Challenges of Employee Theft

Earlier this year a friend and manager of a surveying company told me that his accounting supervisor had embezzled tens of thousands of dollars from his firm.  The manager had been in a legal process to try to recover some of these losses.  This incident reminded me of the many times that I’ve personally discussed with business managers cases of internal theft in public- and private-sector organizations.   The issue of employee or internal theft has long interested me, and my dissertation topic decades ago was on employee theft in manufacturing companies.

Internal or employee theft is a much larger cost to our society than many people realize.  Some estimates of internal theft in American business are 50 billion dollars or more annually.   Business revenues have been claimed to be reduced by five percent annually by various employee thefts and frauds.  Companies with serious theft problems can lose much higher revenue percentages. 

You have probably read or heard about cases of embezzlements, frauds and thefts in corporations or government.  Much more often, though, these incidents are neither shared through the media with the public, nor sometimes with actual company stakeholders.  Theft reports can be an admission of managerial neglect or malfeasance.  Beyond personal embarrassment to the managers in charge of offending employees, reports of major thefts hardly inspire confidence in the company from its investors and stakeholders.  It can often seem more expedient for firms to warn supervising managers and to discipline or fire actual offenders. Even if theft is observed, reported, and acted upon by organizations, top administrators can decide to make it an internal matter and never report the offense to law enforcement for criminal prosecution.  These company attitudes and practices, though, can send the wrong message to other managers and employees that there aren’t serious penalties for theft, even if thieves are caught.  Detection of cases of internal theft in organizations can also be just the tip of an iceberg; there can be much higher levels of undetected corruption. 

There can be many motives for internal theft, beyond simple greed.  Some managers and employees believe that their organization have failed to recognize and fairly reward their accomplishments.   Theft can be a way to balance the scales of justice in their minds.  Certain offenders aren’t greedy themselves, but their family members can be and push them into getting what they really deserve.  Families can have health crises and other emergencies that overwhelm their savings and seem to force an employee into embezzlement or rip offs of company assets.  Regardless of the motives, opportunities for internal theft often exist.  The US Chamber of Commerce decades ago commented on internal theft and the challenges of reducing these losses.  The Chamber claimed that 50% of plant and office workers steal, most through relatively small offenses, but 5-8% of these employees steal high dollar amounts of company property. 

Top managers and supervisors who suspect or know about employee theft can have many reasons to do very little or nothing about these losses.   Managers suspecting others of theft often aren’t comfortable reporting this, because they themselves have been involved in theft or scams and they can fear those being reported might strike back at them by revealing their own offenses.  Some managers fear reprisals or guilty employees seeking revenge against them.  A simple example is a manager who reports on an employee thief who later gets fired.  The offender’s best friend the next day could be waiting for an unobserved opportunity to slash the reporting manager’s car tires in the company parking lot.    Some managers can view the thief as a friend or someone for whom they feel sorry.  Managers often “forgive” employees for what they consider initial or minor offenses, not fully appreciating that what they detected might be just a small part of the actual level of theft involved. 

Managers sometimes want to avoid the hassles and paperwork of reporting theft.  They don’t want to take the time or to play the role of detective in gathering enough evidence to support employee punishment or termination.  Manager can occasionally view the offending or suspected employees as too valuable in terms of skills and experience to lose and have to replace them.  They can also have too much confidence and dependence on the company’s high-tech surveillance and security systems to prevent and catch thieves.  Although security systems can have real value, smart employees who are constantly around and watching the mechanics of how these systems work can often learn a way to beat these systems. 

Internal theft can occur in many areas within an organization.  Frauds and scams can be found at the very top levels of organizations as well in functional areas such as production/operations, marketing, financing, and purchasing.  Information systems and accounting (payroll, accounts receivable, accounts payable, and assets inventory) can be particularly susceptible to clever thieves who try to hide their misconduct.  Some theft of company assets can be blatant and viewed as almost a fringe benefit of employment.  One company supervisor some years ago had his employees building duck blinds and dog kennels for himself and others during slack periods of company time.  Internal theft can include cases when inside employees have outside partners helping them.  I remember one case in which an employee used a garbage disposal chute to send company equipment and supplies in the dark morning hours to a friend with a truck waiting under the chute.

Some industries and types of business have traditionally confronted higher levels of internal theft.  Oil and gas field operations are one example.  Estimates back when the Trans-Alaska Pipeline was built in the seventies were that as much as 50% of the equipment and supplies stored at many remote locations were stolen.  In college, I worked summers for two years for a pulp and paper manufacturer.  It wasn’t uncommon to hear tales of certain employees who would damage company equipment when no one was looking.  Why?  So these employees could be first in line on Saturday mornings after the damaged equipment was declared scrap and offered to employees at a highly discounted price at the company’s scrap yard.   The company wanted to offer its employees a nice fringe benefit through discounted company scrap, but a few dishonest employees took risks to take advantage of this policy.     

I’m sharing just some the basics of why internal theft can be a huge problem in many businesses, and why some owners and top managers can fail to take responsibility for reporting these losses.  Managers need to recognize fully that an important part of their responsibilities is to monitor and protect organizational assets.  Trainers or consultants can be a good investment for many companies in better educating managers about security concerns and improved inventory and managerial control systems.  Corporations and larger government agencies usually have experiences over time with employee thefts and frauds, so these organizations often have developed resources to reduce these threats and losses.  I worry more about smaller public- and private-sector organizations with managers who have limited experiences with internal theft and who have many other competing concerns.  Embezzlement and major theft losses can severely threaten the continuing livelihood of these organizations.