It often starts with a trusted employee who a small business owner would never suspect. Invoices might be forged, or checks might be stolen. By the time the boss catches on, thousands of dollars in cash or inventory have been stolen.
“That is the No. 1 killer of small businesses,” Columbus Police Chief Joseph St. John said of employee theft. “We have (thefts or) embezzlements here all the time. Embezzlement happens every day in this town, and we charge people every time it”s brought to our attention.”
Small businesses aren”t the only ones who are affected by employee theft.
A city of Columbus Public Works Department employee, in December, was arrested for using a city truck to steal from a building at the city landfill; the employee, who worked for the city for 18 years, later resigned.
Employee theft or fraud is a big and expensive problem at many companies. But the pain is often more than monetary. A boss feels a sense of betrayal, anger and shame. And wishes after the fact that he or she hadn”t been so blind to what was going on.
Who does it
Lawyers who handle employee theft cases say workers who steal from their companies are usually not the recent hires.
The thief tends to be “the long-term trusted employee who”s never had any evidence of (prison) time on their record,” said John Palter, an employment attorney with the law firm Riney Palter in Dallas.
“Generally, it takes someone with a high level of access to the various accounting systems and a high level of trust from management to be able to perpetrate the fraud,” Palter said.
Because of that trust, owners often don”t think to check up on their staffers — or even their business partners — and the theft can go undetected for years.
How an employee steals
Attorneys say there are several methods that employees tend to use when they steal.
A common one is for an employee to create a fictitious vendor who is paid for goods never received or services never performed. The employee creates an invoice and a check is cut to pay the non-existent vendor. The employee cashes the check.
Another method involves an agreement between the employee and an actual vendor. The vendor agrees to mark up the price charged the company, and after being paid turns over the extra money to the employee. In return for this kickback, the employee promises the vendor that the company will keep doing business with him or her.
Thefts also occur from petty cash, or when an employee asks a vendor to pay in cash and then pockets some of the money.
Thefts of equipment and inventory tend to come after hours, when an employee doesn”t expect to run into anyone else. They”re most likely to happen in companies without security and inventory-tracking systems.
“There should not be one individual that is exclusively responsible for the accounting,” Palter said.
That employee should also be required to regularly take vacation time. “It”s a way of ensuring that there are other sets of eyes reviewing the paperwork,” Palter said.
You also need to have an accountant come in and audit the books at least once a year. An audit will not only uncover a theft, it will also let employees know they could be caught.
An owner who”s a little more hands-on can also help. “The way to prevent theft is to have owners who at a minimum review the bank statements, review all the checks” each month, Klein said.
“People have got to look at their employees and understand there are going to be some people who are not honest and they”re going to have to take that seriously,” said St. John.
Employers should also let staffers know, through a clearly defined and written policy, that they cannot accept gifts from vendors, Palter said. Also that there will be consequences if someone is caught stealing from the company.
If a theft does occur, it”s a good idea if employees know that you”re prepared to have it thoroughly investigated by accountants and information technology experts who will be able to trace fraudulent transactions.
In the case of inventory, companies can embed chips in individual containers that will be scanned as they are removed from the building. Used along with video cameras, this technology can help an employer determine who took something from the building and when.
When you discover that money, inventory or equipment is missing, and you suspect a particular employee is responsible, do not immediately confront him or her. Both Palter and Hubert warned that accusing someone who turns out to be innocent could make the company liable to a big judgment for defamation.
You should consult a lawyer and an accountant. The lawyer will tell you when it”s time to take the case to the police or district attorney”s office. An accountant can arrange for forensic specialists to go through your books and try to determine who had access to them and who likely committed the crime.
Klein warned that if the amount of theft was relatively small, the DA”s office might not want to prosecute. But the DA might be able to pressure the thief to return the money, provided it hasn”t all been spent.
However, Klein said, many companies also don”t want to take legal action, preferring to just quietly fire the employee.
“They don”t want their reputation damaged,” he said.
But St. John said not contacting the police is a mistake.
“They need to charge people,” he said of business owners victimized by theft. “If they”re just fired, (the employees who steal) get another job and they steal from (the new employer.) Keep tight reigns on your business and when employees are caught stealing or embezzling from you, they need to be charged. Otherwise, they just go and do it to somebody else.”
County Administrator Ralph Billingsley said no employees have been accused of theft, since he”s worked for the county, but the police definitely would be called over a theft.
“If somebody were caught (stealing), we would terminate them,” he said. “And we”d report them to the police.”
The Dispatch Editorial Board is made up of publisher Peter Imes, columnist Slim Smith, managing editor Zack Plair and senior newsroom staff.