Did you know?

A 25% Reduction in Shrinkage has the Same Result as a 40% Increase in Sales!
Source: QuickCheck Food Stores

30% of All Employees Steal
60% Steal if Given Sufficient Motive and Opportunity!
Source: US Small Business Administration

--Businesses lose an estimated $2.9 trillion globally, or 5% of annual revenue

--About 30% of victimized companies had fewer than 100 employees

--Typical median loss of $150,000 for U.S. firms

   By Anya Martin

Employee theft has become a common occurrence, but in tough times when revenues are already down, the impact, especially for small businesses, can pack a harder punch.

Businesses lose an estimated $2.9 trillion globally, or about 5% of annual revenue for a typical company, to fraud committed by their own workers, according to a 2010 report by the Association of Certified Fraud Examiners, or ACFE.

About 30% of victimized companies had fewer than 100 employees, with a median loss of $150,000 for U.S. firms of that size, the study found.

With median loss for all-sized businesses just slightly higher at $160,000, the numbers send a clear message about the vulnerability of small organizations, said Scott Patterson, an ACFE spokesman. Even more disconcerting were findings about the perpetrators--as many as a fourth had been at the organization for 10 years or more, he said.

However, even the smallest companies can take a few simple steps to reduce their risk. These preemptive strikes are not costly and include understanding the risks, purchasing employee-dishonesty insurance coverage and instituting simple anti-fraud controls.

   Tough Times May Mean More Theft

In 2009, insurers reported over $222 million in direct losses for employee-dishonesty coverage for mercantile entities (nonfinancial institution) reported to the Surety & Fidelity Association of America. That number was the highest for the decade, up from about $179 million in 2008, but the SFAA did not track whether the reason was due to an increase in crimes, large recovery amounts in a few big cases or more companies having liability coverage.

Whether those numbers are due to cash-strapped employees more likely to steal in a recession, better due diligence or more companies being insured, losses due to workplace theft do seem to be on the rise over the past few years, said Carla Borda, an agent who specializes in business liability coverage for Waukesha, Wisc.-based R&R Insurance Services.

A number of recent Wisconsin cases point to business vulnerability, she said.

--The treasurer of a local football league was found guilty in October of embezzling $35,000 of league money to use for gambling, a Mexican vacation, car payments and other personal expenses.

--A credit-union branch manager was indicted in early October on a charge of stealing nearly $150,000 over four years by opening six fraudulent loans.

--The vice president of finance of a Milwaukee-based stereo equipment manufacturer was sentenced to 11 years in prison for embezzling $34 million.

"In my experience, it's usually long-term trusted employees who get themselves in a financial situation due to debts or creditors, or believe they somehow have it coming to them," Borda said. "It's nothing that comes up in a background check or personality test."

   Why Small Businesses Are Vulnerable

Workplace theft happens when individual need and a moral attitude that stealing is OK or justified converge with opportunity and a work culture that either condones stealing or makes detection unlikely, said Lucy McClurg, associate professor of managerial sciences at Georgia State University's J. Mack Robinson College of Business.

Perceived pay inequity is a common motivator, McClurg said. "Small businesses in general, job for job, pay less than large businesses," she said. "This is [the employee's] way to equalize the pay issue. 'I'll just take a little more from my employer'."

Small businesses may be trusting of employees, especially long-time hires, and thus have lax anti-fraud controls compared to their bigger counterparts, McClurg said, noting that even she has fallen victim. Over 20 years of owning an insurance and consulting business which employed up to 45 workers at any one time, she's fired about 20 for theft.

The transgressions ranged from taking products home to forging a check to pocketing a customer's cash payment and not logging it as received in the company books, McClurg said. She worked closely with her employees and thought she could trust them, and that she was safe to keep her priorities on the big picture, she said.

"I was more interested in marketing my business than I was in managing my employees," McClurg said. "I put all my attention into sales and marketing."