How to Deal With Employee Fraud and/or Theft

This is another post for my readers who are interested in becoming entrepreneurs.  It deals with an unpleasant, but sometimes all too real, topic.

Running a business is a huge task, with different aspects of the company demanding your time, attention, and resources on a daily basis. Employees are invaluable assets that can take some of that load off your shoulders and do the legwork for you so that you can focus on the bigger picture. This makes them vitally important for the future of your business and its goals.

Therefore, it is extremely important that you choose your staff wisely, and equally important to ensure that all the team members work together to drive the business ahead. However, unfortunately, there are situations where employees might break the company code by committing an act of theft or fraud.

A situation like this can be very challenging to deal with, more so if you have suspicions but you don’t have any proof. If mishandled, such situations may lead to a negative work environment for all the employees, so it is important to address these issues appropriately.

Identify The Red Flags

Before you act on your suspicions, you need to be completely certain that theft or fraud has been committed. While the main act might slide past you right under your nose, there are a few indicators that can alert you to suspicious activities.

These include:

  • An employee in financial difficulties suddenly freed of them
  • Important documents went missing or altered
  • An employee living way beyond their realistic means
  • Unexplained items or entries in the accounts
  • Static cash flow despite revenue growth
  • Unexplained changes or discrepancies in liabilities or assets
  • Significant performance spikes before the end of the fiscal year
  • Unexplained expenses, bonuses, or loans.

There might be other factors too that may indicate that rules have been broken by an employee. Stay alert and be sure to be on the lookout for such warning signs.

Go By the Book

Even the smallest of thefts could turn into serious legal battles that will cost your business its resources and reputation. Prevention is key, so if you suspect employee theft or fraud in your business, talk to your lawyer first.

Your attorney, or attorneys if you have a large business, will help you go through the existing company policies that lay out the course of action in cases of employee fraud/theft. Such policies are usually written down in the company documentation, and their absence could create a twisted situation.

Depending on the severity of the situation, your lawyer may or may not suggest a legal course of action. Make sure you take your time to chart out a fool-proof plan before putting it into action, as once you start to take action, there’s no going back.

Collect Evidence

If it’s a minor case of theft where the employee is found lifting stationery or any other company property of minimal value, you should have a face-to-face, private discussion with the employee before making your final decision.

However, if the theft is more serious and there’s a large amount of money or sensitive business data involved, then you need to take a more investigative course. In such cases, you will want to collect as much evidence and witness statements as possible. Depending on your lawyer’s advice, you might involve the local police.

Decide The Consequences

You want to properly weigh all the evidence before deciding on an action that corresponds with the gravity of the theft or fraud committed. The punishment might be a warning or immediate termination, or it could be as serious as criminal charges. Be in a constant loop with your lawyers and any involved authorities to ensure the matter ends smoothly and promptly.

Once you have dealt with the matter, make sure to fully brief other employees. It is important to have total transparency. This will help you send a strong message to your employees regarding the ethics you want to set at your workplace.

At the same time, avoid defaming the employee in question because it could lead to a defamation lawsuit against your company. In less serious cases, threatening the employee with legal implications could unnecessarily drain your precious time and resources.

How to Prevent Employee Theft and Fraud

Prevention is always better than cure. Here are some steps you can take to avoid employee theft and fraud in the first place:

  • When recruiting new employees, perform exhaustive background checks to check for suspicious history or criminal records.
  • With the help of your lawyers, modify and strengthen company policies against employee fraud and theft and clearly spell out the action that will be taken in case of violation.
  • Create a system to monitor your employees and all business operations while avoiding micromanaging or activity that crosses personal boundaries.
  • Perform routine inventory checks and financial audits.
  • Do not delegate all accounting duties to a single employee. Separate financial responsibilities and assign them to different people.
  • To maintain proper financial records, encourage card payments, and use trusted, secure card machines to ensure transparent billing.
  • Provide your employees with an anonymous means to report any suspicious activity they might come across in your company.
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