25 Ways to Invite Employee Theft

If you’re like most managers, you want to keep things simple. You’re constantly on the lookout for ways to cut corners and costs, save time— and squeeze every ounce of inefficiency out of your business.

Yet under the guise of simplicity, you might be creating opportunities for theft among your employees. Here is a list of 25 time-saving, “common sense” business practices that, if exploited by a dishonest employee, can end up costing you countless headaches and heartaches—and big dollars.

1. Waste time on frequent physical inventories. Word of advice: Pilferage is one of the most common sources of internal loss. Reconcile sales to inventory on hand quarterly or at least annually with the help of a third party. Better yet: conduct surprise inventories.
2. Let the person who processes checks and cash manage the accounts receivable records. Word of advice: Misapplication of payments is a common cause of embezzlement. Separate these duties among people who don’t work together.
3. Allow employees to make purchases on their own. Word of advice: Use purchase orders. This way, you can keep tabs on all expenditures—before they happen.




4. Make supplies and equipment accessible to everyone. Word of advice: Lock it up, and sign it out. Ready access to equipment will inevitably lead to losses.




5. Don’t bother reconciling register tapes. Word of advice: If you make cash register sales, institute a tough register policy. Independently verify cash receipts against the tapes each day whenever an employee signs off a register. Better yet: Hold employees accountable for register shortages.




6. Let your accounting and clerical staff make bookkeeping adjustments as needed. Word of advice: Approve any adjustment to the books, however slight—even adjustments to correct an error.




7. Allow a number of employees to sign checks. Word of advice: Limit the number of signatories to yourself and one or two highly trusted subordinates. And keep blank checks under lock and key.




8. Quickly process time cards. Word of advice: Always check reported hours against time clocks or other physical records. Or have a trusted subordinate authorize time cards before they’re paid.




9. Get your monthly bank statement into the bookkeeper’s hands as soon as possible. Word of advice: Instruct your bank to send the bank statement directly to you, and review its contents before passing it along. This review gives you the chance to spot improperly executed checks.




10. Pay bills that have not been validated. Word of advice: Process payments only from original invoices that have been initialed by you or a trusted subordinate. Better yet: Require that shipping documents be attached.




11. Give your employees full access to the computer system. Word of advice: Limit access to those who need access. Better yet: With the help of a programming consultant, institute a computer security system, assigning passwords and restricting entry into sensitive or confidential files.




12. Let your financial people process the mail quickly. Word of advice: Let a trusted assistant open the mail each day and filter out unpaid invoices and checks, and log them before they’re formally entered in the books.




13. Give your employees access to petty cash. Word of advice: Allow only one or two trusted employees to disburse petty cash. And require that a receipt and signed voucher be submitted for all petty cash expenses.




14. Allow a single employee to order goods and approve payment for them. Word of advice: Assign payment responsibility and ordering responsibility to different people.




15. Don’t give receipts to customers unless customers ask for them. Word of advice: Require receipts. Otherwise, it’s too easy for dishonest employees to pocket loose change. Better yet: Post a sign inviting customers to complain if they don’t receive a receipt.




16. Furnish company credit cards to employees. Word of advice: Require that all credit cards be “signed out” when they’re used. Better yet: Require that all credit card expenses be authorized by purchase order.




17. Turn expense account vouchers around as quickly as possible. Word of advice: Require strict documentation for all reimbursable expenses incurred by employees, and subject every expense account voucher to a “pre-audit” review procedure before paying it.




18. Allow employees to void sales and issue refunds when necessary. Word of advice: Issue refunds only upon the approval of a third party, preferably a trusted subordinate.




19. Require your cash receipts bookkeeper to make bank deposits as soon as he finishes processing payments. Word of advice: Verify that the day’s cash receipts total and the bank deposit balance first. And make the deposit yourself, or assign the job to someone other than the bookkeeper.




20. Don’t get upset about occasional shortages in the cash register or petty cash drawer. Word of advice: Any shortage, however small, could be symptomatic of a bigger problem. Always investigate.




21. Don’t bother with those expensive audits. Word of advice: An independent audit is not a foolproof way to ensure financial integrity. But it can highlight weaknesses in your internal control system that could, in turn, lead to theft.




22. Rely on a “clean audit” as evidence that things are going well. Word of advice: You are responsible for monitoring your procedures, your books and your assets on a daily basis, not your auditor or accountant.




23. Trust your employees. Word of advice: Watch for unusual behavior. Employees who pay unusual attention to certain records, display secretive behavior, exhibit sudden wealth or begin taking excessive time off from work merit your attention.
24. If a theft occurs, keep it quiet. Word of advice: If you suspect employee theft, call the authorities. If you can’t explain the sudden disappearance of serially-identified products, alert the manufacturer. With outside help, you may be able to get to the bottom of the problem quickly. In any event, your actions will send a signal to other would-be thieves that dishonesty will not be tolerated.




25. Reassure yourself that alarmist articles like this should only concern other employers. Word of advice: Employee thieves come from all walks of life, all income ranges, and work in every type of business—including yours. They usually have two things in common: First, they’ve been placed in positions where they have the opportunity to steal. Second, employee thieves don’t seem any different from their honest counterparts, who comprise a majority of any work force—that is, until they’re caught. The actions of these dishonest employees usually end up astonishing their employers—employers just like you.