It’s not a pleasant thought but harder times mean some employees will be looking for ways they can cut down their expenditure and one that they may resort to is pilfering business assets. We aren’t talking the odd roll of toilet paper from the washroom here.

Some real life cases on report in the US for instance, include an employee responsible for utility bill payments who set aside a few hundred dollars each payment to cover her home electric bill; one who wrote his family vehicles into the company’s vehicle insurance plan; and another who stole thousands of dollars of tools from a job site to sell later. Even highly trusted and proficient employees have been known to crack under financial strain and resort to stealing from their workplace. In the US, a 2008 FBI report labels employee theft ‘the fastest growing crime in America!’, a story beginning to be emulated in other countries as their economy worsens.

Processes and routines that remove temptation and opportunity – or internal controls as accountants refer to them – have been identified as the most effective way of deterring internal theft, or limiting the amount that can be lost before the problem is recognised, to the bare minimum. The knowledge that someone is looking at the details in your business keeps honest people that way and prevents dishonest people from even thinking about it.

Here are some of the major internal controls you can apply to prevent suffering from theft by your employees.
  • Conduct regular physical inventories.

    Reconcile sales to inventory on a quarterly basis, or at least annually. Use a third party to carry out inventories.

  • Keep track of equipment.

    Keep an asset register of business property and inventory it annually. Require workers to sign out company tools before taking them to job sites. Lock doors to storage and supply rooms to limit access to authorised personnel. Keep an up-to-date register of keys issued and ensure terminating employees return those in their possession.

  • Control petty cash transactions

    . Designate those who can access the petty cash reserve. Keep it to a couple of people. Require a signed receipt for all petty cash disbursements and receipts of payment. Regularly reconcile the petty cash fund.

  • Keep control of credit cards

    . Limit and track the use of any business credit cards. Require all credit cards to be signed out and all credit card expenses to be authenticated by a purchase order.

  • Segregate financial duties

    . Don’t let the same person who processes cheques also reconcile the chequebook or manage the accounts receivable. Limit the number of people who can sign cheques. Keep blank cheques under lock and key. Do not use a signature stamp. Have one person open the mail and record cheques and another person make the bank deposit.

  • Safeguard financial data.

    If you are using a computerised accounting application make sure it doesn’t allow entries to be changed - it should only allow offsetting or correcting entries, and should provide a report on what entries have been altered. Use passwords to limit access to authorised employees.

  • Control purchasing, receiving and paying functions.

    To maintain a system of checks and balances assign responsibility for different tasks in the order/receive/pay chain to different employees. Spot-check receiving and shipping functions to ensure that what's invoiced is equal to what's received or actually going out. Use numbered sales receipts, invoices and register receipts.

  • Personally review monthly bank statements.

    Have the bank statement sent to your home rather than the business and review it yourself before passing it on to your bookkeeper. Look for cheques payable to employees or to payees you don’t recognise, signatures that don’t look right, returned cheques and suspicious credit card charges. Ask your bookkeeper to explain them so employees are aware you keep your eye on things.
One of the best things you can do is provide a good example yourself. As a role model for your employees, if they see you padding your expense account or walking out with work stationery and other equipment it will only license them to do the same thing.

Implementing procedures like these is a good start to preventing theft but it’s possible to plug the holes tighter still. For instance, there are a whole set of activities just around handling the cash register tray that are straightforward to implement and will protect your hard earned sales cash. For advice on how you can improve your internal controls talk to your accountant. For ideas on how to prevent physical theft contact your local police, they will provide both documentation and advice on methods for preventing and dealing with theft.