedure, you could open yourself up to a personal grievance – even if the case seems cut and dried. Employment laws can be tough on an employer who jumps to conclusions and fires an employee suspected of theft without hard evidence.

Gather evidence

If you suspect that theft is occurring, try to get the evidence you need before taking any action.

The way you go about this will depend on what sort of business you are and the nature of the suspected theft or fraud. For example:

  • Video surveillance might help you get the evidence, but be careful of privacy laws. Get expert advice before you install hidden cameras.
  • Observation by yourself or another senior staff member is another option. It’s unlikely an employee will steal while being watched, so you may need to try undercover methods.
  • Private investigators are a pricier option, but in extreme cases may be justified. They’ll be able to advise on the legal aspects, such as privacy, as well.
  • Use a mystery shopper – have them purchase something from the suspected staff member and give the staff member the opportunity to steal (for example, not putting the money in the till).

Case study: Exposing a thief

The owner of three hairdressing salons suspected the manager of one salon was stealing from the business – but she lacked hard evidence. In the end, the solution was simple: she rotated the managers on the grounds that they should all be familiar with the operation of each salon. 

As soon as the suspect manager moved to another branch, the weekly turnover at the manager's former branch shot up. Confronted with this evidence, the manager chose to resign.

How to prevent theft in your business

Learning how to spot the telltale signs of theft and fraud is important – but having less of it to look for in the first place is even better.

Fortunately, there are some simple steps you can take to prevent theft in your business.

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