Employee theft won’t always leave a paper trail
Most cases involve a cluster of behavioural warning signs, writes Michael Hempseed.
OPINION: With revelations of yet another case of employee theft involving hundreds of thousands of dollars, many business owners will be asking what is happening.
On Tuesday Joanne Harrison, a former senior manager of the Ministry of Transport, was convicted of stealing $725,000.
We have heard of large businesses such as Auckland Airport, charities, schools, churches and community groups all losing substantial sums of money because of employee theft. Sadly, for every case that is brought to the public eye a great number will go undetected or are covered up.
Companies keep falling victim to theft over and over again. Many employers have the attitude that it cannot happen to them. This is simply not the case – the threat of employee theft cannot be overstated.
The US Chamber of Commerce estimates that a staggering third of all bankruptcies are the result of employee theft. Aside from the obvious loss of revenue there are a number of other vicious effects that often seal the fate of businesses after a theft.
Take an employee who steals $2000. That might not sound like a lot, but if the business has a profit margin of 10 per cent then it will need to earn $20,000 to recover the loss. If the profit margin is 5 per cent, that figure will be $40,000.
I’ve worked with a company that prosecuted an employee for theft of about $50,000. The actual value was probably closer to $500,000 but they just couldn’t prove it in court.
Aside from this you never get the perfect employee who just steals. Thieves often upset or steal from customers and often cause staffing problems resulting in high turnover and a significant loss of productivity. There are many other costs associated with employee theft other than the immediate value of the theft.
Employers need to do their utmost to prevent the problem. Those who assume that good systems and processes will save them are often led into a false sense of security.
Many employers also mistakenly expect there to be evidence of theft in the company accounts. They hope an accountant or an auditor would be able to detect this. In quite a few cases they will be able to.
Yet, I worked with several situations last year where the theft was invisible to any internal or external accounting audits. Suffice it to say it is easier than many employers want to admit.
So does all this mean that a business owner is at the mercy of a master criminal? Not at all.
Very rarely does employee theft involve a sudden snatch and grab, where a colossal sum of money goes missing overnight. Instead most thieves steal little by little. This gives an employer a significant window to detect the fraud. In the case of Joanne Harrison, she stole between 2012-16. This was ample time to detect the problems.
While theft may or may not show up in the accounts there are other ways to detect what is happening. In almost every case of employee theft I have ever worked with someone has known something was not right.
In many cases they didn’t put two and two together, or they didn’t know how to tell a manager, or they were not listened to. Nevertheless someone knew something.
It is estimated that 80 per cent to 90 per cent of employee theft is to fund an addiction. It is impossible to have a serious addiction and still be an outstanding employee. There will be signs such as an employee sneaking off for long periods without explanation.
Obvious signs, such as the smell of alcohol or similar substances on their breath, are often ignored. Thieves may come in early and leave late to conduct their covert activities. Business owners may ask themselves why their business is not making as much money as it should be.
No single factor should be taken in isolation but when multiple factors are present then employers need to ask questions. It is impossible to hide all the warning signs from everyone.
Employers need to become more aware of these signs so they can either prevent employee theft in the first place or stop it before it gets out of hand.
Michael Hempseed is the managing director of specialist human resources firm Employee Solution Service in Christchurch.