How to Conduct an Employee Theft Investigation

Companies lose billions of dollars to employee theft every year. The Association of Certified Fraud Examiners indicated in their Report to the Nations that organizations lost an average of $1,509,000 per fraud case in 2020.

However, employee theft doesn’t need to be that severe to motivate a workplace employee theft investigation. For smaller businesses even a few thousand dollars can make a difference.

Imagine someone steals a brand new water kettle from the office, and you don’t have security cameras on the premises. Is that a cause for concern? Yes, it is. Does it need a full-blown investigation? No, it probably doesn’t.

On the other hand, if $50,000 goes missing from your company’s account, that is a red flag. An incident of that magnitude calls for your full attention. You could discover the theft had been going on for a while, but the amount just wasn’t noticeable enough until now.

Statistic Brain’s report shows that employee theft could even bankrupt a company. Almost one-third of all bankruptcies in the US come as a result of employee theft. This statistic is alarming and should motivate every business owner to take the threat seriously.

What Types of Theft Do Employees Commit?

So how do employees steal from their employers? From scrolling through their social media during work to committing financial fraud, there are many ways an employee can commit theft. Let’s have a look at a few common types of thefts in the workplace:

Time theft: Occurs when employees steal from their employer by charging bogus hours. It involves conducting personal matters during work hours, reporting more hours than actually working, or having extended breaks. One of the most prevalent time thefts is the (in)famous “buddy punching” where an employee clocks in for a coworker who is late.
Stealing office supplies: Some employees pilfer office supplies because they are too lazy to buy them. Others say it was convenient to take a pen or a similar item when they needed them. Even printing something personal at work counts as theft in some companies.
Merchandise theft: Stealing products or services that a company sells counts as merchandise theft. This type of theft usually affects retail stores. In fact, in 2020 alone retail businesses recovered $32 million from dishonest employees.
Cash theft:  Like merchandise theft, cash theft commonly happens in retail stores but can also affect any other cash business. Depending on the type of business, they can be challenging to detect, especially when the employee doesn’t take large amounts of money at a time.
Financial fraud: Financial fraud comes in many different shapes and forms, with embezzlement being the most common. It involves an employee (usually somebody from accounting or in a management position) misusing the company funds. For example, they could transfer the funds to their offshore account instead of paying the company’s creditors. Embezzlement can come in the form of billing fraud, payment tampering, payroll fraud, cash, among others.
Data theft: According to Verizon’s Insider Threat Report, 57% of data breaches included insiders. An employee can allow criminals access to the company’s confidential data and then split the profits. Employees can also steal trade secrets and client information, especially when they are leaving the company.

Given that employee theft poses a significant threat to a company’s assets, it is crucial to design a strict policy that clearly states what consequences employees face if caught red-handed. Your staff must understand that they could potentially face an internal investigation that leads to criminal charges.

The policy should also protect employees who report their colleagues, encourage them to speak up, and define all the rules related to the whole reporting process. Above all, you need to assure them they will remain anonymous and that the company will protect them from any retaliation.

Ensure the policy covers various types of theft and defines actions for all of them. Additionally, it should be written in a language that everybody understands. After all, all employees will need to familiarize themselves with the policy when signing the contract with your company.

You should also design a limited-access policy for conducting workplace theft investigations. It should outline the procedures for investigators to determine if the accusations are viable.

Steps to Take When Conducting an Employee Theft Investigation

You should immediately investigate any unusual activities in the company’s digital records or bank accounts. Such discrepancies often happen because of inadequate record-keeping. However, sometimes they can be a sign of employee dishonesty.

Also, suppose an employee comes to you and accuses one of their coworkers of theft.  You should take all such allegations seriously and look into the matter as soon as possible.

Here are some basic steps you can take when conducting a workplace employee theft investigation:

Evaluate the Situation and Protect Confidentiality

The first thing you should do is look into the circumstances of the case and decide if you need to conduct a formal investigation. Not every incident is complex enough to require detailed analysis. Keep in mind that sometimes it’s better to investigate even minor thefts. It will help you to avoid reaching hasty, wrong conclusions that could get you sued.

The employer needs to ensure that the personal information and identities of everyone involved remain confidential during the evaluation process. Sometimes it may be impossible to investigate without revealing personal information. However, all effort should be taken to keep as many details as possible secret.

Take the Necessary Precautions

When you start the investigation, take immediate actions to protect the accuser and the people you are investigating from retaliation or harassment. If necessary, make changes in their schedules or give them a paid leave of absence. It might also be a good idea to ask for legal advice before you talk to your employees.

Notify Your Insurer

If your company has insurance, notify your insurer before starting an official investigation. The outcome of your investigation could involve potential termination of an employee’s contract and the recovery of stolen assets, and that can result in potential lawsuits either against your company or the dishonest employee.

Insurance coverages that would come in handy in situations like this are employment practices liability insurance (EPLI) and commercial crime insurance. EPLI policy protects you if your employee decides to sue for wrongful termination or harassment during the investigation process. Commercial crime insurance would assist with recovering the stolen assets.

Keep in mind that your insurer has previous experience in handling cases like yours, and their advice can be invaluable.

Assign an Investigator

Before you start the workplace investigation, you need to assign an investigator to be in charge of the process. That person can then assemble a small team of people who would assist with the investigation. You can oversee the process but should probably stay out of the decision-making part.

The investigator should be someone who can impartially assess the gathered evidence. That person shouldn’t have any personal relationship with the involved parties and, therefore, have no stake in the outcome of the case. Attention to detail and good people skills are the key traits of a good investigator.

If you are looking to assign an investigator from inside the company, a good choice could be a member of your HR team or your legal counsel. If the theft was related to digital data, one of the investigators should be from your data security team. If you don’t have a suitable person inside your organization, you could hire an external investigator.

Plan and Start the Investigation

Create a detailed plan before starting the employee theft investigation. Outline everything you’ve learned about the case up to that point and start organizing future interviews. You should make a list of all the people you need to interview, define the interview process, and develop separate questions for the accused and the witnesses.

Investigations are dynamic, and you can expect to discover new details that could require a change of pace and process. Be prepared to plan ad-hoc and adjust planned actions to the latest information.

Conduct Interviews and Document Everything

Once you are ready, your investigator should start with the interviewing process. Schedule the interviews during work hours and ensure that the interviewees are comfortable with the interviewer taking notes or recording the meeting.

It is essential to document everything that your investigative team learns during the interviews. Leave some additional time for arranging notes and evaluating the progress the team is making.

Gather and Evaluate the Evidence

Have all the evidence acquired in the investigation in one place to make the evaluation process easier for your team. Ensure that the evidence is adequately cataloged and easily accessible to the investigators and your legal and compliance team. Evidence could be anything from emails and digital records to security camera footage or employee logs.

The tricky part is evaluating the collected evidence. If your investigators have prior experience in handling cases of suspected employee theft, they probably have their evaluation methods. If they don’t, you can suggest common-sense strategies from everyday life that could be an efficient way to get to the bottom of things.

Make a Decision and Take Action

If you cannot keep a neutral standpoint, it might be best for you to stay out of the decision-making process. However, once your team decides they are certain about what happened, it is up to you to decide what to do with the employee.

If they are found guilty, you should take appropriate disciplinary actions or even fire them if they’ve caused severe damage.  It might also be necessary to press criminal charges against the employee.

If the employee is found innocent, take all the necessary actions to avoid retaliation and charges against your company. Make sure everything is transparent and the employee receives an adequate apology.

Sometimes, it may be impossible to ascertain what happened and if the accused is guilty or innocent. In such cases, it’s probably best to consult with your legal team, allow the employee to get back to work, but keep a careful eye on them in the future.

Follow-up Actions

Once the investigation is complete, it’s time to follow up with your employees to ensure they are comfortable with how you handled the process. You should also reassure them that you have taken all the necessary steps to prevent similar unpleasantries in the future. If the incident involved data theft, you should take steps to limit future exposures. Conducting a full system audit to discover all the weaknesses and fix them should be a priority. 

The Takeaway

Employee theft investigation can turn out to be a drawn-out, tiring process for both employer and employees. Good planning can make the investigation go as smoothly as possible, but the ideal scenario is to avoid it entirely. This is why working on preventing employee theft is crucial. 

Create a good work environment where your employees will feel appreciated. Even though a good salary doesn’t guarantee your staff won’t steal from the company, you should ensure they are paid and treated fairly.

When hiring someone new, it is imperative to conduct thorough background checks for the history of fraudulent behavior. Have all new employees read and sign your anti-theft policies.

Last but not least, purchase adequate insurance policies for your business. EPLI and commercial crime insurance would come in handy when handling a case of employee theft. If you would like to learn more about what each of these policies covers, feel free to reach out to one of our experienced brokers.