According to the Retail Council of Canada, employee theft costs Canadian businesses about $1.4 billion annually. While eliminating the risk of illegal activity inside your small business is all but impossible, there are ways to make it less likely. In this article, we’ll look at three key areas where you can take steps to prevent employee embezzlement and theft from occurring.
Theft vs Embezzlement: What’s the Difference?
Employee theft and embezzlement are similar in the sense that they both involve personnel stealing company property. Embezzlement, however, refers specifically to property that you willingly entrusted to somebody in your employ.
Theft is often spontaneous. Without risk-prevention measures in place, for example, it can be all too easy for untrustworthy workers to take advantage of opportunities to:
- Pocket merchandise off your store shelves
- Steal cash from the register, or
- Misappropriate goods received from suppliers
Embezzlement, on the other hand, usually takes forethought and planning. It’s more likely to happen at the administrative or record keeping level – like when trusted bookkeepers misreport sales, income, or expense amounts and funnel funds out of your company.
3 Key Business Areas You Need to Protect
The most effective way to prevent employees stealing from your business is through the use of internal controls. Setting up fixed policies and procedures around activities where employees have access to company property – and making those rules part of your employment handbook – will mitigate financial risk.
Here are three key areas where your organization should have preventative safeguards in place.
1. Your Cash
Protect company funds by limiting the workers who handle petty cash or incoming donations and keeping cash boxes and daily receipts locked away. Avoid key-based locks in favour of digital or password-protected access codes, and change these out often.
For point-of-sale systems, make sure every employee uses a dedicated identification number so you can keep track of who’s handling which sales transactions. It’s also wise to make management overrides mandatory for large cash amounts.
2. Your Property
Best practices suggest that every business, no matter how small, can reduce financial risk by using, reviewing, and authorizing purchase orders for supplies and inventory.
You should also take steps to:
- Limit warehouse and storage access
- Establish a strict in-and-out inventory record-keeping system
- Conduct both scheduled and unscheduled inventory counts
- Install a video surveillance system anywhere your merchandise resides
Make sure you cross-check incoming deliveries against your purchase requisitions to confirm that all goods and services ordered by your business are present or accounted for.
3. Your Financial Records
Expense claim fraud is on the rise in Canada. In addition to reviewing and approving employee expense reports before you reimburse personnel, you should consider setting up a two-signature system if your company still issues paper cheques.
To further defend against dishonest administrative personnel, limit access and monitor financial accounts and data using:
- Password-encrypted files
- Electronic access logs, and
- Authorized cloud software access
It’s always a good idea to split up duties like payment processing, record keeping, and bank deposits so no one employee is responsible for a single financial workflow. Regular bank account reconciliations, and internal and external audits, are also a must.
Setting up controls that impede unlawful activity and unauthorized transactions can reduce opportunity theft and make it more difficult for employees to embezzle from your business.
If you do suspect a worker is stealing from you, make sure you seek legal advice before launching an investigation. While employee theft is one of the few grounds for termination without notice in Canada, such situations must be handled carefully to avoid repercussions for wrongful dismissal.