Internal theft, often referred to as employee theft, is a widespread and worrisome issue that can threaten businesses of all sizes and across multiple sectors. Building a culture of trust among employees is important for fostering a healthy work environment. Unfortunately, employees are in the best position to commit crimes against their company because they know how it operates.
If companies don’t put in safeguards to help protect themselves from employee theft, then it could influence their bottom line. The impact of internal theft goes beyond direct financial losses. It can also erode the trust within the organization. This can lead to a toxic work environment where suspicion and paranoia reign.
Employees may feel dejected, which adversely affects productivity and overall morale. Moreover, the negative consequences can extend to the company’s reputation, as clients and business partners may lose confidence in a business that cannot safeguard its assets and maintain the integrity of its operations.
Small businesses are more vulnerable to the repercussions of internal theft. With limited resources and security measures, they may be more susceptible to the harmful effects of dishonest employees. Therefore, companies of all sizes and industries need to implement proactive measures to help prevent internal theft and other employee-related crimes.
How Big of a Problem Is Internal Theft?
The magnitude of the problem of internal theft becomes apparent when considering its pervasiveness. Statistics reveal that businesses lose billions of dollars annually due to various forms of employee theft. This includes activities such as embezzlement, taking parts and supplies, and creating fraudulent transactions.
A CNBC article reveals internal theft is a crime that costs U.S. businesses $50 billion every year. Yes, that’s in the billions. The story references a small business where two employees stole thousands of dollars’ worth of parts. Another employee changed the company’s Amazon Services account to their personal account. All the money customers supposedly paid the company went to the employee’s account.
One of the primary challenges in addressing internal theft is the difficulty in detecting activities. Unlike external threats, internal theft involves people who are already part of the organization. As such, it’s harder to identify red flags.
Employees can take advantage of insider knowledge and access to company resources. This information allows them to carry out deceptive actions without raising immediate suspicion. This secret nature of internal theft makes it a silent and insidious problem that could go unnoticed until significant financial damage has occurred.
The Report to the Nations: A 2018 Global Study on Occupational Fraud and Abuse from the Association of Certified Fraud Examiners (ACFE) states noncash property theft climbed from 10.6% of company fraud cases in 2002 to 21% in 2018.
In its analysis of 2,690 cases of fraud, the crime took place in more than 20 major industry categories against small local businesses, multinational corporations, government agencies and nonprofits, and private and public companies. The culprits ranged from entry-level employees to executives. Organizations must be vigilant across the board.
How to Be Proactive in Helping to Deter Internal Theft
To tackle the issue of internal theft effectively, organizations must adopt a multi-faceted approach. Implementing stringent security protocols, conducting background checks, doing regular audits, and fostering a culture of transparency can help deter internal theft. Employee education on security and ethical conduct and the consequences of internal theft can help nurture a sense of responsibility and integrity within the company culture. Here’s a detailed look into some of the top ways to help deter employee theft.
Run background checks
Incorporating thorough background checks into the hiring process can be a powerful tool in mitigating the risk of internal theft. Background checks provide a detailed view of a candidate’s professional and personal history. The information aids employers in making informed decisions about potential hires.
Like drug testing, background checks have become a standard part of the hiring process. It will not insult the new employee. This is the company’s way of doing its due diligence. One thing to remember while doing background checks is to comply with state, federal, and industry laws related to hiring. If a company works with a third-party service, then the company must verify it complies with the applicable laws.
Criminal background checks are another integral component of the hiring process. By examining an individual’s criminal history, employers can identify any red flags that may suggest a propensity for theft or other wrongdoing. While it is essential to consider the nature and relevance of past offenses, this information provides a valuable context for evaluating a candidate’s suitability for positions that involve handling finances or sensitive company assets.
Background checks look at more than just criminal history. A crucial aspect of background checks is the verification of a candidate’s employment history and references. This process empowers employers to confirm the accuracy of the information provided on resumes and applications. This process can identify any discrepancies that might raise suspicions. Past employment records can reveal patterns of behavior and integrity, offering valuable insights into a candidate’s reliability and trustworthiness.
Credit checks can be particularly relevant for roles revolving around the company’s finances. A candidate’s credit history can shed light on their financial stability and responsibility. Employees use the information to assess the risk of potentially fraudulent activities. Again, it’s vital to follow legal guidelines and obtain consent from candidates before conducting credit checks to ensure compliance with privacy regulations.
Background checks establish a more transparent and secure hiring process, reducing the likelihood of internal theft. By gaining a deeper understanding of a candidate’s history, employers can make informed decisions that align with their organization’s values and safeguard against potential risks associated with dishonest behavior. While background checks are not fail-safe, they serve as a valuable preventive measure in building a trustworthy and reliable workforce.
Establish checks and balances
While trust in employees is essential, implementing robust control measures can serve as a proactive approach to detecting and deterring fraudulent activities. The way to do this is by instituting effective checks and balances within an organization.
One strategy is the mandatory review and approval of all new accounts by personnel at a higher hierarchical level than those responsible for their creation. This additional layer of scrutiny minimizes the likelihood of unauthorized or fraudulent accounts slipping through undetected. By introducing this hierarchical approval process, organizations create a system of accountability that can help discourage dishonest actions.
Another vital check and balance tool is to set limits on certain financial transactions and delegate responsibilities. For instance, restricting cashiers to process refunds up to a defined limit and mandating managerial involvement for transactions exceeding this threshold adds an extra layer of oversight. This not only helps in preventing unauthorized financial activities but also ensures that higher-level personnel are directly involved in critical transactions, reducing the risk of internal theft.
A fundamental principle in implementing checks and balances is to assume that every position within the organization carries the potential to impact its integrity. By adopting this perspective, businesses can tailor specific controls and measures to each role.
In doing so, they can address vulnerabilities to help lower the risk of employee theft. This proactive stance underscores the importance of a comprehensive approach to integrating preventive measures into various aspects of the organization’s structure to create a secure and trustworthy work environment.
Use video surveillance with remote monitoring
The use of technology, such as video surveillance systems with sophisticated monitoring tools can aid with the early detection of suspicious activities. Video surveillance serves as a discreet yet vigilant eye, providing a comprehensive visual recording of activities in and around the business.
The mere presence of security cameras can act as a deterrent. It reminds employees that the cameras observe their actions, which could discourage potential theft. Aside from this, video surveillance can be either reactive or proactive. A reactive system simply responds to a situation after something triggers the alarm. This usually occurs after a crime has been committed.
When paired with active monitoring, this technology becomes a valuable proactive tool in helping deter, detect, and address internal theft. A proactive integrated security solution allows the monitoring operator to act while a crime is in progress. The technology can often catch things before any damage occurs and the suspect gets away.
For instances that aren’t obvious, the technology includes retroactive reviewing. As soon as someone suspects or reports a potential incident of internal theft, security analysts can review recorded footage to piece together what happened.
This not only aids in identifying the culprits but can also provide concrete evidence that can be used for disciplinary actions or legal proceedings if necessary. At the same time, the visual evidence from the recordings can be a powerful deterrent. Employees are aware that any shady behaviors are likely to be captured on camera.
The integration of real-time live monitoring adds a dynamic layer to the video surveillance strategy. Instead of relying solely on post-incident reviews, live monitoring can facilitate the identification of suspicious behavior leading to a prompt response.
This proactive approach is valuable in preventing theft because immediate intervention follows. For example, if the monitor observes an employee engaging in questionable behavior, they will contact the right people to intervene, conduct an inquiry, and take any needed action.
While video surveillance and monitoring have multiple layers of security built-in, companies need to find a balance between the benefits of video surveillance and the privacy concerns of employees. The company needs to communicate about the existence and purpose of surveillance systems to build and maintain trust. Establishing transparent policies and conducting at least annual security-related training can help foster a sense of security in the company.
Internal theft poses a significant problem for businesses. Not being proactive with security could threaten a company’s financial health, organizational culture, and reputation. The widespread nature of this issue emphasizes the need for proactive measures to help deter and detect criminal behavior within the workforce.
By implementing a comprehensive strategy that combines background checks, security technologies, checks and balances, well-defined policies, and employee education, companies can mitigate the risks associated with internal theft and foster a workplace built on trust and integrity.
To learn about a proactive internal theft deterrent, check out Live Video Monitoring: More Than Just Catching Criminals or contact us.
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