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6 Tips for Preventing Employee Theft and Fraud in the Workplace

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6 Tips for Preventing Employee Theft and Fraud in the Workplace

By Caron_Beesley, Contributor
Published: December 23, 2010 Updated: March 27, 2013

Whether it's downloading and sharing company confidential information (a hot topic these days), manipulating expense reports, or stealing merchandise- employee theft and fraud is a serious issue for business owners. In fact, studies show that occupational fraud now results in the loss of five percent of an organizatio-s annual revenue.

Here are some tips for preventing and managing employee theft or occupational fraud.

1. Use Pre-Employment Background Checks Wisely

    One of the first steps to preventing fraudulent employee behavior is to make the right hiring decision. Basic pre-employment background checks are a good business practice for any employer, especially for those employees who will be handling cash, high-value merchandise, or have access to sensitive customer or financial data.

    This Guide to Pre-Employment Background Checks outlines the types of information that you can consult as part of a pre-employment check, and the laws that govern their use. I's worth noting, that the law varies from state to state on whether a private employer can consider an applican's criminal history in making hiring decisions. Check with your local EEOC office for the laws in your area before going down this path.

    2. Check Candidate References

      I'm always surprising how very few employers reach out to check candidate references' often assuming that a reference will never be anything but glowing. However, i's good practice to check references' particularly those of former employers or supervisors. If your candidate has a history of fraudulent behavior' then yo'll want to know about it, before you hand them a job offer.

      3. Proactively Communicate Conduct Guidelines

        Every business needs an employee code of ethics and conduct - while it won't prevent criminal or fraudulent behavior, the standards it outlines will set a clear benchmark for employee behavior and guidelines on how to do business based on a series of principles that promote ethical and lawful conduct.

        Once developed, the code of conduct should be documented and agreed to by all new employees (and existing employees if you haven't put a code in place yet). You can find many templates for basic codes of conduct on the Internet, but as a rule of thumb you should include policies that cover the protection of company data, the avoidance of conflict of interests, and of course, obeying the law.

        Use employee orientation as an opportunity to go over the code of conduct and explain any areas that are unclear.

        Then, revisit the code each year and be sure to add any new considerations that may have materialized - for example, if you do business with certain suppliers, contractors, or government agencies who require you and your employers to agree to new codes of conduct as part of your business relationship.

        4. Don't be Afraid to Audit

          Auditing always has a big brother feel, and in a small business environment this is especially true. However, conducting regular audits can help you detect theft and fraud. Audits can also be a significant deterrent to fraud or criminal activity because many perpetrators of workplace fraud seize opportunity where weak internal controls exist.

          As a rule of thumb, identify high risk areas for your business and audit for violations on a 6-12 month basis - these could include business expense reports, cash and sales reconciliation, vacation and sick day reports, violations of email/social media or Web-use policies, and so on.

          The Association of Certified Fraud Examiners (ACFE) can help companies detect and deal with fraud in the workplace. Find an ACFE-certified fraud examiner near you*.

          5. Recognize the Signs

            Studies show that perpetrators of workplace crime or fraud do so because they are either under pressure, feel under-appreciated, or perceive that management behavior is unethical or unfair, and rationalize their behavior based on the fact that they feel they are owed something or deserve it.

            With this in mind, some of the potential red flags to look out for include:

            • Not taking vacations - many violations are discovered while the perpetrator is on vacation
            • Being overly-protective or exclusive about their workspace
            • Prefers to be unsupervised by working after hours or taking work home
            • Financial records sometimes disappearing
            • Unexplained debt
            • Unexpected change in behavior

            6. Set the Right Management Tone

              One of the best techniques for preventing and combating employee theft or fraud is to create and communicate a business climate that shows that you take it seriously . Here are some simple steps you can take to keep your finger on the pulse:

              • Reconcile statements on regular basis for fraudulent activity
              • Hold regular one-on-one review meetings with employees
              • Offer to assist employees who are experiencing stress or difficult times
              • Encourage open-door policies giving employees the opportunity to speak freely and share their concerns about potential violations
              • Create strong internal controls
              • Require employees to take vacations
              • Treat unusual transactions with suspicion
              • Trust your instincts

              How have you encountered workplace theft or fraud? How did you deal with it or what preventative measures do you use? Leave a comment below.

              About the Author:

              Caron Beesley


              Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley


              Great article Caron, you really addressed setting the appropriate workplace environment for preventing employee theft. The next step to this, particularly in the accounting department, is to setup anti-fraud controls over your bookkeeper. For example, the bank statement should always be reviewed by the Owner, including the review of canceled checks.
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              This is such a great topic and it affects all employers. In the pest control industry company vehicles is a hot one that people try and utilize for personal use. With gas prices so expensive this has been a constant monitoring for us. Another problem area for pest control companies is employees "moon lighting" and offering pest control to residents under a different name other than their true company name. In pest control in Connecticut often times an exterminator will become an expert in say termite extermination or ant control that they will go out and position themselves as these types of expert exterminators and the employer doesn't ever know. They will use company products when they are out offering their own extermination services. We have found it to be helpful to perform audits of products and mileage of vehicles and to hold employees accountable.
              Great information on this article. However, always remember to check your local laws on conducting background checks on a candidate. As a bail bonds agency located in Clearwater Florida, we see alot of these cases. It's unfortunate but even with all the measures we take, some still manage to get through. So just be aware, learn the signs and go with your instincts if you feel an employee is taking advantage of your business! We are open 24 hours a day, 7 days a week. We can help you or a loved one if you need to bond out of jail. Call us at 727-592-0000 or visit us online at www.49thstreetbailbonds.com
              I've never stopped to wonder how much advertasing could it be even at such blogs
              Employee theft and fraud are a serious concern for ALL businesses, regardless of the size of the company. A high percentage of these crimes are caused by (or as a result of) drug, alcohol and substance abuse. For more information on this please visit This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.
              Hi Caron, all six tips are amazing but what i find in my office the people theft a codes of website, like we team doing work hard and prepare good website now if anyone want to create website then that codes make him or her work easy and they can sell this coding, so how to prevent such types of theft? Like we have given internet facility to all employees to make there work more easy but in management absense they misuse it, so how to prevent such issues?
              Take steps to mitigate but ultimately you cant stop a determined thief!

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