Protect Your Business from Employee Theft

October 19, 2015

A credit union in Amarillo, Texas had a problem with employee theft. The employee who pled guilty was not a teller who pocketed a few hundred dollar bills here and there. She was the 56 year-old assistant vice-president of teller operations who embezzled $826,000 over a 14-year period. Her action could land her a 30-year prison sentence and a $1 million fine.


It isn't just this credit union. Employee theft is a huge problem for organizations of all sizes. A 2014 report showed that half of all victimized organizations had less than 25 employees. Half of all losses were more than $280,000; 19 percent were $1 million or more.


The organizations most at risk are those in financial services. Banks, credit unions and insurance companies accounted for 21 percent of the victims. This was more than any other industry.


There are several types of employee theft, but two in particular are most prevalent. Direct theft of cash or misuse of bank deposits and transfers comprised 38 percent of the cases and almost 75 percent of the dollars. The credit union officer in Texas engaged in this crime. Another 34 percent of the cases involved an employee altering or forging checks or making them payable to himself. Four out of every five of these thefts occurred in organizations with less than 50 employees. These organizations may consider themselves to be "family" and fail to have safeguards in place.


The other types of theft involve:


  • Fraudulent use, authorization or creation of employee credit and debit cards
  • An employee using the payroll system to issue checks to himself or others
  • An employee creating and submitting phony invoices supposedly issued by non-existent companies.

This last category accounted for some of the largest losses - half exceeded $600,000. While the financial services industry led in employee theft, the real estate/construction, municipal and non-profit sectors collectively accounted for a third of cases. Even the industries with low theft rates had large losses. An executive at a family owned and operated bakery stole $17 million over eight years through check and credit card fraud. An orthopedic practice lost $3.7 million to theft by an office manager.


The employees who steal tend to be middle-aged, finance or accounting professionals, and female. Half of all thieves are over age 50. More than 60 percent are women. Half of them were employees in senior management positions. They tend to be office managers or bookkeepers.


Organizations can do several things to avoid becoming victims:


  • Require dual signatures or dual review of all funds disbursements
  • Separate key business processes, such as accounts payable and bank statement reconciliation
  • Train employees on how to spot fraud
  • Make sure employees are aware of internal controls
  • Set up a means for employees to report suspected misconduct
  • Conduct random audits to catch thieves off-guard
  • Screen prospective employees thoroughly
  • Select vendors carefully
  • Respond immediately when employee theft is suspected
  • Carry large amounts of employee dishonesty insurance

Employee theft can be financially and emotionally devastating for business owners. With the right precautions, though, the organization can make it through the ordeal.


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