How to prevent employee dishonesty at your small business

3 minute read  

Theft is a major concern for all small business owners. Thieves aren’t just shoplifters, masked intruders, or organized criminals. Sometimes, it’s an inside job—and it’s more common than one might realize.

Employee dishonesty, theft, and fraud can take many forms. Maybe they’re skimming money from the cash register, falsifying time sheets, or padding expense reports. Maybe they’re stealing inventory, tools, equipment, or showroom merchandise. If you work on external jobsites, maybe a team member is even stealing clients’ property.

In some cases, it could start out as a crime of opportunity in which the employee has easy access to cash or merchandise. But it’s not the only reason. Maybe the employee is disgruntled or feels they aren’t paid enough, so they justify their actions. In other cases, an employee may be in financial trouble and is desperate for cash.

Whatever the case, smaller businesses tend to be at higher risk since they often have fewer internal controls in place. And small business owners or managers may be more likely to trust their employees and think it couldn’t happen to them.

But it’s more common than they might realize: Every year, employee theft is costing Canadian businesses about $1.5 billion, according to the Retail Council of Canada (RCC), a non-profit that represents the retail industry.

Employees tend to steal a little bit over long periods of time (rather than all at once), so it’s easier for it to go unnoticed. And, over time, those little bits can add up to a lot, impacting your bottom line. The RCC found that employees steal, on average, about $2,500 in cash or goods before they’re caught. To put that in perspective, customers steal about $175. Perhaps more alarming is that the RCC also estimates that 566,000 thefts go undetected each year.

So what can you do about it? Here are some best practices to help minimize the risk of employee dishonesty.

Develop a loss prevention strategy

While not foolproof, a loss prevention strategy provides checks and balances that can go a long way in helping to reduce employee dishonesty. This involves creating security guidelines and outlining policies and procedures—and familiarizing your employees with those guidelines. For example, this strategy could limit employee access to cash and merchandise.

Create a security policy

Have employees read and sign off on the company’s security guidelines, policies, and procedures—including what happens if employees are caught stealing. This ensures they understand the consequences of their actions, which may help to deter them from crimes of opportunity.

Screen new hires

Be sure to check references of potential new hires. In some cases, you may want to do criminal, credit and/or social media background checks, depending on the role of the person you’re hiring.

Accounting controls

When it comes to cash, controls should be in place, from bank deposits to payroll to petty cash disbursements. Make sure that no employee has sole control over financial transactions.

Inventory controls

Controls should also be put in place to keep track of inventory. Do regularly scheduled inventory checks as well as random checks. When merchandise comes in, check it against purchase invoices (or against shipping documents, if you’re sending it out for delivery).

Physical security

Make sure cash, tools, equipment, and/or merchandise isn’t easy to steal. Lock up merchandise or use anti-theft devices where applicable, and consider using closed circuit television (CCTV) surveillance on your property.

Auditing

Bringing in a third-party auditing firm to review your finances could make an employee think twice about stealing. This can be done as part of your loss prevention strategy or it could also be useful if you suspect suspicious activity is going on.

Reporting

Set up a system (such as a tip line) where employees can discreetly report potential misconduct without fear of retaliation.

Build employee loyalty

Preventing employee theft shouldn’t just be about scare tactics. Engaging with staff, building rapport, and encouraging employee loyalty through mentorship or skills upgrading programs could result in a happier workplace—and, consequently, fewer incidents of theft.

How small business insurance can help

Even if you have controls in place, theft can still happen. That’s where insurance for small businesses can help—particularly in high-risk industries such as retail.

Coverage for employee dishonesty can be included in a customized small business insurance policy, helping to protect employers from financial loss if an employee steals money or property.

There are plenty of small business risks to be aware of, including theft. But small business owners shouldn’t overlook the potential for employee dishonesty. Establishing checks and balances, and having the right insurance policy, could help to mitigate that risk.

Protect your small business with TruShield Insurance

Successfully managing your small business involves more than just your skills and hard work. It’s also about being prepared for unexpected issues that can arise, such as theft. To get the right coverage that’s tailored to you and your business, visit our Commercial Insurance page today.

This blog is provided for information only and is not a substitute for professional advice. We make no representations or warranties regarding the accuracy or completeness of the information and will not be responsible for any loss arising out of reliance on the information.