Whether it’s office supplies, time theft, proprietary information or money, employee theft can create a significant cost for companies.  According to the U.S. Chamber of Commerce approximately 75% of all employees steal from work in some way, and about 30% of all corporate bankruptcies are a direct result of employee theft.  The Association of Certified Fraud Examiners (ACFE) estimates that the typical organization loses 5% of revenues each year to fraud.  What should you do if you suspect employee theft?

If you suspect an employee of stealing, you might be tempted to jump right to termination, but an accusation of theft is a serious matter.  Failing to investigate properly can expose the organization to a defamation or discrimination claim, wrongful termination suit, and other types of potential litigation. 

The following are strategies to help when faced with potential theft and how to lessen exposure:

·       Develop anti-theft policies – employers should have very clear policies prohibiting stealing, outlining what types of acts constitute stealing, and stating what the consequences are if the employee is caught stealing.  Time theft costs employers millions of dollars each year.  Employers should develop a written policy regarding timekeeping, with specific instructions on the duty of honesty and various prohibitions on timekeeping fraud.  Employees should acknowledge in writing that they understand and will comply with the policy.

·       Perform background checks – take preventive steps to appropriately screen all job applicants before they are hired.  A comprehensive background check should be performed which includes a criminal and civil history check, verification of education, past employment and references.  Credit checks should be performed on individuals who are being considered for positions with access to money or sensitive information (such as data that can be used for identity theft).When performing background checks, employers should ensure they are following all requirements under the Fair Credit Reporting Act.

·       Investigate carefully – ensure you are not jumping to conclusions by conducting a thorough investigation and looking for hard evidence.  Follow your organization’s investigation process as you would with any other type of allegation.  At least two individuals should be involved in the investigation, and if possible, one of them should not personally know the accused.  In order to avoid claims of false accusation, the employee should be allowed to share their version of the story.

·       Do not withhold money from the employee’s paycheck – under the Michigan Payment of Wages and Fringe Benefits Act, a written voluntary consent from the employee is required for deductions to be made from their wages.  The only exceptions are for deductions required by law or permitted by statute (income taxes, social security, garnishment) or a collective bargaining agreement.  Suspected theft is not a permitted exception.

·       Determine if you can terminate – the ability to terminate will depend on how clear cut the evidence is against the accused employee.  If the evidence is not conclusive, the employee should not be terminated for “theft,” “dishonesty” or even “suspicion of theft.”  These can be interpreted as defamatory and the employer could be sued for wrongful termination and need to prove that the theft actually took place.  Instead, the reason for termination should be based on a lack of trust or loss of confidence.  If possible, determine if the employee violated a policy or procedure and this becomes the basis for termination.

Employers should consider conducting a risk assessment to identify and manage areas of weakness.  Internal controls should be developed to prevent theft from becoming a serious problem.  If employees believe that organizational processes will be regularly reviewed and audited, they are less likely to commit theft. 

Source: Lexology 8/10/2016; Strategies for Handling Employee Theft