Although most small business owners feel, and rightly so, that their employees are their greatest asset, there is an ugly truth that you should know. In some instances they can be the ruination of your business. Cliff Roberson sites alarming research statistics and cases in his eBook titled, “Preventing Employees from Ruining Your Business”.
According to Roberson, employee misconduct is considered the primary reason for the failure of one-third of the businesses that fail. Research indicates that approximately 50% of employees steal at least one item per year. It is estimated that losses from employee theft exceed $30 billion a year. Others estimate that inventory loss through theft exceeds 5% of the inventory cost.
Approximately 2% of all employees are caught stealing every year. There are statistics indicating that 20% of your employees will steal from you no matter how well you treat them. Another 20% will never steal from you no matter how poorly you treat them. And, 60% will steal from you if they don’t think they will get caught. There are at least 415 known ways that employees can steal from their employers and new ways are being discovered almost every day.
Roberson states that many thefts go on for years before they are discovered. One clerk in a busy New York candy store under-rang every sale by a penny for 22 years. In another case, a supermarket manager set up a separate cash register and pocketed the $75,000 each year that was rung up on this register.
Although employers have a natural tendency to watch cash registers they do not exhibit the same concern for their property or merchandise. While it is easy to understand how employees could be tempted to steal money in a retail business, studies indicate that 60% of all employee theft is for non-cash items. While smaller consumer items are easier for employees to steal, it is the larger and more expensive items that cause employers the most serious problems.
Roberson points out that there are three major factors that influence employee theft;
- The workplace environment
- Employee personal problems
- Employee psychological make-up
The most significant factor is workplace environment. The good news is that the employer has the most control over this factor.
Why is it so difficult to detect employee theft? Here are some of the reasons:
1. It’s difficult to separate employee theft from customer theft. The assumption is that inventory shrinkage is due to shoplifting, although most studies indicate that the major cause of inventory shrinkage is employee theft.
2. In many cases, employees fail to report thefts by their fellow workers. This may be the case because the observer is also a thief.
3. Employers are reluctant to suspect employees, especially long-term ones, of theft. Long-term employees are often promoted into responsible positions and are familiar with the policies of the company. Employers assume that employees in positions of high responsibility are highly responsible. It is interesting to note that management has more opportunity to steal than other employees.
4. Many otherwise honest employees consider theft a form of compensation.
5. In some instances, employers tolerate employee theft in lieu of raises. In one case, an employer determined that his office manager was stealing several thousand dollars a year from the petty cash fund but decided not to take corrective action since it would cost more to hire and train a new manager.
6. It may be cheaper to permit employee theft than to prevent it. For example, if employees steal $200.00 a month, it is still cheaper than the $250.00 it cost per month to prevent theft.
7. Employees are often encouraged to steal by observing management steal.
8. Most employees do not condone stealing. However, one researcher noted, “Theft serves as a safety valve for employee frustration in many situations.” Some employees steal and then rationalize by feeling that the company owes them. They may think everybody does it – it’s just another part of the compensation. Or, they may feel their job is boring and beating the system adds excitement.
9. Businesses with too few controls and a casual attitude regarding the use of company resources make employee theft easy and in some cases may actually encourage it. Attitude plays a significant role in creating a favorable environment for employee theft.
10. Many times the hardest workers, the eager beavers, those who arrive early, never take breaks, and stay late are the ones stealing from the company.
11. Beginners start with basic tactics and small amounts, and then graduate to more sophisticated methods and larger amounts. Usually, by the time an employee is caught stealing from the company, they have been at it for an average of eight months.
12. When a thief is caught, he or she will never admit to the true value of his or her thefts. As a rule of thumb, always triple the amount of the theft that the person admits to for a more accurate estimation of the amount stolen.
“Preventing Employees from Ruining Your Business” provides the business owner or manager with specific guidance on how to uncover employee misconduct and provides guidance on how to prevent it. Also included are suggestions for screening of applicants for employment, reducing absenteeism, and protecting your assets from embezzlement.
The book is written for small business owners, supervisors, and managers, but can be beneficially used by any business person. It also discusses how to handle employees who are caught stealing and how to investigate misconduct.
Final Thoughts
So, before you become suspicious of every employee, remember that if 50% of your employees steal from you, 50% do not. And, some of what 50% of your employees are stealing might not make much of a difference to your bottom line. The biggest impact shrinkage has on your bottom line is when it is habitual and involves costly materials, equipment, and/or products. While the issue of employee misconduct is very real, whatever you do, resist the temptation to loose faith in people like one HR manager did.
He was an HR manager during the day and a Miami vice cop at night. His suspicious mind contaminated his relationships with his direct reports and poisoned the atmosphere in his department. He had a way of treating employees as if they were criminals who simply hadn’t been caught yet.
As you address the thorny issue of employee misconduct including stealing, please remember that the one competitive advantage you have that your competitors can never copy or duplicate is the commitment, creativity, and talent of your employees. In other words, they aren’t all “a bunch of crooks.” As a small business owner, you are in charge and in control of the workplace environment. Consider that many of the employees who steal from you occasionally are probably also contributing positively to the bottom line. And of course, the 50% that are not stealing from you are contributing even more! So be careful you don’t “throw the baby out with the bath water.”
If you would like to contact me, you can do so by emailing me at mike.clough@bestbizpractices.org or visiting my LinkedIn page.
Posted by: Mike Clough
