10 Proven Ways To Stop Employee Theft & Fraud Instantly

Do you want to stop employee theft or fraud in your organization?

I bet you want to. And, who doesn’t?

Every year business owners like you lose millions of dollars due to employee theft. Don’t believe me?. Then, look at the following stats on employee fraud from SheerId:

  • The amount stolen annually from U.S. businesses by employees – $50 billion
  • Annual revenues lost to theft or fraud – 7%
  • Employees who have stolen at least once from their employer – 75%
  • Employees who have stolen at least twice from their employer – 37.5%
  • Business bankruptcies caused by employee theft – 33%
  • Theft by employees who had ideas stolen at work – 29%

So, what is an employee theft & what are its types?

Employee theft can be defined as stealing, unauthorized use or misuse of employer’s resources by an employee.

Common forms of employee theft are –

  • Embezzlement of cash – Cash, being the most liquid asset of an organization, is highly prone to theft by employees. Cash may be misappropriated either directly by way of 1) theft by the cashier. 2) suppressing receipts 3) inflating payments. 4) making fictitious payment entries, etc. According to a study, more than 40% of thefts were committed by an employee in finance/accounting function.
  • Shoplifting in retail– Merchandise refers to the products dealt in by the business. According to a report of National Retail Federation (NRF), employee theft accounted for approximately 43.9% of total inventory loss for retailers in the USA. The employees who are responsible for the carriage, loading, unloading, and safe-keeping of the goods may steal them.
  • Leaking out information – Sometimes employees, having knowledge of the confidential information about the organization, product design, formulae, and other valuable details may leak them out to outsiders for money or other unfair advantages.
  • Misuse or personal use of organizational property – Sometimes employee may make unauthorized use of organizational resources; for example, making private phone calls using the company telephone, using the organizational internet network for private purposes.
  • Postponing normal work for overtime – Some employees have an intent of not working properly and efficiently during normal business hours so as to work overtime, thereby earning wages at a higher rate.

All the above-mentioned acts can be categorized under the broad terminology of fraud since fraud is an intentional act committed by a person to deceive another.

Now a question arises as to why do employees commit such kind of theft or fraud?

Employees represent the human resources of an organization. Any human being would want to grow wealthier. Employees of an organization, being humans, are no exception to this notion. Even if they get remuneration for their efforts towards the organizational goals, the desire to acquire more and more wealth sometimes becomes so strong that an employee resorts to unfair means like theft or fraud in order to make money. Wealth may be in the form of money or kind.

The most common reasons for employee theft are –

  1. The personal character of a person – 1) Personal beliefs. 2) learnings and education. 3) ethical standards. 4) moral values. 5) social circumstances of a person’s surroundings, etc. have a great impact on the character and attitude of human beings. So, a person with weak moral values may commit theft. On the other hand, a person with high level of honesty, integrity and strong ethical standards considers theft as a social evil and never resorts to it whatever the situation may be.
  2. Social status – If a person is very poor and is facing financial hardship, he/she may resort to theft to fulfill his/her basic needs.
  3. Opportunity to commit theft – Sometimes a person may commit theft when he/she gets an opportunity to do so and find. For example, if an employee sees that his seniors or colleagues making long hours of personal phone calls during the business hours, he/she may be tempted to do that even if he/she didn’t have such an intention before.
  4. Weak internal control system – Sometimes an individual may commit theft or fraud when he/she finds that the internal controls can be easily overridden because he/she knows the deficiencies therein.


1. Watch For Red Flags

“Embezzlers are diligent and ambitious. They come in early, they are working late and they never take a vacation”. – Doug Karpp, Crime, and Fidelity product head at Hiscox

Wrongdoers often behave in a way as if they have not done anything wrong. The business owner has to keep an eye on the behavior of his employees to detect theft or fraud. Activities such as the following indicate the presence of theft or fraud:

  • Strong resistance to transfers and changes in the financial and administrative systems,
  • Working late and showing abnormally high devotion to work,
  • Maintaining a very high standard of living than the employees getting similar salaries and perks,
  • Not availing leaves, etc.

You can keep an eye on the employees’ activities by placing them under the surveillance of camera.

Keeping a close observation of the employees during business hours helps to detect crimes. It also prevents criminal activities by spreading the threat of being caught by camera footage. The camera should be installed at critical places

  • entry and exit gates,
  • chambers, workplace,
  • warehouse,
  • store, sites, etc.

2. Upgrade Employee Screening Process

“I believe that past behavior is a good predictor of future behavior,” says King Rogers, the Chief Executive Officer of the King Rogers Group. “If someone has been convicted of theft in the past, then you don’t want them handling your money.”

You should not allow a person having a criminal background to handle your financial matters.

Thus the recruiters should have a well-designed screening process in place to verify the background of the prospective employees while hiring them.

Hiring ethical people will reduce the chances of wrongdoing, theft, and fraud inside the organization.

3. Strengthen Internal Control System & Internal Check

Internal control refers to the procedures designed and implemented by the management to ensure:

  • the reliability of financial reporting,
  • safeguarding of assets, and
  • compliance with applicable laws and regulations.

The internal control system should be strong enough to prevent or detect and correct employee theft or fraud. There should be authorization and documentation of the transactions at each stage. Cash memos, bills, vouchers, agreements, purchase orders, etc. should be maintained properly to provide sufficient appropriate evidence of the transactions. Also, adequate control should be exercised over the movement and storage of inventory.

Since Information Technology is being widely used in almost all aspects of the business, the business owners have to give special attention to ensure adequate security of computerized data from unauthorized access and changes being made thereto.

Internal check refers to the check on the day to day transactions of the business. This is done by distributing the responsibilities in such a way that each one’s activities come under the check of another. The duties are segregated in such a way that no single person handles all the aspects of a transaction from the beginning to the end.

For example, in respect of a payment transaction, there should be three different persons to authorize the transaction to make actual payment of cash and to record the transaction in the books of accounts. But if all the three aspects were handled by a single person he/she could easily perpetrate theft by raising fake vouchers. Thus a person having physical custody of assets should not have access to the books of accounts.

4. Have A Zero Tolerance Policy

As a business owner, you should not tolerate even a small intentional irregularity. Why? Because by ignoring a small theft you are actually facilitating a bigger fraud to take place.

If any act of irregularity comes to notice, you have to take disciplinary actions against the wrongdoer and thereby you can create consciousness amongst the employees. Other employees will also become aware and won’t dare to commit any irregularity in future.

5. Encourage Whistleblowers

A whistleblower is a person who reports the wrongdoings of fellow beings to a higher authority.

The business owner may not be able to know the particular employee who is engaged in any fraud but co-workers can because they are in frequent contact with each other.

Thus you need to have a system in place whereby an employee can secretly report the wrongdoings of fellow workers that come to his notice. The system should ensure that the reporter’s identity is not disclosed. Otherwise, employees will hesitate to complain about others’ mischievous acts for the fear of being revealed. You can also align rewards with the true information given by the reporters.

For example, there should be a complaint box, or an email ID, or a telephone number that is handled by a senior official of the organization where employees can drop their complaints.

6. Incorporate Ethical Work Culture

A highly ethical work culture can be a strong deterrent to theft or fraud.

The business owner should focus on creating an ethical environment within the organization. There should be laid down a clearly articulated Code of Ethics to be followed by the employees. The code of ethics lists the Dos’ and Dont’s. All the members of the organization should obey the Code.

Any deviation from the standard behavior should be enquired into and punished.

7. Do Surprise Checks

Conducting unscheduled checks of inventory, cash, and other physical equipment can help to detect employee thefts.

It also prevents theft by creating a fear in the minds of the employees that the assets may be verified at any point of time without any prior notice and thereby acts as a moral check on the employees.

Thus employees are discouraged to steal.

8. Conduct Professional Audit

As usual, the audit of the books of accounts should be conducted periodically to ascertain that books of accounts give a true and fair view of the state of affairs of the business. The audit also detects thefts and frauds perpetrated by the employees against the company.

An audit can be done throughout the year, known as the concurrent audit. It may also be held periodically which is known as a final or annual audit.

Some companies also have internal audit department that continuously checks:

  • the performance of the company,
  • adherence to rules and regulations,
  • status of assets, and
  • the internal control system to prevent employee theft

9. Use Information Technology

Extensive use of information technology can reduce the involvement of personal judgment of employees, thereby reducing the chances of internal theft.

Going cashless can help to reduce employee theft. You can use cash registers instead of cash drawers to keep physical cash at the point of sales. Cash registers are usually attached with printers so that they can print out receipts for record keeping purposes. Moreover encouraging payment through debit cards, credit cards, and net banking reduces the chances of cash embezzlement. You should use Point of Sales system at retail counters.

10. Rotate Jobs

Never let a single person handle a particular task or job for a very long period of time.

When a person becomes very familiar with a particular function he can perpetrate frauds. This is because he is aware of the loopholes in the function.

Thus unscheduled job rotation can help to prevent as well as detect employee theft.


If you suspect that an employee has committed any theft, you may try to find proofs against him but you cannot directly fire him from the company.

“From a legal standpoint, it is important to distinguish between what you know and what you suspect. Making accusations of criminal conduct without having solid evidence creates a risk. A risk for potential defamation claim should your suspicions be proven incorrect”. says Jennifer Hataway, a shareholder at Kantrow, Spaht, Weaver, and Blitzer.

But when an employee is proved of having committed any theft or fraud, you can take disciplinary actions.

What do you think of the aforesaid ways to stop employee theft? Please comment below.