Preventing Employee Theft

Employee theft is considered one of the most serious crime affecting businesses with losses estimated in the hundreds of billions of dollars. While most employees are trustworthy, there are employees who will steal if given the chance. The following is a list of the seven most common employee scams (courtesy of

  • Receipt Forging – employee rings the customer and collects the money, then voids the sale and re-rings for a lesser amount or cheaper product and pockets the difference.
  • Hiding Receipts – employee simply takes the receipt and keeps the money.
  • Pocketing Loose Change – employee pockets petty cash or other small amounts of cash. This adds up when it's done regularly.
  • Bogus Returns – After the sale is completed, the employee completes a customer return and refund, then pockets the purchase price and sales tax while the original product is still with the customer. This common ploy for retail sales is a double loss, as the store owner no longer has the product, the money the product costs, the revenue from the sale, or the sales tax collected.
  • Employee Partnering with Non-Employee Friend – This scheme can be used many ways, with the employee allowing a bogus return, allowing shoplifting, charging below cost prices to their friends, or could even be used to fake an injury and file a subsequent claim.
  • Overbilling Expenses – employee submits double bills, fake bills, or even changes bills so funds are re-directed to them when someone else deserves payment.
  • Old Fashioned Theft – employee picks up an item on their way to lunch and just walks out the door.

While is it unlikely all employee theft can be eliminated entirely, control strategies can minimize the impact to the business. Businesses that are selective about who they employ, implement a zero tolerance policy, and that establish rules and procedures to detect employee theft usually have fewer instances of employee theft.

General Considerations

  • Is there a comprehensive pre-employment screening program that has been reviewed by legal counsel and which affords the basis for an in-depth check of the applicant's background?
  • Is every job applicant required to completely fill out and sign an employment application form?
  • Are checks performed on the applicant's references and previous employers?
  • Depending on the importance or sensitivity of the job, are criminal and credit checks performed?
  • Are there written security guidelines that outline the company's policy for dealing with an employee caught stealing?
  • Are all employees provided with a copy of the guidelines and required to sign a receipt that they received it?
  • Are there human resource programs in place, such as profit sharing, promotion-from-within policies, and fair compensation practices, which are designed to build employee loyalty and align employee and company goals?
  • Is company merchandise or property of the type that makes it desirable or easy to steal?

Procedural Controls

  • Are there controls on petty cash disbursements, bank deposits and withdrawals, issuance of checks, payrolls, reconciliation of bank statements, and the paying of invoices?
  • Are responsibilities and functions separated so that no one employee has control over all parts of a given financial transaction?
  • Is workflow organized so that the work of one employee acts as a check on that of another?
  • Is there an inventory control program that provides for regularly scheduled and random inventory checks?
  • Is there a badge identification system to identify all employees and to regulate the movement of visitors?
  • Are employees required to enter and exit the facility through a single employee entrance, monitored by a guard where feasible?
  • Are shipping and receiving operations supervised by closed circuit television (CCTV) surveillance?
  • Is all incoming merchandise checked against purchase invoices and all outgoing merchandise against shipping documents?
  • Is there a designated area within the facility, if possible, for the collection of trash before its disposal?

Brochure content taken from the "Employee Theft Prevention Checklist" courtesy of ISO Services, Inc. (unless otherwise noted).

The information contained in this publication was obtained from sources believed to be reliable. ISO Services, Inc., its companies and employees, as well as the Central Insurance Companies make no guarantee of results and assume no liability in connection with either the information herein contained or the safety suggestions herein made. Moreover, it cannot be assumed that every acceptable safety procedure is contained herein or that abnormal or unusual circumstances may not warrant or require further or additional procedure.