4 Steps to Protect Your Company From Employee Theft

Employee fraud is on the rise, reaching virtually epidemic proportions. Earlier this year, a former JPMorgan Chase employee pled guilty to criminal charges of wiring more than $5 million over the course of two years to his personal account to pay off debts. Unfortunately, this is not out of the norm. The cancer of employee theft and fraud has spread so far that in 2015, employees stole an estimated $50 billion from their employers, representing a 7% loss in revenue.

Two main factors contribute to the spread of employee fraud: competition and reduced social deviancy. Competition can breed an environment where employees feel economically squeezed and underpromoted and, therefore, feel justified in committing fraud. Couple that with the glamorization of high-profile examples of fraud, such as Bernie Madoff and Enron, and the perceived deviancy of the behavior dwindles, helping perpetrators rationalize their crime.

So how can HR executives safeguard their businesses from fraud? With a careful mix of prevention and intervention. Here are four steps you can follow to protect your company:

1. Investigate new hires

A background check won’t give you the full picture of a candidate’s character and integrity. For important positions, opt for an in-depth investigation of their financial and business background. Public-facing positions and jobs that work directly with finances have a high potential for fraud. One study Association of Certified Fraud Examiners found that over 80% of fraud is committed by employees in accounting, sales, operations, upper management, purchasing, or customer service. Knowing that, before you entrust anyone with your company’s brand or finances, do your due diligence. And don’t give executives a pass; the study found fraud by executives took longer to detect and was far more costly than fraud by managers or employees.

2. Welcome whistleblowers

Spotting fraud is primarily about human intelligence. Create a policy that clearly outlines the formal mechanisms for reporting misbehavior and establishes a chain of command for who employees should approach. Finally, ensure protection from retaliation against the whistleblower. By providing an encouraging and easy way for employees to approach HR leaders with suspicions and concerns, you’ll stay in front of potential fraud.

3. Know the warning signs

You can’t rely on internal whistleblowers alone, so it’s important to be aware of the warning signs of theft. Criminals take care to obscure the fraud itself, but they often fail to hide other tell-tale signs that point to motivations and proceeds from the crime.

Several behaviors and circumstances can be signs of fraud. Financial hardship and employee dissatisfaction are often hotbeds of motivation for conducting fraud. Employees may feel like they’re taking what’s rightfully theirs. Employees often believe they won’t get caught in the crime and will display clear signs of living beyond their means, purchasing expensive vacations, cars, or clothes.

Poor work quality can provide a smoke screen to cover up fraud. If an employee repeatedly makes little mistakes, he or she could be hiding deliberate, ongoing theft. Lying, secrecy, and the omission of facts are also signs that warrant an investigation. If an employee lies about trivial things, more serious deceit could be hiding below the surface.

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4. Investigate warning signs

If you suspect theft or fraud, investigate it, and if an internal whistleblower voices a concern, investigate it immediately. At IBM, the company’s open-door policy dictates that managers must investigate complaints within a certain time frame — and for good reason. Waiting can lead to more damage and encourage further fraud. Consider hiring a private investigator who can assess the situation and your suspicions at a lesser cost than the potential damage to your company.

The disease of employee fraud can extend far beyond lost revenue and resources. Businesses can suffer long-lasting effects to image, culture, morale, and the bottom line. It is imperative that HR departments foster an environment that minimizes the risk of employee fraud and are cognizant of any signs and symptoms.

About the Author

Danny Boice is the co-founder and CEO of Trustify, providing private investigators on demand. Danny attended Harvard for undergrad and completed graduate programs through the Wharton School of the University of Pennsylvania and through Stanford University.

Danny founded Trustify out of his passion and experiences around truth, trust, and safety — especially about vulnerable populations such as children and the elderly.

Danny is married to Trustify co-founder and president Jennifer Mellon. Together, they lead Trustify's charitable giving by providing pro bono investigative and protective services to vulnerable populations such as missing and exploited children, domestic violence survivors, those in the foster care and adoption system, aging Americans, and more.