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Sample Employee Code of Conduct Policy

This Employee Code of Conduct Company Policy template is


ready to be tailored to your company’s needs and should be
considered a starting point for setting up your
employment policies. An employee code of conduct policy may
also be referred to as a conduct in the workplace policy.

Policy brief & purpose


Our Employee Code of Conduct company policy outlines our
expectations regarding employees’ behavior towards their
colleagues, supervisors and overall organization.

We promote freedom of expression and open communication. But


we expect all employees to follow our code of conduct. They
should avoid offending, participating in serious disputes and
disrupting our workplace. We also expect them to foster a well-
organized, respectful and collaborative environment.

Scope
This policy applies to all our employees regardless of employment
agreement or rank.

Policy elements

What are the components of an Employee Code of Conduct


Policy?
Company employees are bound by their contract to follow our
Employee Code of Conduct while performing their duties. We
outline the components of our Code of Conduct below:
Compliance with law
All employees must protect our company’s legality. They should
comply with all environmental, safety and fair dealing laws. We
expect employees to be ethical and responsible when dealing with
our company’s finances, products, partnerships and public
image.

Respect in the workplace


All employees should respect their colleagues. We won’t allow any
kind of discriminatory behavior, harassment or victimization.
Employees should conform with our equal opportunity
policy in all aspects of their work, from recruitment and
performance evaluation to interpersonal relations.

Protection of Company Property


All employees should treat our company’s property, whether
material or intangible, with respect and care.

Employees:

 Shouldn’t misuse company equipment or use it frivolously.

 Should respect all kinds of incorporeal property. This includes


trademarks, copyright and other property (information, reports
etc.) Employees should use them only to complete their job
duties.

Employees should protect company facilities and other material


property (e.g. company cars) from damage and vandalism,
whenever possible.

Professionalism
All employees must show integrity and professionalism in the
workplace:

 Personal appearance

All employees must follow our dress code and personal


appearance guidelines.

 Corruption
We discourage employees from accepting gifts from clients or
partners. We prohibit briberies for the benefit of any external or
internal party.

 Job duties and authority

All employees should fulfill their job duties with integrity and
respect toward customers, stakeholders and the community.
Supervisors and managers mustn’t abuse their authority. We
expect them to delegate duties to their team members taking into
account their competences and workload. Likewise, we expect
team members to follow team leaders’ instructions and
complete their duties with skill and in a timely manner.

We encourage mentoring throughout our company.

 Absenteeism and tardiness

Employees should follow their schedules. We can make


exceptions for occasions that prevent employees from
following standard working hours or days. But, generally, we
expect employees to be punctual when coming to and leaving
from work.

 Conflict of interest

We expect employees to avoid any personal, financial or other


interests that might hinder their capability or willingness to
perform their job duties.

 Collaboration

Employees should be friendly and collaborative. They should try


not to disrupt the workplace or present obstacles to their
colleagues’ work.

 Communication

All employees must be open for communication with their


colleagues, supervisors or team members.

 Benefits
We expect employees to not abuse their employment benefits.
This can refer to time off, insurance, facilities, subscriptions or
other benefits our company offers.

 Policies

All employees should read and follow our company policies. If


they have any questions, they should ask their managers or
Human Resources (HR) department.

Disciplinary actions
Our company may have to take disciplinary action against
employees who repeatedly or intentionally fail to follow our code
of conduct. Disciplinary actions will vary depending on the
violation.

Possible consequences include:

 Demotion.

 Reprimand.

 Suspension or termination for more serious offenses.

 Detraction of benefits for a definite or indefinite time.

We may take legal action in cases of corruption, theft,


embezzlement or other unlawful behavior.

Employee Code of Conduct


Your Employee Code of Conduct is one of the most important
parts of your Employee Handbook. We created a code of conduct
template to help you communicate your expectations to your
employees in a clear and tactful manner.

Download this Code of Conduct for Employees template in .doc


format by clicking on the link at the bottom of this page.

Keep in mind that this template is not a legal document and may
not take into account all relevant local or national laws. Please
ask your attorney to review your finalized policy documents or
Handbook.

Contents:

Dress code
Cyber security and digital devices
Internet usage
Cell phone
Corporate email
Social media
Conflict of interest
Employee relationships
Fraternization
Employment of relatives
Workplace visitors
Solicitation and distribution
Employee Code of Conduct template
As an employee, you are responsible to behave appropriately at
work. We outline our expectations here. We can’t cover every
single case of conduct, but we trust you to always use your best
judgement. Reach out to your manager or HR if you face any
issues or have any questions.

Dress code
Our company’s official dress code is [Business/ Business
Casual/ Smart Casual/ Casual.] This includes [slacks/ loafers/
blouses/ boots.] However, an employee’s position may also
inform how they should dress. If you frequently meet with clients
or prospects, please conform to a more formal dress code. We
expect you to be clean when coming to work and avoid wearing
clothes that are unprofessional (e.g. workout clothes.)

As long as you conform with our guidelines above, we don’t have


specific expectations about what types of clothes or accessories
you should wear.

We also respect and permit grooming styles, clothing and


accessories that are dictated by religious beliefs, ethnicity or
disability.

Cyber security and digital devices


This section deals with all things digital at work. We want to set
some guidelines for using computers, phones, our internet
connection and social media to ensure security and protect our
assets.

Internet usage
Our corporate internet connection is primarily for business. But,
you can occasionally use our connection for personal purposes as
long as they don’t interfere with your job responsibilities. Also, we
expect you to temporarily halt personal activities that slow down
our internet connection (e.g. uploading photos) if you’re asked to.

You must not use our internet connection to:

Download or upload obscene, offensive or illegal material.


Send confidential information to unauthorized recipients.
Invade another person’s privacy and gain access to sensitive
information.
Download or upload pirated movies, music, material or software.
Visit potentially dangerous websites that can compromise our
network and computers’ safety.
Perform unauthorized or illegal actions, like hacking, fraud or
buying/selling illegal goods.
Cell phone
We allow use of cell phones at work. But, we also want to ensure
that your devices won’t distract you from your work or disrupt
our workplace. We ask you to follow a few simple rules:

Use your cell phone in a manner that benefits your work


(business calls, productivity apps, calendars.)
Keep personal calls brief and use an empty meeting room or
common area so as not to disturb your colleagues.
Avoid playing games on your phone or texting excessively.
Don’t use your phone for any reason while driving a company
vehicle.
Don’t use your phone to record confidential information.
Don’t download or upload inappropriate, illegal or obscene
material using our corporate internet connection.
Also, you must not use your phone in areas where cell phone use
is explicitly prohibited (e.g. laboratories.)

Corporate email
Email is essential to our work. You should use your company
email primarily for work, but we allow some uses of your
company email for personal reasons.

Work-related use. You can use your corporate email for work-
related purposes without limitations. For example, you can sign
up for newsletters and online services that will help you in your
job or professional growth.
Personal use. You can use your email for personal reasons as
long as you keep it safe, and avoid spamming and disclosing
confidential information. For example, you can send emails to
friends and family and download ebooks, guides and other safe
content for your personal use.
Our general expectations
No matter how you use your corporate email, we expect you to
avoid:

Signing up for illegal, unreliable, disreputable or suspect


websites and services.
Sending unauthorized marketing content or emails.
Registering for a competitor’s services, unless authorized.
Sending insulting or discriminatory messages and content.
Spamming other people’s emails, including your coworkers.
In general, use strong passwords and be vigilant in catching
emails that carry malware or phishing attempts. If you are not
sure that an email you received is safe, ask our [Security
Specialists.]

Social media
We want to provide practical advice to prevent careless use of
social media in our workplace. We address two types of social
media uses: using personal social media at work and
representing our company through social media.

Using personal social media at work


You are permitted to access your personal accounts at work. But,
we expect you to act responsibly, according to our policies and
ensure that you stay productive. Specifically, we ask you to:
Discipline yourself. Avoid getting sidetracked by your social
platforms.
Ensure others know that your personal account or statements
don’t represent our company. For example, use a disclaimer such
as “opinions are my own.”
Avoid sharing intellectual property (e.g trademarks) or
confidential information. Ask your manager or PR first before you
share company news that’s not officially announced.
Avoid any defamatory, offensive or derogatory content. You may
violate our company’s anti-harassment policy if you direct such
content towards colleagues, clients or partners.
Representing our company through social media
If you handle our social media accounts or speak on our
company’s behalf, we expect you to protect our company’s image
and reputation. Specifically, you should:

Be respectful, polite and patient.


Avoid speaking on matters outside your field of expertise when
possible.
Follow our confidentiality and data protection policies and
observe laws governing copyrights, trademarks, plagiarism and
fair use.
Coordinate with our [PR/Marketing department] when you’re
about to share any major-impact content.
Avoid deleting or ignoring comments for no reason.
Correct or remove any misleading or false content as quickly as
possible.
Conflict of interest
When you are experiencing a conflict of interest, your personal
goals are no longer aligned with your responsibilities towards us.
For example, owning stocks of one of our competitors is a conflict
of interest.
In other cases, you may be faced with an ethical issue. For
example, accepting a bribe may benefit you financially, but it is
illegal and against our business code of ethics. If we become
aware of such behaviour, you will lose your job and may face
legal trouble.

For this reason, conflicts of interest are a serious issue for all of
us. We expect you to be vigilant to spot circumstances that create
conflicts of interest, either to yourself or for your direct reports.
Follow our policies and always act in our company’s best
interests. Whenever possible, do not let personal or financial
interests get in the way of your job. If you are experiencing an
ethical dilemma, talk to your manager or HR and we will try to
help you resolve it.

Employee relationships
We want to ensure that relationships between employees are
appropriate and harmonious. We outline our guidelines and we
ask you to always behave professionally.

Fraternization
Fraternization refers to dating or being friends with your
colleagues. In this policy, “dating” equals consensual romantic
relationships and sexual relations. Non-consensual relationships
constitute sexual violence and we prohibit them explicitly.

Dating colleagues
If you start dating a colleague, we expect you to maintain
professionalism and keep personal discussions outside of our
workplace.
You are also obliged to respect your colleagues who date each
other. We won’t tolerate sexual jokes, malicious gossip and
improper comments. If you witness this kind of behavior, please
report it to HR.

Dating managers
To avoid accusations of favoritism, abuse of authority and sexual
harassment, supervisors must not date their direct reports. This
restriction extends to every manager above an employee.

Also, if you act as a hiring manager, you aren’t allowed to hire


your partner to your team. You can refer them for employment to
other teams or departments where you don’t have any managerial
or hiring authority.

Friendships at work
Employees who work together may naturally form friendships
either in or outside of the workplace. We encourage this
relationship between peers, as it can help you communicate and
collaborate. But, we expect you to focus on your work and keep
personal disputes outside of our workplace.

Employment of relatives
Everyone in our company should be hired, recognized or
promoted because of their skills, character and work ethic. We
would not like to see phenomena of nepotism, favoritism or
conflicts of interest, so we will place some restrictions on hiring
employees’ relatives.

To our company, a “relative” is someone who is related by blood


or marriage within the third degree to an employee. This
includes: parents, grandparents, in-laws, spouses or domestic
partners, children, grandchildren, siblings, uncles, aunts, nieces,
nephews, step-parents, step-children and adopted children.

As an employee, you can refer your relatives to work with our


company. Here are our only restrictions:

[You must not be involved in a supervisory/reporting relationship


with a relative.]
[You cannot be transferred, promoted or hired inside a reporting
relationship with a relative.]
[You cannot be part of a hiring committee, when your relative is
interviewed for that position.]
If you become related to a manager or direct report after you both
become employed by our company, we may have to [transfer one
of you.]

Workplace visitors
If you want to invite a visitor to our offices, please ask for
permission from our [HR Manager/ Security Officer/ Office
Manager] first. Also, inform our [reception/ gate/ front-office] of
your visitor’s arrival. Visitors should sign in and show
identification. They will receive passes and will be asked to return
them to [reception/ gate/ front-office] once their visit is complete.

When you have office visitors, you also have responsibilities. You
should:

Always tend to your visitors (especially when they are underage.)


Keep your visitors away from areas where there are dangerous
machines, chemicals, confidential records or sensitive equipment.
Prevent your visitors from proselytizing your colleagues,
gathering donations or requesting participation in activities while
on our premises.
Anyone who delivers orders, mail or packages for employees
should remain at our building’s reception or gate. If you are
expecting a delivery, [front office employees/ security guards] will
notify you so you may collect it.

Solicitation and distribution


Solicitation is any form of requesting money, support or
participation for products, groups, organizations or causes which
are unrelated to our company (e.g. religious proselytism, asking
for petition signatures.) Distribution means disseminating
literature or material for commercial or political purposes.

We don’t allow solicitation and distribution by non-employees in


our workplace. As an employee, you may solicit from your
colleagues only when you want to:

Ask colleagues to help organize events for another employee (e.g.


adoption/birth of a child, promotion, retiring.)
Seek support for a cause, charity or fundraising event sponsored,
funded, organized or authorized by our company.
Invite colleagues to employee activities for an authorized non-
business purpose (e.g. recreation, volunteering.)
Ask colleagues to participate in employment-related activities or
groups protected by law (e.g. trade unions.)
In all cases, we ask that you do not disturb or distract colleagues
from their work.

FURTHER READING
Explore the rest of our employee handbook template:
Employment Basics
Workplace Policies

Code of Conduct
Compensation and development
Benefits and Perks
Working Hours, PTO and Vacation
Employee Resignation and Termination
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STATE & LOCAL UPDATES

When Does HR Cross Over into the Practice of Law?


Sometimes common HR practices risk constituting the unlawful practice
of law, particularly in unemployment compensation proceedings

By Allen Smith, J.D.July 6, 2017

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Human resource professionals sometimes wonder when their activities
constitute the unlawful practice of law—holding oneself out to the public
as being entitled to practice law—and nowhere is the confluence of the
two more apparent than with unemployment compensation. The unlawful
practice of law, defined differently from state to state, can result in
misdemeanors, criminal prosecution and the invalidation of actions
sought by the persons engaged in this activity, even if they engage in it
unwittingly.
Even just in the area of unemployment compensation, when HR is
unlawfully practicing law is a touchy question—one that sets off turf
battles between HR and attorneys. State laws dictate the answer but
have been changed on occasion when state legislatures or courts have
been overly restrictive about what HR can do.
The tension between HR and attorneys over when HR professionals are
unlawfully practicing law goes back at least 15 years to an American Bar
Association (ABA) model definition for the unlawful practice of law that
didn't adequately account for routine HR practices. More recently,
decisions in some states, such as Arkansas, have defined what
nonlawyers may do restrictively.

Unemployment Compensation Hearings


Take unemployment compensation hearings. HR has long participated
in them by representing employers in proceedings, but that didn't stop a
Pennsylvania Commonwealth Court from ruling in February 2005 that
nonattorneys were prohibited from appearing as representatives of
employers in unemployment compensation proceedings. In June 2005,
then-Gov. Ed Rendell signed legislation to restore the prior practice of
letting nonattorneys represent employers in unemployment hearings.
This was in response partly to concerns raised by the Society for Human
Resource Management (SHRM).
Unemployment compensation proceedings are different from judicial
proceedings in two significant ways: speed and risk. "The expedited,
informal and nonbinding nature of the proceedings does not rise to the
level of a judicial hearing, in which attorneys are necessary to guide the
court in interpreting the law," said Nancy Hammer, senior government
affairs policy counsel for SHRM.
"SHRM argued that unemployment proceedings are typically heard by a
referee who is not a lawyer, let alone a judge, with the typical proceeding
taking 30 minutes or less." Allowing HR professionals to represent
employers helps keep the costs low for employers and affected
employees, she added.
Robert Nichols, an attorney with Bracewell in Houston, said the fact that
unemployment compensation hearings "are remedial, informal and
factual in nature is key. As the Pennsylvania Supreme Court has
instructed, 'unemployment compensation proceedings are not trials.' And
the proceedings "do not require complex legal analysis," he said.
But Julie Badel, an attorney with Epstein Becker Green in Chicago, said,
"The arguments that nonattorneys representing companies in
unemployment hearings do not constitute the unauthorized practice of
law are founded in practical considerations, not in legal arguments or
any commonly accepted definition of 'practicing law.' " In other words,
statutes as written might prohibit nonattorneys from representing
businesses in hearings even if hiring lawyers to do so is impractical. She
said that one court reached the conclusion that nonlawyers'
representation of businesses in unemployment compensation hearings
was not practicing law partly because any other conclusion would
dissuade employers from pursuing unemployment appeals, taxing the
system. "Other considerations that have been mentioned are that
unemployment proceedings are often uncomplicated with not a great
deal at stake. This, of course, is not always the case."
Abtin Mehdizadegan, an attorney with Cross, Gunter, Witherspoon &
Galchus in Little Rock, Ark., said that a popular exception from state
statutes prohibiting nonattorneys from practicing law is for representation
in unemployment compensation administrative appeals—one level
higher than the unemployment compensation hearings themselves. But
he noted that the unlawful practice of law ultimately is a question of state
law and that while Pennsylvania allows HR to participate in
unemployment proceedings, for example, Kentucky prohibits it.
"From a strategic standpoint, I would advise businesses to exercise
extreme caution in allowing a nonattorney to represent their interests
during an unemployment or other administrative proceeding," he said.
"Unemployment claims can be a precursor to litigation. Nonattorneys
often fail to appreciate the gamut of legal issues that can spring from an
unemployment claim." Moreover, there is no attorney-client privilege
between a nonattorney and the corporation, "so any information
exchanged between the layperson and employer will not enjoy that
critical protection."

Signing Petitions for Appeal

In another context, in Bank of Fayetteville NA v. Dep't of Workforce


Services, 2016 Ark. App. 96 (2016), the Arkansas Court of Appeals
dismissed a bank's appeal of the Arkansas Board of Review's
unemployment benefits determination because a nonlawyer bank
employee engaged in the unauthorized practice of law by signing the
petition for appeal.
"HR clearly needs to be careful about inadvertently violating a state
statute regarding the unauthorized practice of law," Hammer said. "At
the same time, state legislatures should look carefully at how these
statutes are drafted. Allowing HR departments to respond to routine
forms and requests, even if they are legal in nature such as
garnishments, could save time and money for employers, employees
and the court system."
While nonattorneys should not be signing petitions for appeal in
unemployment benefit determination cases in Arkansas, "There is no
doubt that in many other states that action would not be viewed as the
practice of law," Nichols said. "The conclusion reached in that Arkansas
case appears to be relatively extreme."
Whether HR is unlawfully practicing law may depend on the stage of the
proceeding. "The initial notice to an employer of an unemployment claim
often requires the employer to respond with facts—either as to the
amount of wages the former employee earned or the reason for
separation. This type of request for factual information can be prepared
and signed by a human resource representative," Badel said. "But once
the claim has moved to the hearing stage, whether before a hearings
referee or administrative law judge or to a final appeal at the agency or
to a court, petitions for appeal and similar documents should be
reviewed and signed by lawyers."
Mehdizadegan took a hard line, stating, "In my view, no layperson
should be permitted to represent a corporation in any court proceeding."
In Bouland v. Erwin Keith, 2013 Ark. App. 460 (2013), a nonattorney
represented an injured worker before the Arkansas Workers'
Compensation Commission, which is permissible under the Arkansas
Code. The commission denied the workers' claim and the nonattorney
representative filed a notice of appeal. The clerk refused to lodge the
appeal because the individual was not a licensed attorney. The court of
appeals dismissed the case because by filing a motion in the Arkansas
Court of Appeals, the nonattorney engaged in the unauthorized practice
of law.
"The bright line to avoid is at the steps of the courthouse,"
Mehdizadegan said. "Courts in Arkansas have also found that
representation of a corporation in arbitration proceedings constitutes the
unauthorized practice of law."
But at the same time, no statute would prohibit HR from training
employees and management on corporate compliance with laws and
regulations, drafting handbooks, compiling EEO-1 logs or engaging in
the Americans with Disabilities Act's (ADA's) interactive process, he
added.
[SHRM members-only toolkit: Accommodating Employees' Disabilities]

Proposed Model Definition Sunk

The tension between HR and attorneys over what constitutes the


unlawful practice of law is a longstanding one.
When the ABA sought comments in 2002 on its Model Definition of the
Practice of Law, former SHRM president and CEO Susan Meisinger,
J.D., SHRM-SCP, criticized the ABA for defining the practice of law in
such a way that "would radically alter the human resource profession
and ultimately change the way organizations conduct business."
The proposed definition included many functions in which HR
professionals engage on a routine basis, she noted, including
representing a person before an adjudicative body and negotiating legal
rights. "HR professionals represent employers before countless
administrative bodies, including unemployment insurance boards, labor
boards, human rights agencies and the Department of Labor. They also
regularly represent employers in arbitration and mediation proceedings,"
Meisinger said. "HR professionals negotiate legal agreements, including
offer letters, termination packages and independent contractor
agreements. HR professionals engage in collective bargaining
negotiations. Also, they often are primarily responsible for engaging in
the interactive process mandated by the ADA."
The ABA withdrew its proposed definition on the unauthorized practice
of law and left it for states to define.
Some routine matters may constitute the unauthorized practice of law if
conducted by HR according to state statutes, Hammer noted. State
legislatures should consider whether these statutes should be amended
to allow HR to handle them routinely, she added. "Enabling employers to
receive information from HR consultants who may charge lower fees
than an employment attorney should compel policymakers to carefully
examine what risks they are attempting to mitigate and whether requiring
employers to hire attorneys for some of these matters is the right policy."

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SHRM provides content as a service to its readers and members. It does


not offer legal advice, and cannot guarantee the accuracy or suitability of
its content for a particular purpose.Disclaimer

pon completion of my graduate degree from a respected school of labor


and employment relations, I accepted a position as an HR manager at a
small manufacturing company. This heavy industrial operation had 1,200
employees and three unions. The company and unions had only recently
settled negotiations after a conflict-filled, three-year process. Due to the
poor relationships between management and the unions, hundreds of
issues and grievances remained on the table, waiting to be addressed.
I'd had minimal experience working in a union environment.
Nevertheless, my boss, the HR director, tasked me with resolving more
than 250 open grievances—some more than 11 years old. I had to get
up to speed quickly and begin the process of resolving these disputes.
Within my first six months on the job, our team got the open-grievance
backlog down to fewer than 100 cases, with no arbitration or mediations
needed to resolve them. Within my first year, our team had fewer than
50 open grievances. By the time I left the company a few years later, we
had fewer than 10 open grievances left, all current. While we never
achieved our goal of zero open grievances, we made significant
progress in cleaning up and resolving old disputes.
How did we do it?
Looking back, I realize that the knowledge, skills and abilities we used
then are the same as those that now make up the SHRM Body of
Competency and Knowledge (SHRM BoCK™). While the SHRM
certification program didn't exist when I held that job, I had applied the
competencies and HR expertise it defines.

'Conflict is inevitable, but combat is optional.'


—Max Lucado, author and preacher
Today I hold the SHRM-SCP credential. In my current role as a mediator
and fact-finder, I use many components of the SHRM BoCK to resolve
contract disputes in the public sector. They are necessary for any HR
professional dealing with union or nonunion disputes.
To help you address such issues head on and guide your organization
through conflict resolution and relationship building to similar success,
here are a few things to think about:

 Build trust by building relationships. The Relationship


Management competency can play an important role in bridging
the trust gap between management and labor, especially at the
beginning of the process of grievance resolution and conflict
management. Spending hours with union stewards, production
supervisors and managers proved to be a successful method of
working through the issues at my company.
 Communicate, communicate, communicate. Communication is
one of the most important behavioral competencies in the SHRM
BoCK. Understanding the importance of communicating with both
labor and management, including follow-up, was a key driver in
how my team resolved old and current grievances. I'm a big
proponent of open communication.
 Research, investigate and evaluate. The issues we dealt with
were complex and required extensive research, meetings and
reviews. We analyzed previous grievances, labor contracts, side
agreements and negotiation minutes. By utilizing skills in Critical
Evaluation, I was able to do the research, investigate the issues,
ask the right questions, and provide timely answers to both labor
and management.
 Understand business impacts. Before agreeing to anything in
writing or verbally at the negotiation table, have a full
understanding of how the grievance and resolution process will
affect the business and its operations. Competency in Business
Acumen, along with communication skills, are vital to relationship
building and resolving open issues.
 Take the lead and navigate through the issues. The Leadership
& Navigation competency speaks for itself. As a new member of
my organization, I had no choice but to take the lead on the open
grievances and hold all sides accountable for their resolution. The
SHRM BoCK provides us with the knowledge, skills and abilities to
guide an organization through the many issues we face as HR
professionals.

j5 Steps to Prevent Loss

Employee theft costs U.S. businesses an estimated $50 billion a year.


For companies today, safeguarding against employee fraud should be a
top priority. In this article we’ll explore a few ways that businesses can
take steps to help protect themselves from fraud.
Looking to keep your company safe?
For any company with employees, preventing employee fraud is an
issue that should be at the top of the list when it comes to safeguarding
the business.
With employee theft costing U.S. businesses $50 billion a year, it’s
easy to see why fraud prevention is so important.
The truth is, employee theft comes in many different forms, and there
simply isn’t a one-size-fits-all solution when it comes to preventing fraud.
From outright embezzlement to skimming extra hours, any form of
employee fraud is serious, and all instances can cost your business and
negatively impact your bottom line.
While fraud can be devastating, there are ways to go about preventing
and reducing the risk to your company. With this in mind, here’s a look at
some steps you can take to help prevent employee fraud.

Have Policies in Place

First things first: you should ensure you have proper policies in place.
Your policies should outline the various forms of fraud and time theft, as
well as your company’s stance on these activities. It should also mention
the checks that will be performed, as well as what steps will be taken
should fraud or theft be found. You may also want to consider writing up
a code of conduct to give to each employee at the time of hiring,
outlining what is expected and what isn’t tolerated in the workplace.
Educating your employees is the first step to preventing employee fraud.

Communicate Clearly

You should also make it part of your mission to be open with your
employees about your stance on fraud and theft and ensure they
understand you have no tolerance for theft in the workplace. While this
should be outlined when you first hire your employee, you should take
every effort to ensure that your views on this are not hidden. When
employees are aware that you take this seriously, they’ll be much less
likely to try it.

Perform Regular Informal Audits


Routine and regular audits performed by a third-party company or
someone outside of your own company can be a great way to spot
potential fraud or theft that could be taking place inside your company.
While it is important to perform these audits regularly, it’s also important
to be informal about when you perform them. Making unannounced
audits can help to prevent employees from covering things up
beforehand.

Consider Enabling Anonymous Tips

One of the best ways to find out what is really going on with your
employees is from those who they are in close contact with. While many
people are leery about turning their fellow co-worker in, you can make it
possible for your employees to provide anonymous tips or insight to
theft. While this is a highly effective way to stop fraud in its tracks, it’s
also important to ensure that each employee who is suspected of fraud
is thoroughly investigated. Always avoid rushing to pass judgment until
you’ve gathered all the facts.

Update Security and Systems

Having outdated employee time-tracking systems or security systems


is another way to invite theft and fraud into your company. Remember,
not all theft is as obvious as walking out the front door with a bag of
cash. Often fraud is committed internally, through computers with online
banking or other internal systems. Even systems such as your time-
tracking software can be an avenue for fraud if they’re not up-to-date.
If you suspect fraud, theft or any other illegal activity within your
company, it’s important to take steps to address the issue right away. If
you’re uncertain about which course of action to take, it’s best to contact
an attorney to ensure the proper steps are taken. You should also be
careful not to start a disciplinary process based on a gut feeling alone;
instead, make sure you have all the facts in place and evidence needed
before taking action.
Six Strategies for Fraud Prevention in Your Business
Employee fraud is a significant problem faced by organizations of all
types, sizes, locations and industries. While we would all like to believe
our employees are loyal and working for the benefit of the organization
(and most of them probably are), there are still many reasons why your
employees may commit fraud and several ways in which they might do
it. According to the 2014 Report to the Nation on Occupational Fraud
and Abuse (copyright 2014 by the Association of Certified Fraud
Examiners, Inc.), research shows that the typical organization loses 5%
of its annual revenue each year due to employee fraud. Prevention and
detection are crucial to reducing this loss. Every organization should
have a plan in place as preventing fraud is much easier than recovering
your losses after a fraud has been committed.
Types of Fraud
Fraud comes in many forms but can be broken down into three
categories: asset misappropriation, corruption and financial statement
fraud. Asset misappropriation, although least costly, made up 90% of all
fraud cases studied. These are schemes in which an employee steals or
exploits its organization’s resources. Examples of asset misappropriation
are stealing cash before or after it’s been recorded, making a fictitious
expense reimbursement claim and/or stealing non-cash assets of the
organization.
Financial statement fraud comprised less than five percent of cases but
caused the most median loss. These are schemes that involve omitting
or intentionally misstating information in the company’s financial reports.
This can be in the form of fictitious revenues, hidden liabilities or inflated
assets.
Corruption fell in the middle and made up less than one-third of cases.
Corruption schemes happen when employees use their influence in
business transactions for their own benefit while violating their duty to
the employer. Examples of corruption are bribery, extortion and conflict
of interest.
Fraud Prevention
It is vital to an organization, large or small, to have a fraud prevention
plan in place. The fraud cases studied in the ACFE 2014 Report
revealed that the fraudulent activities studied lasted an average of 18
months before being detected. Imagine the type of loss your company
could suffer with an employee committing fraud for a year and a half.
Luckily, there are ways you can minimize fraud occurrences by
implementing different procedures and controls.
1. Know Your Employees
Fraud perpetrators often display behavioral traits that can indicate the
intention to commit fraud. Observing and listening to employees can
help you identify potential fraud risk. It is important for management to
be involved with their employees and take time to get to know them.
Often, an attitude change can clue you in to a risk. This can also reveal
internal issues that need to be addressed. For example, if an employee
feels a lack of appreciation from the business owner or anger at their
boss, this could lead him or her to commit fraud as a way of revenge.
Any attitude change should cause you to pay close attention to that
employee. This may not only minimize a loss from fraud, but can make
the organization a better, more efficient place with happier employees.
Listening to employees may also reveal other clues. Consider an
employee who has worked for your company for 15 years that is now
working 65 hours a week instead of 40 because two co-workers were
laid off. A discussion with the employee reveals that in addition to his
new, heavier workload, his brother lost his job and his family has moved
into the employee’s house. This could be a signal of a potential fraud
risk. Very often and unfortunately, it’s the employee you least expect that
commits the crime. It is imperative to know your employees and engage
them in conversation.
2. Make Employees Aware/Set Up Reporting System
Awareness affects all employees. Everyone within the organization
should be aware of the fraud risk policy including types of fraud and the
consequences associated with them. Those who are planning to commit
fraud will know that management is watching and will hopefully be
deterred by this. Honest employees who are not tempted to commit
fraud will also be made aware of possible signs of fraud or theft. These
employees are assets in the fight against fraud. According to the ACFE
2014 Report, most occupational fraud (over 40%) is detected because of
a tip. While most tips come from employees of the organization, other
important sources of tips are customers, vendors, competitors and
acquaintances of the fraudster. Since many employees are hesitant to
report incidents to their employers, consider setting up an anonymous
reporting system. Employees can report fraudulent activity through a
website keeping their identity safe or by using a tip hotline.
3. Implement Internal Controls
Internal controls are the plans and/or programs implemented to
safeguard your company’s assets, ensure the integrity of its accounting
records, and deter and detect fraud and theft. Segregation of duties is an
important component of internal control that can reduce the risk of fraud
from occurring. For example, a retail store has one cash register
employee, one salesperson, and one manager. The cash and check
register receipts should be tallied by one employee while another
prepares the deposit slip and the third brings the deposit to the bank.
This can help reveal any discrepancies in the collections.
Documentation is another internal control that can help reduce fraud.
Consider the example above; if sales receipts and preparation of the
bank deposit are documented in the books, the business owner can look
at the documentation daily or weekly to verify that the receipts were
deposited into the bank. In addition, make sure all checks, purchase
orders and invoices are numbered consecutively. Use “for deposit only”
stamps on all incoming checks, require two signatures on checks above
a specified dollar amount and avoid using a signature stamp. Also, be
alert to new vendors as billing-scheme embezzlers setup and make
payments to fictitious vendors, usually mailed to a P.O. Box.
Internal control programs should be monitored and revised on a
consistent basis to ensure they are effective and current with
technological and other advances. If you do not have an internal control
process or fraud prevention program in place, then you should hire a
professional with experience in this area. An expert will analyze the
company’s policies and procedures, recommend appropriate programs
and assist with implementation.
4. Monitor Vacation Balances
You might be impressed by the employees who haven’t missed a day of
work in years. While these may sound like loyal employees, it could be a
sign that these employees have something to hide and are worried that
someone will detect their fraud if they were out of the office for a period
of time. It is also a good idea to rotate employees to various jobs within a
company. This may also reveal fraudulent activity as it allows a second
employee to review the activities of the first.
5. Hire Experts
Certified Fraud Examiners (CFE), Certified Public Accountants
(CPA) and CPAs who are Certified in Financial Forensics (CFF) can help
you in establishing antifraud policies and procedures. These
professionals can provide a wide range of services from complete
internal control audits and forensic analysis to general and basic
consultations.
6. Live the Corporate Culture
A positive work environment can prevent employee fraud and theft.
There should be a clear organizational structure, written policies and
procedures and fair employment practices. An open-door policy can also
provide a great fraud prevention system as it gives employees open
lines of communication with management. Business owners and senior
management should lead by example and hold every employee
accountable for their actions, regardless of position.
Fraud Detection
In addition to prevention strategies, you should also have detection
methods in place and make them visible to the employees. According to
Managing the Business Risk of Fraud: A Practical Guide, published by
Association of Certified Fraud Examiners (ACFE), the visibility of these
controls acts as one of the best deterrents to fraudulent behavior. It is
important to continuously monitor and update your fraud detection
strategies to ensure they are effective. Detection plans usually occur
during the regularly scheduled business day. These plans take external
information into consideration to link with internal data. The results of
your fraud detection plans should enhance your prevention controls. It is
important to document your fraud detection strategies including the
individuals or teams responsible for each task. Once the final fraud
detection plan has been finalized, all employees should be made aware
of the plan and how it will be implemented. Communicating this to
employees is a prevention method in itself. Knowing the company is
watching and will take disciplinary action can hinder employees’ plans to
commit fraud.
Conclusion
Those who are willing to commit fraud do not discriminate. It can happen
in large or small companies across various industries and geographic
locations. Occupational fraud can result in huge financial loss, legal
costs, and ruined reputations that can ultimately lead to the downfall of
an organization. Having the proper plans in place can significantly
reduce fraudulent activities from occurring or cut losses if a fraud already
occurred. Making the company policy known to employees is one of the
best ways to deter fraudulent behavior. Following through with the policy
and enforcing the noted steps and consequences when someone is
caught is crucial to preventing fraud. The cost of trying to prevent fraud
is less expensive to a business than the cost of the fraud that gets
committed.
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Home10 Ways to Prevent Employee Theft and Fraud
10 Ways to Prevent Employee Theft and Fraud
Daniel Kehrer - May 15, 2014

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Employee theft is one of the most serious problems facing small business
owners in the U.S. According to the National Federation of Independent
Business (NFIB), an employee is 15 times more likely than a non-employee to
steal from an employer, and employees account for an estimated 44 percent of
theft losses at stores. The U.S. Department of Commerce reports that nearly a
third of business failures are related to employee theft or fraud.

Business owners are rightly concerned – or should be. Employee misdeeds take
many forms:

 Larceny (outright theft)


 Skimming (diverting business funds)
 Fraudulent disbursements (billing schemes, inflated expense reports,
check tampering)
 Embezzlement of raw materials or inventory
 Stealing business opportunities (misappropriation of customer lists or
other trade secrets).

Companies that insure small businesses against fraud have become


alarmed by the losses and encourage owners to become even more
vigilant.
Employees who steal typically have worked at a business for several years
before starting to steal and continue for an average of three years before they get
caught. That’s a lot of time to generate losses for the business. Here are some
things you can do:

1. Know your employees. Be alert to key indicators of potential theft such as:

 Sudden, apparent devotion to work and working late.


 Lifestyles well above salary levels.
 Strong objections to procedural changes related to financial, inventory or
supply matters.
 Drugs and alcohol abuse.
 Moonlighting with materials available at the business.
 Evidence of compulsive gambling, persistent borrowing or bad check
writing.

NFIB recommends that small business employers perform background checks


on potential hires. Checking references is one important step. But for employees
entrusted with handling your money or financial records, a background check is
better.

2. Supervise employees closely. Not surprisingly, studies show that when


supervision is lax, theft and fraud rates go up. This doesn’t mean looking over
their shoulder every minute. But it does mean checking what they do. It’s also
wise to have more than one person looking out for your money.

3. Use purchase orders. The payment, receipt and preparation of purchase


orders should be separate functions and handled by different individuals. Use
serially pre-numbered purchase orders and always verify incoming orders.

4. Control cash receipts. Use serially pre-numbered sales slips and conduct
weekly audits. Balancing of sales slips and register receipts should be done by
someone other than the sales clerk.

5. Use informal audits. Make unannounced internal audits and have a yearly
audit performed by an outside firm.

6. Install computer security measures. Understand your computer systems


and software, and how they might be used to divert money or inventory.
Restrict access to computer terminals and records. Periodically change entry
codes and check regularly to ensure that security procedures are in effect.

7. Track your business checks. Always use pre-numbered checks, with


amounts and payees typed or written in permanent ink. Producing all checks
from financial software such as QuickBooks is highly recommended. Lock
blank checks and a signature machine, if you have one, in a secure place.

8. Manage inventory and use security systems. Separate receiving, store


keeping and shipping functions. Physical inventories should be done annually
by individuals who are not responsible for inventory records. Some businesses
also install security devices to monitor merchandise or inventory.

9. Beware of accounts receivable. Make mail-opening and posting separate


functions. Record checks and cash in appropriate registers and stamp checks for
deposit only.

10. Provide a way for employees to report theft or fraud by co-


workers. This needs to be done carefully to avoid signaling you don’t trust
employees. But it can be highly effective.

If you suspect a problem, attorneys at the Small Business Legal Center offer this
advice;
 Be extremely careful about making accusations and conducting
investigations – a false accusation can result in a lawsuit against you.
 Verify suspicions by investigation, and determine the extent of fraud and
methods used. If you can identify the responsible employee, terminate
their employment and consider further legal action.
 If it is a large or complex issue, consider involving legal counsel who
can assist with finding additional experts such as forensic accountants or
investigators.

Copyright © 2000-2014 BizBest® Media Corp. All Rights Reserved.

Need advice on how to handle employee theft and fraud? Connect with a
SCORE mentor online or in your community today!
ABOUT THE AUTHOR(S)
Daniel Kehrer, Founder & Managing Director of BizBest Media Corp., is a
nationally-known, award-winning expert on small and local business, start-ups,
content marketing, entrepreneurship and social media, with an MBA from
UCLA/Anderson.

Daniel Kehrer
Founder & Managing Director, BizBest
KEY TOPICS
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 Human Resources

 In Business

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How to Prevent and Handle Internal


Theft in Retail Stores
Francesca Nicasio • April 30, 2018 • No Comments

This is a post by Cara Wood.


When thinking about threats to your retail store, shoplifting is probably number one, right?
The idea of someone swiping hundreds of dollars of products into a giant bag and walking
out with them is horrifying, isn’t it? Well, unfortunately, there’s a threat that might be even
higher on your list: your employees.
A global study of retail theft found that employees who steal from retailers average $1890 in
theft, while the average shoplifter will only take about $438. That’s pretty shocking. Of
course, it should be emphasized that it is only a small minority of your employees who will
actively steal from you. I would also like to add that many of your well-meaning employees
may accidentally contribute to your losses by making errors during inventory count or
misunderstanding policies or discounts and giving them at the wrong time. I myself
contributed to loss at my retail job when, early on in my employment, I believed that a
“BOGO” meant the item of great value was discounted.
Types of employee theft in retail
There are numerous ways an employee can actively steal from a retailer these days, but here
are few main ones:
Stealing products
Employees might steal products from you, whether to keep for themselves or to sell
somewhere on the internet. One classic method for stealing products is to hide something in
the trash when they take it out, which they will retrieve from the dumpster later. Employees
may also hide small items on their person or in their bags.
Gift card theft
Gift card theft is very popular these days, largely because it’s difficult to detect. There are
various methods to pull off this scam, but typically, employees will issue fake refunds to gift
cards they will keep. They may also give a customer purchasing a gift card a blank gift card
while keeping the loaded one. This form of fraud is dangerous. At the Sak flagship store on
Fifth Avenue, a clerk was able to ring up $130,000 dollars in false returns a few years ago.
“Sweethearting”
“Sweethearting” is when a cashier will opt to not ring up goods that a friend or family
member wishes to take from the store. It can also be when a cashier falsely gives their store
discount to their friends or family members.
Identity theft
This final method of internal theft may not be directed against the store, but is within the
same grouping of activities and could cost your store its reputation. Retail employees have
ample opportunities to steal customers’ identities. At the store I worked at, for instance, we
used to not only take credit cards over the phone but even social security numbers if we
wanted to open a credit card for someone. I had, at minimum, hundreds of opportunities a
year to keep a customer’s SSN and credit card information with me.

Skimming
Employees have been skimming off the top of the cash drawer for years. Employees who
know that you won’t care about a discrepancy of a few dollars in the cash drawer may take
advantage of you by slowly skimming quite a large amount of cash over time.
Why do employees steal?
There are likely as many reasons as there are thieves but often, it’s a disgruntled employee.
Perhaps they’re stealing for revenge on the store for some reason. Perhaps it’s because they
think they deserve a raise that they haven’t gotten. Perhaps it’s because they are in a bad way
financially and really need help. But not all employees steal for these reasons either. Some,
like those who participate in “sweethearting,” may believe that they’re just helping out a
friend with their employment perks. Some, as in my case, may not even realize that they’re
actually stealing from the store.
How to prevent internal theft
The first thing to know is that it’s best to simply prevent these situations from happening.
Once an employee is actually stealing, it can be a tricky situation to handle. It can even, as an
episode of the crime show “Snapped” that still haunts me brutally demonstrated, be
a dangerous situation for the person who confronts the thief.
1. Run background checks on all new employees.
Running a background check is a fairly standard process that will help you weed out any
clear bad eggs up front. Mikal E. Belicove from Forbes has some good tips:
 He suggests that while you do use background checks, don’t use “the box.” That
means, don’t ask someone if they have a criminal background on their paper
application just to weed people out. Conduct interviews first and get to know someone
first to avoid unnecessary discrimination.
 Be consistent and run the same process on each applicant.
 Look for patterns, rather than a single good or bad act.
 Use a professional agency.
2. Ensure that all employees are well-trained on policy to prevent
accidental loss.
As previously mentioned, employees might make mistakes on the job. Whether it’s entering
the wrong number of inventory or giving the wrong discount, mistakes happen and they can
really add up.
Work with your employees so that they know your policies and check their work. In my case,
I learned that BOGO discounts are put on the lower priced item because my manager was
checking receipts that day and noticed my error. She pulled me aside and kindly let me know
how to do discounts correctly. That short conversation likely saved my store quite a lot of
money in the long run.
3. Institute modern inventory management and POS software to make
it easier to monitor for discrepancies.
You certainly could audit receipts every day or week or month to try to discover patterns of
loss in your store. But you could also just implement a modern inventory management and
POS system that will pull reports for you every day. These reports will make it easy for you
to notice patterns (like if the cash register has been consistently down a few dollars) and will
make it noticeable when you do inventory checks what exactly is missing.
4. Count your cash drawers every day.
You do want to count your cash drawers every day to keep full tabs on how much cash is in
them at all times. Running these counts will deter skimming and help you detect it, as well.
5. Use a buddy system for the trash.
Given that the trash is a popular method for employee stealing, have your employees take the
trash out together. Thieves are less likely to try to stuff something in the trash bag when
someone is there watching them.
This tip is a doubly good, too, because having two people take out the trash is typically safer
than having one person take out the trash.
6. Have employees check each other’s bags before they leave for the
day.
This tip is a bit awkward, I know. I used to have to do it. Whenever an employee left the
store, the manager on duty would check their bag before they left. At closing, the employee
left with the manager would also check the manager’s bag. It was always a bit awkward to
hold your purse out and let someone else go through it, and it was always plenty awkward to
be the person going through the bag, but it certainly made it more difficult for anyone
wishing to walk out with an item in their bag.
7. Implement surveillance software.
Surveillance software isn’t just video cameras anymore. Now the cameras are equipped with
software that can help them detect such activities as “sweethearting” and alert you to the
problem. It’s pretty incredible. These systems are especially good for documenting instances
of employee theft.
Further Reading

In addition to surveillance cameras, there are several other loss prevention tools you that you
can use to beef up security in your store. Learn about them in our previous post, 7 Powerful
Tools & Technologies to Help You Reduce Shrinkage.

LEARN MORE

8. Keep your employees happy.


Happy employees are just better for a business. They’re more productive and less likely to
steal from you. The retail industry as a whole has not been the best about seeing to it that
their employees are happy, but both Starbucks and Costco stand out. Starbucks, for instance,
has eliminated the gender pay gap at their US stores and helps pay for their employees’
college educations. Costco starts their employees at $11.50 an hour and hires almost
exclusively from within. As a small business, you owe it to your employees to provide fair
pay (even if you cannot provide Costco-level pay) and to do what you can to provide them
with a happy work environment.
What happens after someone steals from your retail store?
As I hinted at throughout the prevention tips, employees could still steal from you, even
given your best efforts. Once that happens, what do you do?
1. Collect and document as much evidence as possible.
First things first — you cannot just accuse an employee of theft. If you’re wrong or unable to
prove it, your company may face legal retribution. Instead, carefully document everything
that you can. Run audits, collect receipts, and put together the correct video footage.
Joseph Addams, a third party loss prevention agent, says that he will sometimes allow an
employee to steal a few more times before confronting the thief, just to ensure that he has an
airtight, documented case.
2. Call your local police station for advice.
Your local police station can provide you with advice on how to document employee theft
and even give you interviewing tips. Don’t pass up this help.
3. Interview the employee.
When you finally have an airtight case, bring your employee in for an interview to confront
them with your evidence. Be sure to do it when others are in the store and do not tip your
employee off beforehand as the subject matter. (You don’t want to end up like the victim in
that awful crime show I will never forget.) Addams has some interviewing tips to share as
well:
 Prepare all the paperwork in advance, including their dismissal paperwork and, if
possible, their final check.
 Keep a witness in the room. Typically another store manager or HR person.
 Begin the interview by telling the employee you just wish to review some LP
procedures.
 Though you should already know as much as you can ahead of time, don’t tip your
cards. Using various tactics, you may be able to get the employee to confess to crimes
you didn’t know they had committed.
 If you are going to prosecute the employee legally, call the cops after the employee has
confessed, but continue the interview until the police arrive. And do note: your
employee is legally allowed to get up and leave the meeting with you at any time, and
you must do nothing to prevent them from doing so.
4. Fire them.
Unless your employee’s reasoning for stealing is along the lines of Jean Val Jean’s reason for
stealing bread in Les Miserables, you will need to fire the employee. (And if the reason is as
noble as Jean Val Jean’s, you should look into what you can do to help the employee get to a
better place in life.) You do not necessarily need to prosecute your employee legally,
especially if the theft is marginal, but you cannot have anyone working for you whom you do
not trust.
Further Reading

Enjoyed this post? Check out The Ultimate Guide to Training and
Motivating Retail Employees, an in-depth resource packed with actionable takeaways for
motivating employees and boosting staff productivity. In this guide, you’ll learn:
 How to empower your workforce to maximize happiness and productivity
 What tools and methods to use when educating your staff
 How to motivate your staff to bring their best selves to worK
Conclusion
Internal theft can cost you thousands of dollars and is one of the biggest threats to your
business. But by enacting careful policies and using the right technology, you can mitigate a
great deal of your loss.
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5 Common Retail Scams:


How to Spot and Stop
Them
BY MONA BUSHNELL
Home / Finance / Finances - Last Modified: December 6, 2017
SHARE THIS

Photo credit: Tyler Olson/Shutterstock

These five scams are how your retail employees could be


ripping you off. Here's how to stop them.

Whether you own a boutique clothing shop, a large hardware store or a discount
furniture depot, one of the biggest threats to your business is employee fraud. The
2017 National Retail Security Survey estimated that 30 percent of inventory loss
could be attributed to employee theft. While 36.5 percent of loss is due to external
shoplifting, 21.3 percent to paperwork errors, 5.4 percent to vendor fraud and 6.8
percent to unknown sources, a 30 percent stake in inventory loss should be enough
to make any business owner a little more proactive about spotting and preventing
inside jobs.
This is by no means a comprehensive list of every scam out there, but it does shed
light on the signs of some of the most common retail employee scams and what you
can do to stop them from happening.

1. Gift card fraud


Thanks to improved technology and pricing, even small retail establishments can
create and sell branded gift cards. Of course, every technological step forward brings
new challenges with it, and gift card fraud is one of them. Here are a few ways
employees can make money from gift card scams.

Swapping out gift cards

The method of swapping out gift cards works best (for employees) in high-traffic
stores that don't depend on return customers. Stores that cater to tourists or have
heavy one-off traffic during certain seasons are more likely to experience this type of
scam.

In a gift card swap, an employee will ring up and activate a gift card for a legitimate
paying customer and then hand the customer a gift card that hasn't been activated
and cannot be used. The employee will then run the cost of the gift card through the
system, so when the register is closed out, everything looks fine. However, they'll
pocket the activated gift card and resell it, give it to someone or use it.

Diverting refunds

Running a false return on merchandise and then creating a "store credit" on a gift
card is another common way employees can use gift cards to steal. While many retail
owners don't worry much about gift card fraud, they should. Large sums of money
can be stolen using a diversion tactic like this one. In 2009, the New York
Times published an article about the frequency and severity of retail fraud involving
gift cards, mentioning an extreme example of a 23-year-old sales clerk who was
arrested for stealing more than $130,000 from Saks Fifth Avenue by ringing up false
refunds on gift cards.
Of course, most small businesses couldn't lose such a large sum without noticing, but
the fact that even highly structured chains can let these types of thefts happen shows
how easy they are to attempt.

Solutions

If your store has gift cards, you should have an inventory system for them. Consider
numbering the gift cards, or routinely checking the stock of available gift cards. If you
notice an unusual number of returns issued in the form of store credit, audit the staff
schedule. If one member of your staff is issuing a disproportionate number of store
credits, fraud may be taking place.

2. Collaborative theft
There are two primary types of collaborative theft between employees and
nonemployees – sweethearting and shoplifting.

Sweethearting

The most common type of employee theft in a retail setting is called sweethearting.
In this type of scam, an employee uses their position as a retail worker to give things
to friends and family either for free or at a deep discount.

In some instances of sweethearting, a register clerk will only ring up a few of the
items their friend is purchasing and not scan the others, thereby giving their friends
permission to steal without the risk of getting chased or caught. The most
sophisticated employees, particularly those at the management level, may even
change the inventory numbers in the system to make it look as though the item they
gave away was never stocked. So, even if the owner is regularly pulling POS
information on inventory and sales, everything will look like it's aboveboard.

In less sophisticated cases, sweethearting involves sharing employee discounts,


issuing false returns or giving free gift cards to friends and family.

Shoplifting

While many instances of shoplifting are legitimate outside crimes (with an external
person stealing from your store without the knowledge of your employees), there are
also shoplifting scams that involve both an outside thief and an employee. An
employee may make a deal with a friend that they get a certain percentage of a take
or job.

In a scenario like this, the employee will agree to look the other way while the co-
conspirator looks and acts like a typical shoplifter. Retail employees tend to do this in
small stores that are only staffed by one or two people at a time and often use this
method when there are security cameras around. The employee may even pretend to
chase the "suspect" from the scene to appear uninvolved.

Solutions

One major solution to collaborative theft is never having only one person in the store
at a time and increasing surveillance. While an unusually bold employee may attempt
a collaborative shoplifting scam, they will have trouble doing so repeatedly if there
are cameras watching.
To combat sweethearting, retail owners should outline policies for their employees in
a clear manner. Many retail workers may not consider giving out discounts to friends
stealing, and having a policy on the books may deter them from doing it in the first
place. For the sweethearting scams that involve outright theft of merchandise, the
best antidote is careful inventory management. If an employee can successfully give
away merchandise for months on end without you noticing, that is a failing not only
of the employee's character but of your inventory system as well.

3. Merchandise theft
Merchandise theft is a very common practice in independently owned retail
establishments for a few reasons.

Manipulating inventory

Most chain retail stores have extensive inventory systems that are challenging to
cheat, and at large stores, it's not uncommon to have different employees working at
the same time in different departments. A floor salesperson in a big-box store may
not even know how the inventory system in their store works. However, at mom and
pop shops, the employee who is responsible for checking out customers is often the
same person responsible for pricing items, opening new packages and inventorying
stock in the first place. This creates an opportunity for merchandise theft that rarely
occurs at larger stores.

Savvy staff members may be deceptive about deliveries to make it seem like a vendor
hasn't delivered in full, and then steal the difference. For example, if 50 dresses were
meant to be delivered to a clothing store, the manager on duty might tag, price and
inventory just 48 dresses. When doing a big inventory, it's easy to miss two dresses.
When questioned, the manager could shrug and say they tagged all the dresses in the
box.

Taking inventory outright

Most merchandise thefts don't require any inventory manipulation, because many
stores have poor inventory systems to begin with. Many retail establishments don't
input items individually, and many more use the same SKUs for multiple items that
are similar in nature or price. Such shortcuts open the door for employees to steal
freely, taking what they want from the stockroom without fear of recrimination.
Employees will also do this if they know the stockroom is never checked, and,
unfortunately, many business owners spend time at the front, greeting customers
and saying hello but not in the basements or stockrooms counting items.

Solutions

Again, maintaining a rock-solid inventory system will go a long way toward


preventing merchandise theft. Installation of cameras in stockroom areas, while
relatively uncommon in independent retail shops, is smart for retailers that have had
a problem with merchandise walking away in the past.

Another way to deter merchandise theft is by dropping in often and without


announcement. Business owners are busy people, so they develop routines and
schedules. Employees looking to steal will notice if you only come by the store on
Tuesdays and Thursdays before noon, and they'll shift their habits accordingly. An
unpredictable and highly involved business owner makes it tough for employees to
get away with theft.

4. False cash returns


Scams involving fake cash returns are the oldest trick in the retail thief's book
because they're easy to run and difficult to prove. Basically, the employee looks
through receipts from real customer purchases, sometimes from previous days or
weeks, and finds a couple of receipts with high-priced items on them. Then, the
employee runs a return on those receipts and pockets the cash amount from the
register.

This is one of the most effective ways for retail workers to scam a store, because it
bypasses a few common traps stores put in place to catch fraud. For one thing, a
customer is unlikely to complain about anything, because things are fine on their
end; they weren't overcharged or undercharged, and they still have the item they
purchased. Plus, a certain number of returns in a day at a high-volume store isn't an
instant red flag.

Solutions

Auditing returns is a must for all retailers, but especially those that sell high-priced
items that may draw this type of scam. One major tell is returns that have been input
at the end of the day, first thing in the morning, during lunch hour or at any other
time there may be few staff members in the store. Consistency is key – do most
returns happen on Wednesdays and Fridays at 4 p.m.? That's a red flag. You can
cross-check returns with the employee issuing them. If one employee processes a
disproportionate number of returns, you may want to investigate further.

Another way to avoid this process is by having a strict workflow for returns.
Requiring a second individual to check and then restock the returned item, for
example, may deter a lone scammer from trying to game the system.

5. Credit card fraud


Less common than other schemes on this list, credit card fraud is nonetheless
something store owners should be aware of, because it can severely (and
permanently) damage your business's reputation within the community. Here's how
it works.

In a credit card fraud scenario, two basic things happen. First, the employee
gradually collects the credit card information of the customers at the store, then they
either use that information to process false sales (followed by false cash returns,
pocketing the cash) or use the credit cards to fill gift cards for themselves.

You may be wondering how this is possible – surely the card holder would notice
false charges, right? Not necessarily. These scams work best in high-volume stores
with mostly repeat customers, like gas stations, pharmacies and supermarkets.
Consider your local grocery store. If you go every week, often multiple times a week,
would you really notice an extra $15 charge twice a month? If you're a business
owner, you probably answered yes, but for a typical consumer, the likely answer is
no. Most consumers do not go through itemized charges and analyze them at the end
of the month. Plus, in this scenario, the employee will often farm money from many
different customers in the rotation so as not to arouse suspicion.

Solutions

A locked system that makes it impossible or difficult for employees to access credit
card information is an obvious way to cut down on credit card fraud. A camera
behind the register can also reduce this behavior, since schemes like this are typically
done when there aren't any customers in line. If an employee is fiddling with the
system a lot when there are no customers, you can always pull a report of sales for
the day and cross-check the sales with the times that the store was empty. If sales
were run when no customers were in the store, that's a dead giveaway.

External theft
It's important to point out, after all this, that most retail employees do not steal, and
in many cases, thefts are simply performed by random shoplifters. If you have a
shoplifting problem that is not internal, beefing up security at your store with alarm
systems, surveillance and even security personnel can help. However, the burden of
policing the store should not be placed on the shoulders of your employees, for
internal or external thefts. Docking employee pay for stolen goods or scammed cash
will likely result in resentment.

Mona Bushnell
Mona Bushnell is a New York City-based Staff Writer for Business News Daily and
Business.com. She has a B.A. in Writing, Literature, and Publishing from Emerson
College and has previously worked as an IT Technician, a Copywriter, a Software
Administrator, a Scheduling Manager and an Editorial Writer. Mona began freelance
writing full-time in 2014 and joined the Business.com team in 2017.

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These five scams are how your retail employees could be


ripping you off. Here's how to stop them.

Whether you own a boutique clothing shop, a large hardware store or a discount
furniture depot, one of the biggest threats to your business is employee fraud. The
2017 National Retail Security Survey estimated that 30 percent of inventory loss
could be attributed to employee theft. While 36.5 percent of loss is due to external
shoplifting, 21.3 percent to paperwork errors, 5.4 percent to vendor fraud and 6.8
percent to unknown sources, a 30 percent stake in inventory loss should be enough
to make any business owner a little more proactive about spotting and preventing
inside jobs.
This is by no means a comprehensive list of every scam out there, but it does shed
light on the signs of some of the most common retail employee scams and what you
can do to stop them from happening.

1. Gift card fraud


Thanks to improved technology and pricing, even small retail establishments can
create and sell branded gift cards. Of course, every technological step forward brings
new challenges with it, and gift card fraud is one of them. Here are a few ways
employees can make money from gift card scams.

Swapping out gift cards


The method of swapping out gift cards works best (for employees) in high-traffic
stores that don't depend on return customers. Stores that cater to tourists or have
heavy one-off traffic during certain seasons are more likely to experience this type of
scam.

In a gift card swap, an employee will ring up and activate a gift card for a legitimate
paying customer and then hand the customer a gift card that hasn't been activated
and cannot be used. The employee will then run the cost of the gift card through the
system, so when the register is closed out, everything looks fine. However, they'll
pocket the activated gift card and resell it, give it to someone or use it.

Diverting refunds

Running a false return on merchandise and then creating a "store credit" on a gift
card is another common way employees can use gift cards to steal. While many retail
owners don't worry much about gift card fraud, they should. Large sums of money
can be stolen using a diversion tactic like this one. In 2009, the New York
Times published an article about the frequency and severity of retail fraud involving
gift cards, mentioning an extreme example of a 23-year-old sales clerk who was
arrested for stealing more than $130,000 from Saks Fifth Avenue by ringing up false
refunds on gift cards.
Of course, most small businesses couldn't lose such a large sum without noticing, but
the fact that even highly structured chains can let these types of thefts happen shows
how easy they are to attempt.

Solutions

If your store has gift cards, you should have an inventory system for them. Consider
numbering the gift cards, or routinely checking the stock of available gift cards. If you
notice an unusual number of returns issued in the form of store credit, audit the staff
schedule. If one member of your staff is issuing a disproportionate number of store
credits, fraud may be taking place.

2. Collaborative theft
There are two primary types of collaborative theft between employees and
nonemployees – sweethearting and shoplifting.

Sweethearting
The most common type of employee theft in a retail setting is called sweethearting.
In this type of scam, an employee uses their position as a retail worker to give things
to friends and family either for free or at a deep discount.

In some instances of sweethearting, a register clerk will only ring up a few of the
items their friend is purchasing and not scan the others, thereby giving their friends
permission to steal without the risk of getting chased or caught. The most
sophisticated employees, particularly those at the management level, may even
change the inventory numbers in the system to make it look as though the item they
gave away was never stocked. So, even if the owner is regularly pulling POS
information on inventory and sales, everything will look like it's aboveboard.

In less sophisticated cases, sweethearting involves sharing employee discounts,


issuing false returns or giving free gift cards to friends and family.

Shoplifting

While many instances of shoplifting are legitimate outside crimes (with an external
person stealing from your store without the knowledge of your employees), there are
also shoplifting scams that involve both an outside thief and an employee. An
employee may make a deal with a friend that they get a certain percentage of a take
or job.

In a scenario like this, the employee will agree to look the other way while the co-
conspirator looks and acts like a typical shoplifter. Retail employees tend to do this in
small stores that are only staffed by one or two people at a time and often use this
method when there are security cameras around. The employee may even pretend to
chase the "suspect" from the scene to appear uninvolved.

Solutions

One major solution to collaborative theft is never having only one person in the store
at a time and increasing surveillance. While an unusually bold employee may attempt
a collaborative shoplifting scam, they will have trouble doing so repeatedly if there
are cameras watching.

To combat sweethearting, retail owners should outline policies for their employees in
a clear manner. Many retail workers may not consider giving out discounts to friends
stealing, and having a policy on the books may deter them from doing it in the first
place. For the sweethearting scams that involve outright theft of merchandise, the
best antidote is careful inventory management. If an employee can successfully give
away merchandise for months on end without you noticing, that is a failing not only
of the employee's character but of your inventory system as well.

3. Merchandise theft
Merchandise theft is a very common practice in independently owned retail
establishments for a few reasons.

Manipulating inventory

Most chain retail stores have extensive inventory systems that are challenging to
cheat, and at large stores, it's not uncommon to have different employees working at
the same time in different departments. A floor salesperson in a big-box store may
not even know how the inventory system in their store works. However, at mom and
pop shops, the employee who is responsible for checking out customers is often the
same person responsible for pricing items, opening new packages and inventorying
stock in the first place. This creates an opportunity for merchandise theft that rarely
occurs at larger stores.

Savvy staff members may be deceptive about deliveries to make it seem like a vendor
hasn't delivered in full, and then steal the difference. For example, if 50 dresses were
meant to be delivered to a clothing store, the manager on duty might tag, price and
inventory just 48 dresses. When doing a big inventory, it's easy to miss two dresses.
When questioned, the manager could shrug and say they tagged all the dresses in the
box.

Taking inventory outright

Most merchandise thefts don't require any inventory manipulation, because many
stores have poor inventory systems to begin with. Many retail establishments don't
input items individually, and many more use the same SKUs for multiple items that
are similar in nature or price. Such shortcuts open the door for employees to steal
freely, taking what they want from the stockroom without fear of recrimination.
Employees will also do this if they know the stockroom is never checked, and,
unfortunately, many business owners spend time at the front, greeting customers
and saying hello but not in the basements or stockrooms counting items.

Solutions
Again, maintaining a rock-solid inventory system will go a long way toward
preventing merchandise theft. Installation of cameras in stockroom areas, while
relatively uncommon in independent retail shops, is smart for retailers that have had
a problem with merchandise walking away in the past.

Another way to deter merchandise theft is by dropping in often and without


announcement. Business owners are busy people, so they develop routines and
schedules. Employees looking to steal will notice if you only come by the store on
Tuesdays and Thursdays before noon, and they'll shift their habits accordingly. An
unpredictable and highly involved business owner makes it tough for employees to
get away with theft.

4. False cash returns


Scams involving fake cash returns are the oldest trick in the retail thief's book
because they're easy to run and difficult to prove. Basically, the employee looks
through receipts from real customer purchases, sometimes from previous days or
weeks, and finds a couple of receipts with high-priced items on them. Then, the
employee runs a return on those receipts and pockets the cash amount from the
register.

This is one of the most effective ways for retail workers to scam a store, because it
bypasses a few common traps stores put in place to catch fraud. For one thing, a
customer is unlikely to complain about anything, because things are fine on their
end; they weren't overcharged or undercharged, and they still have the item they
purchased. Plus, a certain number of returns in a day at a high-volume store isn't an
instant red flag.

Solutions

Auditing returns is a must for all retailers, but especially those that sell high-priced
items that may draw this type of scam. One major tell is returns that have been input
at the end of the day, first thing in the morning, during lunch hour or at any other
time there may be few staff members in the store. Consistency is key – do most
returns happen on Wednesdays and Fridays at 4 p.m.? That's a red flag. You can
cross-check returns with the employee issuing them. If one employee processes a
disproportionate number of returns, you may want to investigate further.
Another way to avoid this process is by having a strict workflow for returns.
Requiring a second individual to check and then restock the returned item, for
example, may deter a lone scammer from trying to game the system.

5. Credit card fraud


Less common than other schemes on this list, credit card fraud is nonetheless
something store owners should be aware of, because it can severely (and
permanently) damage your business's reputation within the community. Here's how
it works.

In a credit card fraud scenario, two basic things happen. First, the employee
gradually collects the credit card information of the customers at the store, then they
either use that information to process false sales (followed by false cash returns,
pocketing the cash) or use the credit cards to fill gift cards for themselves.

You may be wondering how this is possible – surely the card holder would notice
false charges, right? Not necessarily. These scams work best in high-volume stores
with mostly repeat customers, like gas stations, pharmacies and supermarkets.
Consider your local grocery store. If you go every week, often multiple times a week,
would you really notice an extra $15 charge twice a month? If you're a business
owner, you probably answered yes, but for a typical consumer, the likely answer is
no. Most consumers do not go through itemized charges and analyze them at the end
of the month. Plus, in this scenario, the employee will often farm money from many
different customers in the rotation so as not to arouse suspicion.

Solutions

A locked system that makes it impossible or difficult for employees to access credit
card information is an obvious way to cut down on credit card fraud. A camera
behind the register can also reduce this behavior, since schemes like this are typically
done when there aren't any customers in line. If an employee is fiddling with the
system a lot when there are no customers, you can always pull a report of sales for
the day and cross-check the sales with the times that the store was empty. If sales
were run when no customers were in the store, that's a dead giveaway.

External theft
It's important to point out, after all this, that most retail employees do not steal, and
in many cases, thefts are simply performed by random shoplifters. If you have a
shoplifting problem that is not internal, beefing up security at your store with alarm
systems, surveillance and even security personnel can help. However, the burden of
policing the store should not be placed on the shoulders of your employees, for
internal or external thefts. Docking employee pay for stolen goods or scammed cash
will likely result in resentment.
The Balance Careers

How to Reduce the Risk of Employee Theft


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How to Reduce the Risk of Employee Theft


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•••
BY DENNIS NAJJAR

Updated December 29, 2018

Security and surveillance strategies have improved tremendously in recent years


because of advances in technology. Multi-use surveillance equipment and less
conspicuous trend-tracking apps are more effective at identifying possible loopholes
in the security system. These loopholes provide opportunities for thieves or
embezzlers to gain unauthorized access to company coffers and inventory.

Employee Theft Is on the Rise


According to data from the U.S. Chamber of Commerce, 75 percent of employees
have admitted stealing from their employers at least once, and 38 percent admit to
stealing from employers at least twice. The FBI refers to employee theft as the
fastest growing crime in the U.S., costing businesses about seven percent of their
expected margins. The problem becomes so dire for some businesses hit with
employee theft that about 33 percent are pushed into bankruptcy due to losses from
theft or fraud.

Reports collated by Statistic Brain indicate that more than 28 percent of business
losses ranged from $100,000 to $499,000, and 25 percent of losses exceeded $1
million. These figures are disturbing because they demonstrate that business losses
due to employee theft are not trivial. The median value of cash or goods stolen was
placed at $75,000.

In 2014 alone, more than 1.2 million shoplifters and wayward employees were
caught in the act, according to a study conducted by Jack L. Hayes, a loss
prevention and inventory shrinkage control consulting firm. More significantly, these
numbers were generated from 25 big retailers, suggesting that the problem is more
widespread and the losses more substantial if small to medium retailers were
included in the mix. According to several studies, losses from employee theft
outpaced losses from shoplifting.

Employee Theft Methods

Employee theft may be difficult to detect because the perpetrator is an insider


familiar with the system. Additionally, these employees have access to the keys of
the kingdom because of their positions and their reputation as dependable team
players. These are a few of the methods commonly used to steal from the company.

 Accounting and finance personnel can redirect checks


received to personal accounts. Since they maintain the
ledgers, they can cover-up the theft by altering entries.
 With access to the corporate checking account, employees
can write checks for fictitious payments that are diverted to
personal accounts.
 Theft of cash requires planning since cashiers have to
balance their cash box at shift closing. They can skim cash
by deliberately undercounting change to customers and
keeping the difference. For non-scan businesses, employees
can quote a higher price for untagged merchandise and
pocket the balance.

 Theft of merchandise is carried out through surreptitious use


of garbage bins, recycling system, or personal bags to sneak
out business goods. In retail, the return and refund process
yields many chances to steal from the company with or
without the help of a third party.
 Theft of supplies may seem petty, but the amount adds up
quickly when employees become more brazen with taking
office supplies for personal use.
 Payroll theft refers to payment for unearned time and
reimbursement for non-business expenses.

Understanding the Motivations Behind Employee Theft

In most companies, employees undergo a stringent screening process, including


background checks, employment history, and credit checks. The process is designed
to exclude unsuitable individuals from the pool of applicants. It is safe to assume that
employees who pass the pre-employment hurdles are qualified, dependable, and
trustworthy.

In many cases, the perpetrators are long-time trusted employees who change from
hardworking, employee-of-the-month types to sneaky thieves who create meticulous
plans to redirect funds to their own accounts or help themselves to inventory. What
could possibly motivate these individuals to risk their career and livelihood to make a
few thousand dollars?

1. Drastic life changes: Loss of a loved one through death,


divorce, or separation is a devastating development for
anyone. This could reduce the employee's income stream
and increase expenses. Faced with mounting bills, the
employee seizes the opportunity to take small amounts of
money. Often, they believe that they can pay it back without
getting caught.
2. Living beyond their pay scale: The largest losses are
typically due to embezzlers seeking to live beyond their
means. They seek to live the good life but are unable to
afford the goods and amenities on their own. Stolen funds
are used to acquire pricey cars, homes, and luxury goods.
The employee may take expensive vacations and engage in
activities that cost more than what they can afford.

1. Opportunity: Employees may start out pilfering petty


amounts because the opportunity presents itself. Customers
may forget to claim their change or bookkeepers may find an
opportunity to adjust the books without being noticed. Taking
advantage of these opportunities may become habit-forming
and soon spiral out of control.
2. Addictions: Individuals dealing with compulsive behavior
that costs money are not good candidates for jobs that
involve cash handling or accounting. Compulsions can
overcome even the best intentions, and employees end up
funneling business funds to feed gambling, drug, and other
addictions.

1. Greed: Good old-fashioned greed drives trusted employees


to exploit opportunities to take for themselves what has been
entrusted for business purposes. Theft can take the form of
funds diversion or appropriating equipment and other goods
for their own use.
2. Bad apples who passed the screening process: The
employment screening process should weed out candidates
with criminal records, but sometimes a few will pass the
vetting due to inadequate background research or glitches in
records processing. Placed in a position of trust, these
individuals may be plotting their scheme to steal from the
company even at the outset.

1. Revenge: Perceived slights can drive employees to seek


retribution by stealing from the company. An individual who
is passed over for a promotion or lateral transfer to a
preferred location or someone who takes a negative
assessment too personally may feel that they are claiming
what has been denied to them by stealing from the company.

Defensive Strategies to Minimize Employee Theft

The best defense is a proactive approach to the problem of employee theft. Security
experts suggest that business owners and managers should assume that it is
happening or that it will happen when the opportunity arises. This does not mean
treating all employees with suspicion because that is the quickest way to sink
morale. The strategy calls for a comprehensive systems review to identify the
loopholes in administrative and operational procedures.

 Strengthen the pre-employment screening process to


identify red flags. Positions that provide access to accounting
and financial records should be subject to high-level
background checks, covering credit history and all
encounters with the criminal justice system. Cash-handling
assignments should be given to established employees
instead of new hires. Be wary of inconsistencies in the
resume or blatant lies because this may be an indication of
questionable character.
 Establish a system of checks and balances especially for
employees in sensitive positions with access to cash and
other financial accounts. Implement a buddy system that
involves at least two employees working together at all times.
Procedures that call for voiding sales and issuing customer
refunds should require approval by a supervisor or manager.
In the bookkeeping and accounting department, ledgers
should be maintained by a team of employees instead of
entrusting only one person with the books. Under no
circumstances should one person be entrusted with control
of all financial records, which should be subject to
unannounced audits by a third-party professional.

 Use an outside accountant to examine key financial


records. Bank statements, checks issued and checks
received, and the ledgers for accounts payable and accounts
receivable should be verified by a third party. Make sure that
payees are verifiable and signatures on your corporate
checks are legitimate.
 Install a video surveillance system as a deterrent. People are
less likely to engage in dishonest behavior if they know that
they are on camera. The cameras are there to discourage
risky behavior before it happens. Real-time video monitoring
may be helpful in high-risk and high-value areas such as
stockrooms and the sales floor of luxury goods.

 Establish trash removal routines. Eliminate all chances of


using the disposal and recycling system to steal
merchandise for personal use or for reselling elsewhere. The
process may include disassembling and flattening all boxes
and crates, using clear garbage bags only, and ensuring
one-way access to the dumpsters for employees.
 Improve employee morale. Building trust is a two-way street.
Get to know the employees, establish rapport, and build
relationships because people may be less likely to give in to
temptation if they are happy at work and care about their
career.

 Open an employee tip line. In relation to the previous


suggestion, employees who are loyal to the company can
help limit losses due to fraud and theft by reporting their
suspicions anonymously. Ensure confidentiality of all reports,
and investigate each report thoroughly before taking action.

To Prosecute or Not to Prosecute

Small to medium-size businesses are disproportionately victimized by embezzlers


and fraudsters. Sixty-four percent of small businesses report that they have been
victims of employee theft, yet only 16 percent report it based on a study conducted
by a doctoral student in criminal justice at the University of Cincinnati. Often, small
business owners do no more than fire the employee because pursuing litigation is
costly with no assurance that stolen funds will be paid back. Other companies refrain
from suing to avoid scrutiny of their confidential records.

When it comes to employee theft, prevention is the best defense. Review your
systems and procedures to identify vulnerable areas, and make the changes as
needed. It may help to work with a neutral party with a fresh perspective to find the
red flags. When incidents of fraud and employee theft are found, act quickly,
decisively, and firmly. Follow a zero-tolerance policy to protect your company from
incurring substantial losses due to employee theft.

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