How to handle suspected employee theft at your business

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When you suspect that an employee has been stealing from your business, there are a few best practices you can utilize to prepare and respond to this situation.
A small business owner meeting with an HR representative in an office with glass walls.

Have you ever suspected an employee was stealing from your business? As your business and workforce grow, your business risks also grow – including the risk of employee theft.

According to a roundup of employee theft statistics by Business.org, 22% of small businesses have experienced employee theft. The Federal Trade Commission (FTC) reported that nationwide losses to fraud topped $10 Billion in 2023, and that’s not all. Here are some more alarming statistics regarding workplace theft:

  • 75% of employees are likely to have stolen from their employer at least once
  • 28% of employee theft cases affect companies with less than 100 employees, making small businesses the most vulnerable to workplace theft
  • 30% of small businesses fail due to employee theft

Unfortunately, employee theft is something all businesses should expect to occur at some point, but there are tactics you can put in place to help identify and respond to this risk.

What is employee theft?

Employee theft may be hard to identify, even in small businesses. Those bold enough to steal from an employer are also often savvy enough to conceal their dishonesty.

Because of this, workplace theft comes in many forms, such as:

  • Stealing money from the cash register
  • Embezzlement of petty cash or from company accounts or credit cards
  • Stealing merchandise, products, or office supplies
  • Stealing credit card information from clients and customers
  • Data theft from company computers
  • "Time theft" through misrepresenting hours worked
  • Using company time and resources toward personal ends

It’s tempting to believe that as a small business owner, you know your employees and trust them not to steal. However, it can often take between two to five years to discover employee theft. By the time you are aware of the theft, it has likely been ongoing for some time and might have become ingrained employee behavior.

Once a shortage, account discrepancy, or unusual employee behavior raises suspicion, it’s tempting to feel betrayed and react to the urgency of the situation before you have all the evidence you need.

Investigating theft or an employee suspected of theft requires careful action. A mishandled response to staff theft could result in any of the following:

  • Create a hostile work environment for honest employees
  • Bring false accusation or harassment allegations against your business
  • Create conflict with an employee’s union or violate collective bargaining agreements
  • Expose your business to costly defamation or discrimination lawsuits

However, there are a few steps you can follow to protect your business from employee theft, as well as reduce exposure to bad outcomes due to a poorly conducted response.

Find the right insurance to protect your small business from theft

Steps to prevent employee theft

Prevention beats remedy, and small businesses can enact a few policies to stem employee theft that will save them time, money, and their reputation.

Provide a consistent anti-theft policy

Maintaining a consistent set of company policies, including an anti-theft policy, is the first place to start. Ideally, your anti-theft policy should outline:

  • What your business considers theft, including specific examples
  • Steps your business will take to prevent theft
  • How your business will investigate suspected employee theft
  • Disciplinary actions, legal actions, criminal charges, and other consequences
  • Procedures for employees to report a coworker’s suspicious activity

All new employees should receive and sign this policy as part of their onboarding process. It might also be beneficial to have employees reread and sign this policy each year.

Consistently enforcing these policies for all employees is key. If not, you may establish a history of leniency, which can expose your business to legal challenges when you do respond to employee theft.

Think security

A good way to prevent theft is to use security technologies and best practices to place barriers between your company’s assets and any employee who would steal them. Some best practices to consider are:

  • Point of Sale (POS), inventory management, and accounting systems that require two-factor authentication
  • Limited access to physical inventory and strict control of who has access
  • Strategic placement of security cameras
  • Regular, informal audits of accounts, inventory, and policy compliance
  • Keystroke loggers and other time-theft prevention technologies
  • Strict division of responsibilities that prevents any single employee from having end-to-end access to funds or inventory
  • Background checks as part of the hiring process
  • Robust documentation and record keeping, especially of financial data

Employees should be aware you have security measures in place and that you pay close attention to them.

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How to handle suspected employee theft

As workplace theft takes many forms, it can also leave many signs of it taking place, including:

  • Account discrepancies or registers not totaling
  • Missing or vague reporting
  • Inconsistent security policy compliance
  • Inventory, supply, and merchandise discrepancies
  • Secretive or defensive employee behavior

When you suspect an employee is stealing from you, there are two things you should find out before approaching them:

  • How are the suspected thefts occurring
  • Who is committing the thefts

If you can identify where or how a theft is occurring, you may be able to shore up your security procedures. This could be as simple as restricting who has keys or other forms of access to the affected inventory or finances. Additionally, you could install a security camera in the loading dock or break room.

Some other anti-theft steps to consider:

  • Conduct regular, unannounced reviews of account balances, financials, transactions, logs, supplier lists, and CCTV or other surveillance footage
  • Review company policies for vulnerabilities and places where one employee has sole access to a system or asset
  • Call an all-hands meeting to reiterate your company's anti-theft policies

If the thefts stop and you decide that little damage was done, you may choose to leave the matter there. In more serious cases, you may still need to identify the culprit for disciplinary, legal, or criminal consequences.

How to handle an employee suspected of theft

When the evidence points to a particular employee stealing from your business, you still need to proceed carefully before accusing them of theft or taking additional actions.

If you decide to terminate or seek legal restitution, you’ll need evidence that the accused employee committed the theft. And if you decide to press charges, you’ll need to involve law enforcement.

You should have proper evidence and a strong conviction before accusing a worker of employee theft, as false or unproven accusations can lead to lawsuits and damaged relations with your staff.

Below are a few key steps you should take when you are ready to make an accusation of employee theft.

Contact your legal counsel and insurance company

Once you’re certain theft is taking place, contact your legal counsel for advice on how to proceed.  Then, reach out to your insurance company to begin a claim. You’ll need to have your evidence ready for your lawyer and insurer to review, so they can get the best picture of what has happened and give you the best advice.

Gather solid evidence

Gather all the evidence you can. You’ll likely need to prove how the employee theft occurred in court or provide the evidence to law enforcement if you need to prosecute.

When gathering evidence, take stock of everything including:

  • CCTV footage
  • Account statements and financial records
  • Witness statements
  • Reports that shows discrepancies in physical stock or inventory

Let the accused make their case

Before taking action, you should interview the alleged culprit and present your evidence of them stealing. Then allow them to respond or explain their side of events. Consider having your human resources professional or members of the management team present as witnesses, as well as your legal counsel.

If the employee is part of a union, you’ll need to include their union representative.

Do what your policies require

Follow your written policies on employee theft consistently, and reiterate them to the employee, including the consequences for employee theft.

If the theft requires you to seek legal restitution, make sure you have legal counsel lined up.

Or if it requires you to press criminal charges, be prepared to file a police report and hand over all evidence to law enforcement.

It’s important to remember that false or unproven accusations can lead to lawsuits and damaged relations with your staff.

Protect your small business from employee theft with the right insurance

It can be difficult to protect your business from workplace theft. General liability coverage might protect your business from customer theft, but it doesn’t include theft done by employees.

Fortunately, you do not have to shoulder the burden alone. There are several policies you can get to help safeguard your business from employee theft:

Commercial crime insurance, also referred to as fidelity insurance, financially protects your business from criminal acts committed by employees against customers or clients.

Fidelity bonds, sometimes referred to as employee dishonesty bonds, provide coverage when an employee's dishonest act causes a financial loss.

Cyber insurance, or cyber liability insurance, insures against the costs of data breaches and covers expenses such as customer notification, credit monitoring, legal fees, and fines.

Employment practices liability insurance (EPLI), a type of management liability insurance, helps cover legal costs if an employee accused of theft sues your business for wrongful termination.

Get quotes from trusted carriers with Insureon

Complete Insureon’s easy online application today to get quotes from top-rated U.S. insurance providers for commercial crime, fidelity bonds, EPLI and other types of theft insurance. You can also consult with an insurance agent on your business insurance needs.

Once you find the right policies for your small business, you can begin coverage and get your certificate of insurance (COI) in less than 24 hours.

Erik Amundsen, Freelancer

Erik is a contributing and documentation specialist with a background in insurtech, education, and data science. His experience working with independent insurance companies brings insight into aspects of insurance, normally hidden to policyholders, that he is eager to share.

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