In October, an accountant at 321 Takeoff in New York became suspicious after an employee who normally filed weekly expense reports for around $80 began requesting $120.
When Alona Fromberg-Elkayam, the branding agency’s president, approached the employee, she says she was met with flimsy excuses. She fired the employee, a midlevel designer.
In the wake of the recession, more businesses are facing a growing financial threat: employee theft.
New research shows that employers are seeing an increase in internal crimes, ranging from fictitious sales transactions and illegal kickbacks to the theft of office equipment and retail products meant for sale to customers.
Employers suspect that workers are pilfering from them to cope with financial difficulties at home or in anticipation of being laid off.
What’s more, the most trusted workers are often the ones who are committing the thefts.
“In leaner financial times, people have a tendency to give in to temptation to commit criminal behavior,” says Brian J. Mich, the head of anti-corruption compliance and investigations at BDO Consulting in New York.
At the same time, he says, “employers give additional attention to the bottom line, which results in more fraud being discovered. It’s a little hard to tell which is the chicken or the egg.”
About 20% of employers polled last month said workplace theft has become a moderate to very big problem recently, according to a survey from the Institute for Corporate Productivity, in conjunction with HR.com.
The survey polled managers and executives at 392 U.S. companies representing a range of sizes and industries. When asked if they had noticed a recent rise in monetary theft among employees, such as fraudulent transactions or missing cash, 18% said yes, 41% were unsure and the rest said they hadn’t.
Further, 24% of respondents said they had detected an increase in stolen nonmonetary items, such as retail products and office supplies, while 43% were unsure and 33% hadn’t.
In 2007, companies lost an average of $2.4 million to fraud, the majority of it by employees, up from $1.7 million in 2005, according to PricewaterhouseCoopers, which conducts biannual surveys of around 5,400 companies of all sizes worldwide.
Employers are hot targets for theft because workers “know their systems, controls and weaknesses, and they can bide their time waiting for the right opportunity,” says Mark R. Doyle, the president of Jack L. Haynes International, a provider of workplace crime-prevention services.
The elimination of perks such as employee discounts and holiday parties can aggravate the problem, adds Mich, who, prior to joining BDO, worked for 12 years as a white-collar prosecutor in New York.
“They’re thinking, ‘I’m not being treated fairly by my employer anyway so I’m going to take this indulgence here,’” he explains.
It’s not that theft doesn’t happen when times are good, says Bob Zierk, the vice president of human resources for Black & Decker’s (BDK, news, msgs) hardware and home improvement division, but these issues “come up with increasing frequency in a difficult economy.”
Though he hasn’t noticed a recent rise in employee theft at the manufacturer, he says, he saw the problem intensify in past downturns when he worked at other companies during his 32-year career in human resources.
To many employers’ chagrin, the workers guilty of the most grandiose theft frequently turn out to be those deemed to be highly trustworthy, says Mich.
“They are people being given access to systems and information that allow them to commit fraud,” he says. Their crimes — typically theft of small amounts of money over long periods of time — often go unnoticed until economic downturns, he adds, because that’s when companies generally become more vigilant about counting pennies.
A 2007 study from Pricewaterhouse shows that senior-level employees with an average tenure of 7.5 years are responsible for 25% of all reported internal fraud. Overall, 85% of fraudsters are male, 44% are between the ages of 31 and 40, 38% possess at least a bachelor’s degree and 12% typically hold a postgraduate degree or higher.
Since workplace pilfering sometimes goes undetected, it’s unclear how much more severe the problem is now than in healthier times. According to Jack L. Haynes International, employee theft in the retail sector has been on the rise every year since 2003.
A survey the firm conducted earlier this year of 24 large retailers with more than 2.3 million employees found that roughly one out of every 28 workers was apprehended for stealing in 2007, an increase of nearly 18% from 2006.
Workers who steal even small amounts of money or goods from an employer risk big repercussions. In addition to sacking internal thieves, many employers file civil lawsuits against them, says Bob Riordan, partner and leader of the labor-and-employment practice group at Alston & Bird. Some even press criminal charges, which can result in jail time.
An employer’s best defense against worker theft is prevention, asserts Riordan. “You want to maintain an environment where your employees have some sense of a code of conduct or integrity,” he says.
The installation of video cameras, tracking devices and other monitoring tools can also help deter workers from pilfering, but employers should first review local laws on the practice.
“There is an increasing trend at the state level to prohibit invasive monitoring,” warns Riordan.
Also consider how the strategy might affect employee morale. “You need to be aware of the culture of the workplace you’re dealing with,” he says. “Video monitoring in a warehouse might be fine, but in an office environment it might be viewed as crossing the line.”
Retail employers typically track their inventories closely, which is why they’re able to provide such detailed data, says Doyle.
A survey from the Institute for Corporate Productivity shows that about 17% of respondents recently added extra security measures and 20% are conducting audits more frequently in the wake of increased employee theft or because of suspicions of theft.
And 28% say they’re communicating with employees more about internal theft.
Still, no matter what preventive methods employers take, breaches are likely to occur on occasion, even in good economic times, says Black & Decker’s Zierk.
“You’re bound to run into periodic issues,” he says. “In every company I’ve ever worked for, part of my time has been spent dealing with people who use poor judgment.”
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