What to do if you suspect employee theft at your business

Insureon Staff.
By Insureon Staff
June 23, 2014
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Proceed with caution when you suspect that an employee has been stealing from your business.
Two people meeting in an office with glass walls.

As your business begins to grow and you start adding to your workforce, your business risks will inevitably increase – including your risk of employee theft. Have you ever suspected that an employee was stealing from your business? What would you do if you did? Immediately fire the suspect? Not so fast.

Navigating employee theft requires nuance. After all, allegations like this could result in a workplace discrimination claim – especially if the employee in question is part of a protected class.

This week, we’ve been discussing the issue of illegal employment discrimination and harassment. We’ve also explored why small businesses should follow the Equal Employment Opportunity Commission’s guidelines and regulations, even when their operations fall outside the jurisdiction of the law.

Mishandling an employee theft situation could prompt discrimination allegations against your business. Read on to learn more about how you can deal with employee theft and avoid a costly discrimination suit.

Employee theft: expect it

According to a CBS investigative report, most businesses lose about 5% of their revenue to employee theft. The article goes on to include these unfortunate statistics:

  • Almost one-third of employees commit some degree of workplace theft.
  • 75% of employees steal from their employers and most do it more than once.

The takeaway? Expect employee theft. The problem is, employee theft is often hard to identify. The workers who are bold enough to skim from your bottom line are often savvy enough to fly under the radar. Most of the time, employee theft is only caught because of some small discrepancy or because someone followed a hunch. Many cases of employee theft aren’t caught until it’s too late.

What to do when you expect employee theft

It’s estimated that about one-third of all new businesses end up shutting their doors on account of employee theft. But what does employee theft look like? Here are a few examples:

  • Stealing merchandise or products
  • Stealing small sums of cash from the register
  • Faking workers' comp injuries
  • Participating in shipping and billing scams
  • Forging or destroying receipts
  • Using a business account for personal expenses
  • Using company time for other activities (like Facebook)

When you suspect employee theft, you must take the proper steps to ensure that the tables aren’t turned. If you accuse an innocent employee of theft and that employee is a member of a protected class (women, minorities, the disabled, religious groups, and workers over the age of 40), they could accuse you of workplace discrimination. Here’s what you need to do:

Give every employee a copy of your theft policy

Your employees should receive and sign this policy as soon as they start working for your business. (Some businesses have employees reread and sign such policies every year.) This policy outlines how your business defines and handles employee theft, including how employees are expected to cooperate. You may also include language that states each employee can be investigated if they fail to meet your expectations. Be sure to give the policy to every employee so the accused cannot later suggest that they were treated differently than their peers. 

Conduct a thorough investigation

If you don’t conduct a “proper and complete investigation,” the courts may not rule in your favor. According to this Chicago Tribune article, there was an employee theft case in the 90s where the employer was ordered to pay a former employee “$15,000 for lost wages; $100,000 for lost benefits; $100,000 for personal humiliation, mental anguish, and suffering; and $1 million for punitive damages” after the investigation did not hold up in court. The article notes that, initially, management can’t call out possible suspects. However, they can ask employees if they’ve noticed anyone stealing. Once a name surfaces, you can then conduct a background check and question the suspect – but it’s probably best to have at least two members of management with you during the interview. You’ll likely also want to contact your lawyer. 

Get solid evidence

This is essentially the only way to build a case that can’t be overturned (i.e., lead to a possible discrimination claim). An eyewitness is a good place to start, but not all eyewitnesses prove credible. Be sure each eyewitness undergoes a thorough background investigation, paying special attention to their relationship with the accused. Today, there are technologies available to help business owners catch a thief in the act. This HuffPost article describes five such technologies, including remote monitoring, keystroke logging (for non-physical thefts), and hidden surveillance. 

Make sure to let the accused tell their story

This step is extremely important. The accused may admit to the crimes, or they may be able to offer some new information about the theft. Make sure there are other members of management around in case there are any discrepancies later.

To terminate or not to terminate?

By this point, you either will or won’t have evidence to support your case. If you don’t have evidence, it may be risky to fire an employee – even though you have the right to do so. In most states, you don’t have to provide a reason for the termination of at-will employees.

But an employee could still feel that they were treated unfairly, especially if they are a member of a protected class, ill, or pregnant at the time of the firing. In that case, they could sue your business and win. This is more likely when:

Your business has a history of leniency 

For example, let’s say that you own an ice cream shop and your business’s theft policy clearly states that you have zero tolerance for any type of theft, including taking products. But in practice, your managers regularly allow employees to take home treats at the end of a difficult shift. Employees are also known to drink sodas from the fountain without paying and without repercussions. If you fire an employee for giving away free ice cream to their family, they could say that your business has a history of leniency and, therefore, they didn’t do anything wrong. A judge might agree. 

The employee has a sterling record

If an employee has worked at your business for years and has had, until the theft accusation, a spotless record, it may not be worth it to fire them for one lapse in judgment. If the infraction is relatively minor, you could choose to relocate the employee or suspend them for a certain length of time instead of termination. As we’ve mentioned, this is particularly important when dealing with members of protected classes.

Small business insurance policies to protect you from employee theft

There are certain small business insurance policies that may be able to help you shoulder the financial burden of employee theft. Some employers may look into employee dishonesty insurance, which reimburses you when employees steal money, securities, or property. However, this coverage isn’t available to all industries.

You can also purchase employment practices liability insurance, which pays for the cost of discrimination and harassment lawsuits. For more information, read “Do small businesses need employment practices liability insurance?

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