Topic:

How to Handle Employee Theft

December 21, 2022

TriNet Team

No one likes to think that their employees are dishonest. And often they aren’t — accidentally making non-policy purchases with the company card or taking out too much in petty cash can hardly be called fraud. Still, many HR managers and small business owners will have to deal with a trusted staff member who has stolen company property or committed fraud. While these situations are unpleasant, they are incredibly serious. According to the Association of Certified Fraud Examiners' 2022 report, the median loss for fraud translates into $117,000. The silver lining? Over half of tips related to fraud and theft came from other employees. If you suspect an employee might be stealing from the company, it’s critical to take action. But before we get to how you can deal with employee dishonesty, let’s cover what actually counts as employee theft.

What counts as employee theft within companies?

When most people think of employee theft, they probably imagine a staff member skimming cash from the register. But there are various types of employee theft:

Inventory theft — This is when an employee steals inventory, whether for their own use or to resell.
Service theft — Using or selling a company service for personal gains, such as reselling company-provided discount codes.
Data theft — Stealing client or staff personal data, property secrets, and other data that can be resold or traded.
Money theft — Stealing funds covers many activities, from petty cash theft to embezzlement and fraudulent reimbursements.
Payroll theft — Here, an HR or accounting employee might trick the system by creating fictional employees or paying themselves extra.
Time theft — Here, an employee says they worked more hours than they really did.

It’s important to consider that the law does not weigh all types of employee theft equally. For example, data theft and inventory theft are clear-cut. But time theft isn’t technically a criminal act — if you wanted to take legal action, you would need to sue them under fraud.

How should employers handle employee theft?

In general, it’s best to follow your company’s employee theft policy if you catch an employee red-handed. In most cases, an employee theft policy includes:

Firm definitions of what constitutes theft or fraud
Zero-tolerance for theft or fraud
Incidents to be reported to supervisors or HR
The right of the company to terminate employees caught stealing or committing fraud
The right of the company to file a police report or lawsuit

Consistency is key in enforcement. But if employee theft is a recurring issue, you’ll want to investigate the matter more thoroughly. In many cases, employees steal because they are under financial duress or feel that they are “owed” income. Other times, an employee may not realize they are committing fraud — such as getting reimbursed for a non-covered business expense. While investigating potential employee dishonesty, it helps to view the event or events in context. For example, you may want to ask:

Are staff salaries too low?
Is the work environment toxic or unwelcoming?
Do workers mistrust management?
Do workers have predictable schedules? Or are they put together last minute?
Are staff workloads appropriate for their salary ranges?
Has the accused employee been under financial strain?
Do employees have access and training to company policies?

Of course, it’s still possible to do everything right as an employer and still have to deal with employee theft.

When you plan to deal with an employee, there are some steps you should take:

Ensure that you have strong evidence to support your theft claim. This can include video, audio, audits, and witness statements. There should be a clear and secure way to collect and store information to prevent tampering.
Review contracts, collective bargaining agreements, and other essential documentation before termination. If your business is subject to a union, your employee may have the right to have a union representative with them.
Confront the employee. In some cases, the fraud may have been unintentional. Show the employee your evidence and give them a chance to explain their actions.
Terminate the employee, especially when it appears the act was intentional.
Notify the police about the fraud or theft.
Do not deduct money from the employee’s paycheck. This can become a legal hassle.
Keep the information confidential — unless customer or employee data was stolen. In this case, you may want to inform them of a breach, and the measures that you're taking to correct the issue. This is especially true if sensitive data was leaked, such as addresses and payment information.
Inform your insurance provider. You may be covered under your employee dishonesty or crime insurance policy. If the employee decides to counter-sue, claiming discrimination, emotional distress, or wrongful termination, you will need to tap into your employment practices liability coverage.

When communicating with the suspected employee, it’s important to maintain clear documentation at all times. You should also ensure that you communicate politely and respectfully at all times.

When communicating with the suspected employee, it’s important to maintain clear documentation at all times.

In addition, it’s best to avoid threatening to prosecute, defaming the employee, or detaining them.

What to do when you suspect a worker may be stealing from you

If you suspect a staff member has stolen from the company, the first steps are to collect evidence and investigate the matter. This includes:

Auditing the department.
Analyzing video and/or audio footage.
Speaking with the worker’s colleagues.
Reviewing their work, time sheets, and performance.
Double-checking their work.
Changing their roles and responsibilities.
Bringing on an external auditor to review the books or check processes.

Ultimately, you need to have strong evidence of theft before making an accusation or terminating the employee. Failing to have strong evidence can have several negative consequences:

Insurance premiums may go up.
Insurance may not pay off the financial loss.
The employee may file a wrongful termination or discrimination suit.
Employee morale and productivity could drop.

What are steps to prevent future employee theft?

There are steps that every employer can take to reduce the likelihood of workplace theft. Some of the best practices to reduce employee dishonesty are:

Ensure that employees share responsibilities.
Have more than 1 employee approve transactions.
For computers and data access, limit how many employees have administrative access.
Ask all new employees to undergo a background check.
Conduct random internal and external audits.
Have employees sign an anti-theft policy.
Introduce an employee theft hotline.
Provide financial wellness programs.

The best way to handle employee theft is to prevent it

In the worst-case scenario, you’ll have to terminate the employee. It’s a difficult task, but it’s better for morale and enforcing anti-theft policies. Whether you decide to file a lawsuit or not, dealing with the issue discreetly and respectfully is a way to protect other staff members and show that employee policies matter. But the best way to handle employee theft is to prevent it. If you combine proactive measures to mitigate risks, competitive benefits packages, and insurance investments (just in case!), you can cover all your bases while boosting employee productivity and trust.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

This post may contain hyperlinks to websites operated by parties other than TriNet. Such hyperlinks are provided for reference only. TriNet does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks on TriNet.com does not necessarily imply any endorsement of the material on such websites or association with their operators.