11 Warning Signs Your Employees May Be Ripping You Off

How to Prevent Employee Theft

Employers beware. Employee theft is much more common than you might think (or want to believe). Employee theft is also more far-reaching than an errant office worker pilfering sticky notes and pens or a rare misguided retail clerk pocketing a few bucks at the register.

It can be as simple as a warehouse employee walking out the back door with product, a restaurant employee manipulating receipts, or an office manager using the company credit card for personal purchases. Or it can be more complex. Check tampering, fraudulent billing, or a multi-employee theft ring.

Let’s face it, whether you are a retailer, distributor, manufacturer, or department manager, you may have an employee or two whose loyalty and trustworthiness are questionable.

As a matter of fact, according to the employee theft statistics compiled by Statistic Brain, three out of four employees (75%) have stolen at least once from an employer, and approximately one in three (37%) have stolen at least twice. 

Losses due to employee theft of cash and property can be staggering. Some small businesses may collapse, while the profits of large businesses take a huge hit. Consider these statistics from the same report:

  • Employee theft costs American employers $50 billion dollars each year.
  • One-third of all business bankruptcies are caused by employee theft.
  • Office fraud lasts an average of two years before it is detected.
  • Retail employee theft is the top cause of inventory shrinkage, followed by shoplifting.

Many fraud prevention experts agree on the 10-10-80 rule, which says 10 percent of employees are honest, 10 percent steal, and 80 percent can go either way. Perhaps 9 out of 10 of your employees take the virtuous path. We all want to trust our staff. And we should. But, we should trust with our eyes open, recognizing that sometimes temptation beats virtue.

Awareness is Key

The manager-employee relationship can make the warning signs of employee theft difficult to spot. Managers who work to build trust with their employees don’t allow themselves to question what may be in front of them. The relationship clouds their judgment and the resulting denial can be a powerful blinder. Closing your eyes to potential theft is a dream for would-be thieves. That’s why awareness is critical. Question what doesn’t seem right. Start with these 11 signs of potential employee theft:

1. Big-ticket purchases or significant change in employee spending habits or lifestyle

This isn’t about the employee who buys a new car after saving for a year. It’s about the employee who buys a new luxury car even though he’s always talking about barely having enough money to pay the bills and put food on the table. It’s about the guy who buys a new big screen TV even though he counts down the hours until he receives his paycheck so he can put gas in his car. It’s the employee who books a first-class cruise vacation even though you know she’s having trouble paying her student loans.

This alone doesn’t mean your employee is stealing from you. Maybe your employee did save enough for that luxury car. Maybe the big screen TV is a gift from a wealthy uncle. And, maybe the cruise is a long-awaited graduation gift. The point is this: a significant change is a potential red flag. Use it to stop and think about what else is going on around you.

2. Change in work habits

You know the type. She breezes in every day at 8:27 a.m. If all of a sudden she starts coming in before 8 so she can have some quiet time before everyone else arrives, make a mental note. Unless she has had a huge change in her workload or something significant is happening at home and she doesn’t want to be there, it’s unusual and you should question it.

Likewise, if an employee who tidies his desk at 5:25 so he can be out the door promptly at 5:30 suddenly stays late all the time, you should wonder why.

3. Purposefully trying to work independently or unsupervised

Make a mental note about an employee who always looks for ways to work alone. While volunteering to work in the back room or offering to organize out-of-the way displays shows initiative and seems like a manager’s dream come true, it may simply be a way for an employee to remain out of sight.

4. Problems with payroll, travel, and expense records

We all make mistakes. But accounting discrepancies should be tracked. Is there a question about hours worked versus hours paid? Did she lose a receipt? Did he forget to reconcile petty cash? Did she exceed the entertainment stipend with clients? Did he forget to itemize his expenses? Did he use the corporate card for unauthorized purchases?

Give your employee the benefit of the doubt the first time. But, if it happens again pay attention. This is where small companies that don’t have specific accounting practices or well defined policies about travel and expenses can get in trouble. Take the time to develop a policy and keep a watchful eye.

5. Missing items

You’re busy. You’re juggling multiple tasks at once so forgetfulness happens. Maybe you didn’t have the extra printer cartridges you thought you did. But before you decide you’re headed for early stage dementia, consider that your “forgetfulness” may be something else.

If you thought you saw four cases on a pallet, you probably did. Check the paperwork and ask questions. If you have only two in the backroom inventory and yet the computer still shows three, find out what happened. Was it sold? Did someone make a computer error? Did someone move it? Did someone put it on the floor?

6. Excessive absences

Excessive absences from an otherwise steady and regular employee are an indication that something is going on. If it’s not health issues, family problems, or something specific that makes sense to you, look for other warning signs of theft. Often, a tug of conscience or not wanting to be around when the theft happens can be the reason for the unexplained absences.

7. Suspicious cars, especially cars parked near back doors or dumpsters

This seems like common sense for restaurants and retailers, but it makes sense for other businesses too. How often do you drive around or look outside to see what’s going on in the more isolated areas of your workplace? Consider impromptu check-ins during the day or near the end of the workday.

8. Change in employee behavior

This is one managers have a tendency to dismiss. But, again, we’re talking about a noticeable change. There is a reason that your employee who usually shows zero initiative all of sudden is offering to take out the trash and work through his breaks. Is it your superior leadership example? Maybe, or is it something else?

Acknowledge the positive change but beware. Be specific and let your employee know you’re paying attention. “I’ve noticed how hard you’ve been working; I see you taking out the garbage and wanting to work through your breaks.”

It’s important to also make sure your employee knows your expectations. For example, breaks are required and they need to be scheduled according to customer, co-worker, and workload needs, not individual preference.

9. Pattern of friends or family showing up, or insisting they only go through the employee's checkout line

Internal theft isn’t always a solo operation. Watch buddies who come in and only want to go through their friend’s line. If they came in for an innocent hello, they shouldn’t care about going through someone else’s line before chatting for a few minutes. If it’s a one-time situation, it’s probably nothing. But, if it becomes a regular thing, question what’s going on.

10. Change in voids, over rings, cash drawer over/shorts

Follow and investigate patterns. A pattern of small overages may mean your employee is stealing by voiding a sale after the customer pays and pocketing the sale amount but not the tax. For example, an employee may void a $6.36 sale, and steal $6 from the drawer.

A pattern of shortages, especially in dollar amounts, may mean your employee is stealing directly from the drawer.

A pattern of over rings may mean your employee is pocketing cash payments. In particular, be wary of any employee who tends to pile merchandise in front of the register while taking care of customers. The blocked register view gives an employee the opportunity to ring up less than charged or to over ring something secretively and pocket the difference.

But retailers aren’t the only ones who need to pay attention to these sorts of discrepancies. Billing, invoices, and receipts can all be manipulated so employees can steal.

11. An increase in damaged merchandise or misplaced product

Are your damages higher than usual? Are there more reported shortages during receiving? Is there a spike when certain employees are working? Have you noticed misplaced product or damaged product in out-of-the-way places or in bags? These are red flags for employee theft. Be especially sensitive to:

  • Products sold in multiples: Employees may purposefully damage the packaging and steal a few of the items.
  • Packaging with minor damage: Employees may purposefully damage the packaging taking care not to damage any of the products and steal them at a later date.
  • Empty packaging: It may be shoplifting or it may be employee theft.

The Best Defense is a Good Offense

Awareness is key to determining whether employees are stealing. But, there are things you can do to prevent employee theft too. Consider these tips:

  • Create strong hiring practices. Conduct background checks and reference checks. Consider screening tools and other hiring instruments. Since drug abuse is strong motivation for stealing, consider drug testing final candidates and drug testing randomly during employment.
  • Implement internal theft policies. Make sure your employees understand the company’s zero-tolerance stance on theft, as well as consequences. Set up an anonymous tip line for employees to report suspicious activities.
  • Install video surveillance.
  • Audit your books regularly.
  • Conduct ethics training. Make sure everyone knows your company values honesty and integrity. Establish a code of ethics and train employees and new hires on ethical practices. (Media Partners offers several titles in this space, including Moment of Truth and other video training programs on Workplace Ethics)

The Bottom Line is This:

Trust your employees. Believe in them. Build a positive working relationship. But, pay attention. If something doesn’t seem right, it probably isn’t. Question it. Don’t let your trust or your relationship cloud your judgment. Proving yourself wrong will validate your trust. Proving yourself right will protect your assets.

Trainer’s Note: Feel free to reproduce and distribute this article to managers. Also, see our Infographic Employee Theft: 11 Warning Signs.

Michele Eby works for Media Partners as a writer, instructional designer and training advisor. She has worked in the training and development field for more than 15 years.