The Theft Triangle
One of the running themes of the accounting industry conference we recently attended was helping our clients avoid employee theft and fraud, which is a huge problem for all businesses in all industries. We all want to allow our trusted employees the freedom to do their jobs, but those same freedoms can open the door for employee theft. The average employee theft incident goes on for years and costs a company about $100k but can easily run into the $millions (yes, MILLIONS) before it is uncovered. Small businesses without the cash to cover such a loss may be unable to resume operations and may even have to file for Bankruptcy protection. So, what can you do to minimize the risk of this happening in your businesses? It really all boils down to managing the three legs of the theft triangle; justification, opportunity, and need.
If I’m being completely honest here, there really isn’t anything we can do to reduce the risks of “NEED” and “JUSTIFICATION”. Even an employee that is treated well and paid a competitive salary can fall into the trap of justification. They may be thinking “This company is successful because of me, I should be getting paid more!” or “The boss is making boatloads of money off my work, it’s just not fair”. We all run background checks and pre-employment credit screens to try to protect ourselves in the hiring process; but many businesses don’t report employee theft, so those bad apples could be your new hire. Most serious thefts are carried out by long time, trusted employees under personal financial pressure who have nowhere else to get the money.
The one leg of the triangle we can immediately and easily shore up is “OPPORTUNITY." There are many ways thieves can take from your business; stealing materials, time card padding, personal usage of company credit cards, expense report fraud, check washing, altering bank statements, fake vendor invoices, kickbacks, the list goes on and on. The sad truth is that employee theft is difficult to prosecute. AND it’s nearly impossible to get the stolen money back. Prevention is your best defense. This means you need strong operational controls (aka your policies and procedures) that reduce theft opportunities and help uncover it quickly when (not IF, but WHEN) it does occur. The most important of these controls are having outside oversight and not handing one employee all the keys to the kingdom.
We can help you set up technology and controls that are an effective deterrent to theft.
Click here to request our prevention checklist and links to helpful resources to educate yourself on the warning signs that someone is stealing from your business.