The ‘Workplace Theft Pulse’ survey conducted by the Institute for Corporate Productivity (i4cp) found that 27 percent of respondents in large companies - those with 10,000 or more employees - said crime in the workplace has risen during the current economic crisis, while 15% of all respondents, regardless of company size, reported the same.
Jay Jamrog, i4cp's Senior Vice President of research, says it’s a wakeup call for employers: "What's important for employers to recognize is that this increase is likely, and while much of their attention is probably focused externally on threats to growth in their market, they had better also be cognizant that business threats can originate from the inside as well." (‘Study: Down Economy Sparks Rise in Workplace Theft,' i4cp.com, accessed 26 May 2010)
Employee Theft Costs Employers Billions
Just how big a problem is employee theft for employers? According to loss prevention expert Terry Shulman:
- The FBI calls employee theft “the fastest growing crime in America!”
- The U.S. Chamber of Commerce estimates that 75% of employees steal from the workplace and that most do so repeatedly.
- One third of all U.S. corporate bankruptcies are directly caused by employee theft.
- The American Society of Employers estimates that 20% of every dollar earned by a U.S. company is lost to employee theft.
(Source: The Shulman Center, employeetheftsolutions.com, accessed 26 May 2010)
Employers are easy targets for theft. Employees know what’s there to be taken and they also know their employers’ operating systems and weaknesses. A dishonest employee will just wait for the right time and, when it comes, use their knowledge to steal what they want.
Mark Dauberman, a CPA who lectures on accounting fraud at Claremont McKenna College in southern California, says that financial fraud often stems from issues in an employee's life and begins with small actions. "It starts out as something they perceive as innocent, then the rewards come in and the threshold is crossed.”
He says that business owners can avoid becoming victims by not tolerating employees' small indiscretions and not being so eager to trust people.
“They can keep their eyes open by instructing workers to protect computer passwords, by performing reference and background checks. They should be aware of their assets and who might want them.” (‘Profile: Mark Dauberman,’ by Darla Martin Tucker, allbusiness.com, accessed 26 May 2010)
Internal Financial Controls aren’t Enough
There are a number of internal controls that can be implemented in the hope that attempts the steal from the company will be prevented or at least detected. These include ensuring that no employee should be responsible for both recording and processing transactions and controlling access to physical and financial assets and information.
Are controls and policies an optimal solution to the problem of employee theft? Lori A. Richards, formerly the SEC's Director of the Office of Compliance Inspections and Examinations, says companies need to do more than just make policies that prohibit employee misbehavior.
“It's not enough to have policies. It's not enough to have procedures. It's not enough to have good intentions. All of these can help. But to be successful, compliance must be an embedded part of your firm's culture." (Quoted in ‘Corporate Governance Post Sarbanes-Oxley’ by Zabihollah Rezaee, 2007)
The Employer’s Part in Workplace Theft
A comprehensive review in 2009 of research findings related to employee theft reached a number of conclusions that reinforce the argument that an ethical culture is one of the best ways a company can defend itself against theft and fraud by its own employees.
Workplace theft, the review found, is closely associated with feelings of mistreatment by the employer. Unethical conduct frequently occurs when employees lack adequate or sufficient time, budgets, equipment, information, and authority to fulfill their responsibilities.
On the other hand, when employees perceive that justice prevails, they are likely to be satisfied with and committed to the organization. (‘Preventing Employee Theft and Fraud,’ European Journal of Social Sciences – Volume 12, Number 2, 2009)
W. James Lloyd and Casey P. Dannen, both CPAs with the Value Point Consulting Group of Knoxville, Tennessee, say that fraud prevention and deterrence starts by creating an organizational culture of honest and ethical behaviour.
“The cornerstone for establishing such a culture is the example set by the organization's top management team. Because employees generally follow the example set by their superiors, it is critical that upper-level management conduct themselves honestly and ethically with regards to all facets of the organization's activities.
“Management's actions should set the tone and clearly demonstrate the kind of behavior that is expected from everyone within the organization. “A Proactive Approach to Fraud Prevention and Deterrence,’ valuepointconsulting.com, accessed 26 May 2010)
David Gebler, President of Working Values, Ltd., a Boston-based business ethics consulting and training development firm, says that every organization should examine its current culture to see where it is doing a good job in managing risks and encouraging ethical behavior and where it is falling short.
“Organizations have to build a framework broad enough to allow these questions to be asked. It is not enough to merely ask whether controls are in place or if everyone has attended a class or signed a code.
“The organization has to understand what the drivers of behavior are and how well those drivers align those behaviors to its integrity goals.”
Philip Keeffe - Phil Keeffe is an Australian journalist originally from California who has lived in Sydney since 1968. His communications background ...
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