What Can an Employee Stealing From You Truly Cost?

Employee theft each year takes a devastating toll on businesses both large and small.

However, its impact is greatest on the small businesses that can least afford the financial consequences of employee theft.

In a 2010 report, the Association of Certified Fraud Examiners said the median loss from occupational fraud, or employee theft, was $160,000. However, nearly a quarter of all employee thefts involved losses of $1 million or more. A typical business loses 5 percent of its annual revenue to employee theft, according to ACFE.

Employee theft takes a wide variety of forms, ranging from the seemingly innocuous misappropriation of company office supplies by employees to large-scale embezzlements involving huge sums of money.

What's Involved?

ACFE defines employee theft as "any stealing, use, or misuse of an employer's assets without permission to do so."

Although the earlier cited examples at either end of this spectrum are extreme, there's a lot of ground in between, including time card manipulation, carrying off the company's products without permission, and the theft of intellectual property.

Businesses with fewer than 100 employees suffer a disproportionately high percentage of employee thefts, according to ACFE.

Because they are smaller and have budgets that are generally consistent with their smaller size, they are the companies least able to afford anti-theft controls, leaving them more vulnerable to employee theft.

$50 Billion in Annual Losses

In its assessment of the impact of employee theft and fraud, the U.S. Chamber of Commerce estimates the annual economic impact on all businesses at $50 billion in stolen cash and property.

For small businesses, the impact is often fatal, according to the chamber, which says roughly one-third of all small business failures can be directly attributed to employee theft.

One of the more eye-opening revelations in ACFE's report was the finding that most instances of employee theft or fraud lasted an average of 18 months before they were detected?

All of which begs the question: What can a small business with limited resources do to prevent or sharply reduce employee theft?

U.S. Chamber offers Tips

The U.S. Chamber of Commerce offers some suggestions of measures that small business owners can take to cut down on the risk of employee theft.

It recommends that company owners and managers remain alert for unusual occurrences in the workplace. Among such occurrences, it cites missing merchandise or supplies; discrepancies in cash accounts; unlocked exits; and employee vehicles parked suspiciously close to exits or loading docks.

The Chamber also suggests monitoring employee behavior for suspicious signs such as unusual working hours; poor work performance; unjustified complaints about employment conditions; an otherwise unexplained close relationship with a supplier or customer; and a personal lifestyle inconsistent with salary.

Don't Make Accusations Lightly

The Chamber cautions strongly against accusing an employee of theft until you have proof. Such premature -- and possibly false -- accusations can damage the company's relationship with other employees and can open the company to legal action by the employee falsely accused of wrongdoing.

In an article on the website of the U.S. Small Business Administration, Caron Beesley, a small business owner and marketing communications consultant, offers some broad guidelines that can help companies minimize their losses to employee theft and fraud.

Background Checks, References

Beesley suggests that companies make pre-employment background checks, particularly for prospective employees who will be handling cash or high-value merchandise or those who will have access to sensitive customer or financial data. She also recommends that employers check the references of prospective employees.

Beesley also notes that companies formulate and proactively communicate their codes of conduct and/or ethics so that all employees know what standards of behavior are expected. Regular audits can help to uncover cases of employee theft or fraud before the losses attributable to them grow out of control.

She also suggests that employers be on the lookout for signs of suspicious employee behavior, such as being overprotective about their workspace or refusing to take vacation time.