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10 Types of Employee Theft and How to Prevent Them
Protecting your company’s assets starts with awareness. Learn how to identify, detect and prevent employee theft with this quick guide.
Every year, businesses lose $50 billion to employee theft. On top of that, some face reputation damage and legal trouble when customer data or an employee's paycheck is stolen.
Even more alarming, 75 per cent of employees steal from their employer at least once. Whether that's a few pens or an entire client list, employee theft puts financial, legal and emotional strain on employers.
10 Types of Employee Theft
1. Inventory Theft: Inventory theft involves employees stealing physical goods or products from a company, typically from stockrooms or storage areas, resulting in lost revenue and inventory discrepancies.
2. Data Theft: Data theft occurs when employees illegally access or steal confidential company information, including customer data or trade secrets, often for personal gain or to harm the organization.
3. Theft of Services: Theft of services refers to employees using company resources or services for unauthorized personal use or providing them to others without permission, leading to loss of business value.
4. Payroll Theft: Payroll theft involves manipulating payroll data, such as falsifying work hours or adding fictitious employees, to unlawfully increase personal compensation.
5. Theft of Cash: Theft of cash happens when employees misappropriate money directly from cash registers, petty cash, or business transactions, leading to immediate financial losses for the organization.
6. Embezzlement: Embezzlement occurs when an employee steals company resources (most often cash/funds) that they were allowed to access for their job.
7. Intellectual Property Theft: In a workplace context, intellectual property theft refers to the theft or misuse of the organization’s unique ideas (e.g., copyrights, patents, trade secrets, proprietary content).
8. Skimming: Skimming happens when an employee steals cash or funds before they can be entered into the company’s systems (such as pocketing money at a cash register after a customer purchase).
9. Accounting Fraud: Accounting fraud can involve a number of schemes, but all involve an employee altering the company’s financial records in order to hide or inflate the company’s financial standing.
10. Time Theft: Time theft occurs when an employee claims to be conducting work activities (and are being paid) but are doing something else during that time instead.
Below we describe 10 common types of employee theft in detail and how to reduce your risk of each one happening in your workplace.
Do you have reasonable grounds to suspect employee theft? Download our cheat sheet for steps on how to confront the situation.
1. Inventory Theft
Inventory theft occurs when an employee steals a product from their employer. They may want the item for personal use or steal with the intent to sell (which is common with technological and medical products).
Employees are responsible for nearly half of inventory shrinkage, so implement preventive measures ASAP. Security cameras and inventory controls such as locking up expensive items help deter potential thieves and make it easier to catch employees who steal.
In addition, establish a workplace culture where employees don't want or need to steal. Make employees feel valued, pay them a fair wage and ensure managers set an example of ethical behavior.
RELATED: 41 Types of Employee Fraud and How to Detect and Prevent Them
2. Data Theft
Data theft is one of the most troubling types of employee theft. Not only can it put your company's assets in danger, but may also compromise your clients' and customers' sensitive data.
Examples of data theft include:
- Stealing an employer's trade secrets or proprietary information
- Theft of clients' or other employees' personally identifiable information (e.g. credit card information, social security numbers, addresses, etc.)
- Stealing customer or contact lists when leaving the company
Preventing employee data theft should start with strict policies surrounding data and electronics use, as well as a "clean desk" policy to keep sensitive information away from prying eyes.
In addition, build data security into your day-to-day procedures and processes. For example, protect devices and files with strong passwords. Restrict access to your company's proprietary information. Follow good disposal practices, too, by shredding papers and wiping data from devices.
A strong data security policy can help to prevent data theft. Use our free template to write yours.
3. Theft of Services
This type of employee theft can occur in any type of business, from an accounting firm to a bakery to an auto garage. For instance, an administrative assistant at a hair salon may ask a stylist to cut her hair free of charge.
While you may offer discounts to employees on your services, some employees will still misuse company services and defraud your business. To prevent this, encourage tips on your internal reporting hotline.
Timothy Dimoff, a certified legal expert in corporate security procedures, suggests employers "advise employees that if they know of another employee's dishonesty and fail to report it, they can be subject to discipline as well."
4. Payroll Theft
This type of employee theft is just as it sounds. An employee whose work involves financial tasks, steals and cashes other employees' paychecks or writes fictitious checks and cashes them.
Prevent payroll theft by establishing checks and balances in your organization, especially in the finance department. One employee should never be tasked with both writing the paychecks and reconciling the payroll account.
RELATED: 6 Action Steps to Take When Dealing with Employee Theft
5. Theft of Cash
Theft of cash occurs most frequently in cash-heavy businesses such as retail. Examples of this type of employee theft include:
- Stealing cash funds from registers, safes or petty cash drawers
- Overcharging a customer and pocketing the difference
- Skimming (not registering a sale or recording a transaction in accounting books and taking the cash)
To prevent cash theft, make sure your organization has clear policies in place. "Let employees know that any dishonest acts come with serious consequences," says Dimoff. Clearly define what behaviors are not acceptable in your code of conduct and outline the consequences of each one.
Not only will this deter potential thieves, it will also protect your company if an employee files a defamation or wrongful termination suit.
RELATED: Theft in the Workplace: Prevention, Detection and Investigation
6. Embezzlement
Embezzlement is one of the most straightforward types of employee theft. While standard employee theft involves the person stealing money or resources that they were not supposed to access, embezzlement occurs when the employee had access to the funds to complete their job function.
For example, an employee might work as a cashier and have to handle money when customers make a purchase and they steal it. Or, an employee who works in the accounts payable department might write out a company check to their personal bank account but credit the expenditure to a vendor.
7. Intellectual Property Theft
Your company makes its money by offering unique services, products, and/or ideas to your customers. Unfortunately, many people want to make their own money off of those things. An employee might commit intellectual property theft by selling one of your company’s proprietary recipes to a competitor, or steal your trademark and put it on a product they develop on their own time to gain trust with potential customers. Intellectual property theft can also involve licensing and copyright violations.
8. Skimming
In a skimming fraud, the fraudster takes money that was meant for the company without the funds ever entering into the company’s financial systems. This can involve schemes including tax evasion, bribery, or simply diverting cash, a check, or a bank transfer. This scheme is hard to detect because the funds were never documented, so it won’t necessarily show as “missing” in the same way embezzlement would.
9. Accounting Fraud
Many types of fraud can fall under the umbrella of accounting fraud. It occurs anytime an employee manipulates their company’s accounts for personal gain. This might be to conceal their own theft of funds or to commit fraud schemes using the company’s accounts payable or receivable records. Accounting fraud schemes include fake vendors, check fraud, and using company credit cards or accounts to make personal purchases.
10. Time Theft
Every hard-working employee deserves a break once in a while, but those who commit time theft take advantage. While it is easier for remote employees to commit time theft, it also happens at in-person workplaces.
Examples of time theft can include:
- Having a coworker punch the time clock for them at a time they aren’t at work
- Taking breaks longer than the allotted times
- Working at another job during hours they’re paid by your company
- Completing personal projects or errands on company time
Frequently Asked Questions on Employee Theft
1. What is employee theft?
Employee theft refers to the act of employees taking or misusing their employer's assets, which can include physical items, data, services, payroll, or cash, leading to financial loss and other negative consequences for the company. This behavior can go against the law and/or the company's internal policies.
2. What is the most common thing stolen from the workplace?
The most common thing stolen from the workplace is inventory, with employees being responsible for nearly half of inventory shrinkage. Inventory includes any materials the organization sells or uses for production or execution of tasks.
3. What are the consequences of employee theft?
The consequences of employee theft include financial loss for the company, potential legal trouble, damage to reputation, and emotional strain on employers.
4. How to prevent employee theft?
To prevent employee theft, businesses should adopt a multi-layered approach. This includes establishing clear policies and regularly communicating them to employees, enforcing consequences for violations, and implementing internal controls to monitor activities. Conducting thorough background checks during hiring, training employees on ethics, and promoting a culture of integrity also play key roles. Regular audits and inventory checks, installing security systems, and restricting access to sensitive information or areas help deter theft. Additionally, encouraging open communication and providing anonymous reporting channels empower employees to report suspicious behavior without fear of retaliation.