Managing employee theft

Employee theft is a common problem that plagues employerslarge and small and costs U.S. businesses tens of billions of dollarseach year. Employee theft is not limited to taking moneyfrom the register; employees may also steal supplies and inventory,including food, paper products, alcoholic beverages, andoffice and kitchen equipment. They may even cut into the bottomline by granting discounts, refunds or free food to customerswho are not entitled to them; by overcharging customersand pocketing the difference; or by claiming to have workedtime they did not work.

According to a Reuters survey conducted in October 2010,54% of executives at small companies expected to face employeetheft of funds, equipment, inventory or merchandise inthe coming year. This survey also reports that employee theft isviewed as the second most fi nancially damaging event a companycan face (behind employment practices lawsuits). Hence,all employers, regardless of the size of their businesses, needto take steps to prevent employee theft. Here, we answer somecommon questions about why theft happens and how to dealwith it at your business.

Why Do Employees Steal?

Many employees steal simply because the opportunity presentsitself: Inventory is left unchecked and unlocked; managers arenowhere to be seen; the business is a high-volume cash business,making it easy to skim a few dollars off the top during a shift.Some employees steal because they feel undercompensatedand view walking away with “extras” (such as foodstuffs, papergoods, glassware and other inexpensive items) as a deserved“perk” of the job. Finally, a few employees will steal for thechallenge of doing so. These employees may take big-ticketitems, such as full kegs of beer, cases of wine, laptop computers,kitchen equipment or cash.

What Can Be Done to Prevent Employee Theft?

It can seem an overwhelming task to try to prevent employeetheft. Some employers jump to the conclusion that the onlymethod that works is to install security cameras throughout therestaurant and constantly monitor employees. While this is helpfulin some cases, there are other, less intrusive ways to build anenvironment in which employees work together to prevent theft.

Here are some simple changes employers can make to cutdown on the opportunity for employees to steal items or cash:

1 Check references when hiring. Many employers skipchecking references and believe that an employee would nothave provided a name unless the person would give a good reference.That’s not true. Checking references can lead to importantinformation, including how an employee behaved in a pastjob. Ask questions such as, “Would you trust this person to closethe restaurant?” and “Do you consider the applicant to be honestand trustworthy?” Hire only those applicants who providesolid references. Ask the applicant to sign a release and waiver,authorizing prior employers to talk freely about or provide personnelrecords for the potential hire.

2 Keep morale high. Often, employees will steal because theyfeel entitled to more than they are getting paid. Consider offeringfree or discounted food to employees during their shifts. After all,an employee who loves your food will probably sell more of it!Enact a profit-based bonus program that rewards employees fora good month or a good quarter or for keeping to a certain levelof cash register accuracy. Some employers offer noncash prizes,such as movie tickets or gift certificates to local stores. Perhapsyou could get creative and team up with another local business toswap reward items. Let your employees know their hard work isappreciated by hosting an employee appreciation night or givingout Employee of the Month certificates or prizes.

3 Implement and follow clear policies. Provide all employeeswith an updated and accurate employee handbook.Make sure employees know whom to turn to if there is a problem,and have an open-door policy for raising issues to management.If you offer discounts to employees or allow employees to
have free meals, maintain written policies outlining the terms,and make sure all employees know them.

4 Talk to employees about theft and the cost to thebusiness. In some cases, employees (especially younger employees,who may not have experience purchasing these itemsthemselves) may not realize that taking “just a little bit” of food,a roll of paper towels or a case of soda is truly stealing. They maynot understand that all of those items need to be bought andpaid for, and that every dollar’s worth of supplies that is stolenis a dollar of profit that is lost.

5 Ensure that there is a manager that you trust presentfor every shift. And, on occasion, have that manager takesome time off so that you can spot any irregularities in inventoryor cash flow.

6 Enact safeguards. Safeguards can require only a few simplechanges in procedure. For instance, have a second employeesign off on all refunds or POS changes. Have two employees takeout trash and perform inventory checks, or alternate these duties.Provide each employee with dedicated sign-in info for cashregisters, and have a manager ensure that registers balance atthe beginning and end of each shift.

7 Audit time cards. Ensure that employees are punchingin and out only for themselves and at the times indicated. Thisis especially important if you rely on employees’ written timesheets rather than a time clock to keep track of hours worked.

What Can I Do if I Catch an Employee Stealing?

What if the worst happens and you catch an employee stealing?Your first instinct may be to fire the employee on the spot. Youshould stop and think, however, before doing this. Analyze eachsituation individually. Was the employee stealing cash or goodsor offering improper discounts? Is the person an otherwise goodemployee that you would rather rehabilitate than fire? Are youplanning to report the matter to the police?

Investigate suspected theft as you would any potential workplacemisconduct, such as harassment, retaliation or otherbreach of policy. Be objective, fair and reasonable. Ask questionsof the person suspected of wrongdoing; review available documents,emails or videotapes; and reach a fact-based conclusion.Talk to employees who may have witnessed what you suspectmay have occurred. Don’t make assumptions about what tookplace before finding out the facts. Document the entire processfrom start to finish.

Consider the impact on the workplace prior to taking action.If you opt to discipline or fire an employee, it should bedone privately and out of earshot of other employees. It maybe tempting to “make an example” of someone but, most of thetime, doing that serves mainly to anger the person you’re makingan example of and make other employees feel threatened.Whatever disciplinary steps are taken should be documented inthe employee’s personnel file. Whether to report the matter tothe police is discretionary.

Finally, you might assume that you can deduct the cost of thestolen goods from the employee’s final paycheck but, in manystates, this would be a violation of wage and hour laws. Beforemaking any deduction in an employee’s pay (whether you arekeeping him employed or not), be sure to consult with your localemployment law attorney. Even if the employee agrees topay back the amount stolen, there are limits on how much paycan be garnished each week. Generally speaking, though, theemployer is obligated to pay all wages earned and due to theemployee, even if the employee has been caught stealing. If theemployee is going to pay back the employer, this should be donein a transaction that is separate from payroll.

Employee theft has been a problem as long as there have beenemployers and employees. By taking steps to improve the workenvironment and employee morale and by safeguarding cash,inventory and equipment, employers can reduce the impact ofemployee theft on their bottom line.

Molly McKean and Julie A. Moore are partof Employment Practices Group, a legal andhuman resources consulting fi rm in Massachusettsand New Hampshire.
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