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What to do about employee theft

Have you experienced theft at your business? Who did it—an outsider, a new hire or the long-term employee you’d never have suspected? It could be any of them, and you shouldn’t be surprised if it’s the latter.

A 2004 study conducted by The Retail Council of Canada found that 48 percent of retail losses came from employee theft, compared to 31 percent from external theft (and 19 percent from administrative errors). Not only that, but a 2008 study found that 87 percent of small and medium businesses had experienced some sort of theft. Other studies have found that employees commit the most serious frauds, with management making up the larger share of that group.

Smaller businesses, where the boss knows and works directly with pretty much everyone, can suffer the most—not just because they have fewer resources that they can afford to lose, but because of the sometimes irreparable damage to employer-employee relationships and trust. When a trusted manager has been siphoning off funds or lifting equipment, and is found out, the employer will likely be devastated.

I don’t mean to frighten anyone! Except maybe in the most extreme situation, the last thing an employer should do is treat every employee as a suspected thief. Small and medium-sized business owners have enough on their plates already; they don’t need to add excessive paranoia to the menu.

There are two sides to employee theft: the business and the employee. The business wants to stop or reduce theft as well as it can, and probably doesn’t understand why its employees are stealing. The employee has a reason for stealing that likely has something to do with the culture at the business; either employee theft is so common that everyone does it, employer-employee relations are lacking so the employee wants to get back at the employer, or the employee feels that he or she is not adequately remunerated and steals to bump up his or her earnings. Trusted employees, too, can suffer from these feelings or pressures, and they often have greater or easier access to the business’ money or equipment, and the means to cover up fraud.

(Surely, there are other reasons why employees steal from their employers, and I’d like to hear about them from you.)

For any theft-reduction response to work, the employer has to understand the reason behind the theft. It should be clear from the variety of motives above that a blanket approach—such as extensive and intrusive surveillance, strict and heavy-handed control and monitoring of equipment and supplies, or threats—could never be effective over time. These types of reactions are simply likely to demoralize employees, reduce process efficiency and labour productivity, and add extra expense for potentially little gain. A nuanced approach, based on an investigation that attempts to uncover the cultural factors behind the thefts will allow the employer to deal with only the employees involved and avoid offending others, and can also help the employer institute targeted changes that enhance employer-employee relations rather than damage them.

Employers who suspect or uncover internal theft have options that don’t involve knee-jerk reactions, yelling fits, threats and indiscriminate firings. Any of these actions could land an employer in legal hot water.

Organizational psychologist, Bob Sutton, describes a strange experiment in reducing employee theft: an employer that was experiencing significant losses due to employee theft hired an external investigator who performed confidential interviews with employees. The employees informed the investigator that they generally stole equipment just for the thrill of it—they didn’t even need or use the equipment they stole! This was a culture of competitive theft.

The investigator came up with a simple strategy to remove the thrill of stealing equipment: the employer would allow workers to borrow any equipment they wanted outside of working hours. The plan worked immediately. There was no more thrill in stealing something that the workers were allowed to take whenever they wanted. This response might not work with pens and paper, but it could easily work for laptops or projectors—provided that the program has a sound policy to back it up, covering damage, loss, privacy and so on.

Here are some things employers should consider when it comes to employee theft:

  • Avoid reacting (e.g., punishing, firing) based on suspicions or rumours; investigate and follow the law when you discipline
  • Avoid judging and condemnation in your investigation; nobody wants to tell the truth when it might get them fired
  • Review your work culture to see if it encourages inequality, resentment and disrespect
  • Review your policies to see how they protect your business from theft:
    • Do you have explicit policies on employee theft, discipline, surveillance?
    • Have you applied the policies consistently in the past?

For a more detailed look at the compliance side what to do in the event of employee theft, including terminations and discipline, read Yosie’s article “Dealing with Employee Theft” on HRinfodesk (requires subscription). And please, feel free, to let us know your thoughts.

Adam Gorley
First Reference Human Resources and Compliance Assistant Editor

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Adam Gorley

Editor at First Reference
Adam Gorley, B.A. (Phil.), is a researcher, content provider and editor. He contributes regularly to First Reference Talks and Internal Control blogs, HRinfodesk and other First Reference publications. His areas of focus include broad human resources issues, corporate social responsibility, corporate governance and government policies, information technology and labour market trends.Read more
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4 thoughts on “What to do about employee theft
  • Adam says:

    Here’s another angle: employee theft from store customers. This week, I had a messenger bag, containing a camera, stolen by who I strongly suspect is a store employee from my cart. This happened in a grocery store; though the camera itself wasn’t costly, the photos on it (of a recently-deceased friend, family pictures) are irreplaceable. The store manager and security manager flatly refuse to show me the footage from the CCTV system, and are cagey about showing it to the police. The union is powerfull, and the management is clearly employee-whipped. If I find out that the store knows the identity of the thief, I WILL sue and possibly press charges against the store manager.

    My advice is for stores to crack down severely on employee theft, involve customers in your efforts and don’t get bullied by union ‘solidarity/senority forever’ crap. Otherwise, you WILL face the wrath of your customers. Store employees are replaceable, but customers aren’t.

  • Lionfish says:

    Most of my clients, and the stores that I worked in as a security manager do have rules against hiding markdowns, but stop short of calling it theft. Most stores will fire employees for it.

    As a former police officer in Florida I can see that it does fit the state’s retail theft statue because by hiding an item someone is depriving the owner of the use or value of the item.

  • Susan Trevers says:

    Is this not considered employee theft?

    When an item is marked down significantly and placed on sale, the employee hides the item from the view of customers and buys it himself when the item remains unsold at the end of the sale period.
    Do retail locations have policies that prevent employees from buying sale priced merchandise for themselves? Or do employees get first choice on itesm placed on sale.

  • Lionfish says:

    When hiring a private investigator to deal with an employee theft problem, make sure the investigator is licensed in your state. Go one step further and hire an investigator who is a member of your state’s private investigator association, or a member of a national association of licensed investigators.