Can Long-Time Employees Be Trusted?

Workers Given High-Level Access, Not Recent Hires, Tend to Steal from Firms

Because owners often don’t check up on staffers, theft can go undetected for years.

It often starts with a trusted employee, one a small business owner would never suspect. Invoices might be forged, or checks might be stolen. By the time the boss catches on, thousands of dollars in cash or inventory have been stolen.

Employee theft or fraud is a big and expensive problem at many small companies. But the pain is often more than monetary. A boss feels a sense of betrayal, anger and shame – and wishes after the fact that he or she hadn’t been so blind to what was going on.

A look at the problem and steps a business can take to try to prevent it:

Who Does It

Lawyers who handle employee theft cases say workers who steal from their companies are usually not the recent hires. The thief tends to be “the long-term trusted employee who’s never had any evidence of (prison) time on their record,” said John Palter, an employment attorney with the law firm Riney Palter in Dallas.

“Generally, it takes someone with a high level of access to the various accounting systems and a high level of trust from management to be able to perpetrate the fraud,” Palter said. Consider that the thief might be a bookkeeper or controller.

Because of that trust, owners often don’t think to check up on their staffers – or even their business partners – and the theft can go undetected for years.

How Employees Steal

Attorneys say there are several methods that employees tend to use when they steal. A common one is for an employee to create a fictitious vendor who is paid for goods never received or services never performed. The employee creates an invoice, and a check is cut to pay the nonexistent vendor. The employee cashes the check.

Another method involves an agreement between the employee and an actual vendor. The vendor agrees to markup the price charged the company, and after being paid turns over the extra money to the employee. An employee might also open an account with the same name as the company, take customer checks and deposit them in that account.

Hubert Klein, a certified public accountant with the firm Amper, Politziner & Mattia in Hackensack, N.J., said he usually sees cases of theft at a company where only one person does several jobs: receiving the mail, depositing checks and cutting checks. There’s often little or no supervision.

“That may be deemed to be weak internal controls,” Klein said, but added that many small businesses are forced by economics to have one person doing all those tasks.

Thefts also occur from petty cash, or when an employee asks a vendor to pay in cash and then pockets some of the money.

How To Prevent It

“There should not be one individual that is exclusively responsible for the accounting,” Palter said.

That employee should also be required to regularly take vacation time. “It’s a way of ensuring that there are other sets of eyes reviewing the paperwork,” Palter said.

An accountant should audit the books at least once a year. An audit will not only uncover a theft, it will also let employees know they could be caught.

An owner who is a little more hands-on can also help. “The way to prevent theft is to have owners who, at a minimum, review the bank statements, review all the checks” each month, Klein said.

Employers should also let staffers know through a clearly defined and written policy, that they cannot accept gifts from vendors, Palter said. Employees also should be aware that there are consequences if someone is caught stealing.

If a theft does occur, employees should know that the firm is prepared to have it thoroughly investigated by accountants and information technology experts.

ID Theft

Reports that disgruntled employees have stolen co-workers’ personal information are becoming more frequent. These employees often gain access to payroll records. Palter suggests small businesses bring in information technology specialists who can help create secure computer systems that limit employees’ access to sensitive information. Also, employers should ensure that no one staffer has access to the entire system.

Accusing someone who turns out to be innocent could make the company liable for defamation. An owner should consult a lawyer to know how best to proceed.