Employees steal an estimated $30 billion to $100 billion per year from their employers. The U.S. Chamber of Commerce estimates that more than 30% of business failures are caused by employee theft. Employee theft can devastate businesses and fellow employees.

In King County we have seen:

• Thefts as high as $4.7 Million
• Businesses bankrupted by the thefts of a single employee
• Innocent employees fired or laid off because of the thefts of a fellow employee

Many of these thieves had stolen from previous employers but were not prosecuted. It is important that employees who steal be prosecuted and labeled.

Did you know the most frequent employee theft is committed by the one trusted person assigned to handle all the finances of a small business? That trusted person commits the theft in a number of ways.

Tips on Preventing Employee Theft

The most common employee theft: The one trusted person in a small business takes high or extra paychecks, or writes checks to him or her self, to "cash," to personal creditors, to an accomplice, or to a bogus company creditor that is actually the trusted person.

These employees:

• Have check signature authority or
• Get blank checks signed by the owner or
• Forge the owner's signature on checks or
• Alter the check after the owner has signed it

TIP -- Preventing This Theft

The business owner or the outside accountant should get the unopened bank statements and canceled checks each month and independently review the payees, amounts, signatures, and endorsements on each check.

From a victim's statement:

"After reading an article in a business publication which recommended that business owners should open the envelopes that checks are returned from the bank in and check each check very carefully, I did just that and discovered several checks that appeared to have my signature forged on them and also discovered that these forged checks were all made out to "Petty Cash" in amounts much larger than we ever make out Petty Cash checks....After determining which checks were missing and which vouchers appeared to have been forged and dummied up, we totaled the amount and it came to $259,544.45."

Employee Theft Of Incoming Receipts: An employee diverts incoming receipts to personal use.

TIP -- Preventing This Theft

• Have a second employee involved in counting and verifying incoming receipts
• Watch your receivables closely
• If your accounts receivable are mysteriously increasing each month, an employee may be stealing incoming cash or checks and concealing the thefts by "lapping" (using later receipts from other customers to cover earlier thefts)
• Check to be sure cash deposits are equal to cash receipts
• Investigate personally if you have complaints from customers that they have not received credit for their payments. Get a copy of the front and back of the customer's check, and be sure it was deposited into your business account.

Employee Theft Of Cash Or Inventory Or Equipment: An employee steals from petty cash, or steals your inventory or equipment. These are the most difficult employee thefts to prove and prosecute.

TIP -- Preventing This Theft

• Institute and maintain extremely tight internal controls with separation of responsibilities. Your CPA can help you with these.
• Records of inventory and equipment -- keep track of valuable inventory and equipment items by serial number or other identifier. Use tags to identify equipment that belongs to your business.

More Ways To Protect Your Business From Employee Theft

• Employee fidelity bonds -- mainly provide compensation when a theft occurs. Talk to your insurance agent about cost and coverage. Look for a bonding company that checks the employee's background.
• Internal controls and separation of responsibilities -- your CPA can help you with these, and can save you money and grief.
• Let your employees know that you will prosecute employee thefts, and do so.

How to Respond to an Employee Theft

Begin assembling the proof: the documents involved and the written statements of those who can explain the bookkeeping system and the theft, those who discovered the crime, and those who have information about relevant conduct or statements by the suspect.

Confront the suspect!! Talk to the suspect about the suspected thefts. Show the suspect the evidence you have and ask the suspect to explain. Many individuals will tell the truth when confronted with the evidence, even partial evidence. Make a careful record of what the suspect tells you, even if you believe it to be untrue, and give that information to the police when you report the theft. Consider having a reliable witness make notes during the interview or immediately after the interview is concluded. Be sure to ask the suspect how much was stolen (first estimates by suspects often are 50% or less of the actual theft). Were there any other people involved in the theft? What did the person do with the money? Are there assets that can be returned to the victim? Try to have the suspect sign a written statement reflecting what he or she states to be the truth.

Caution: don't threaten to prosecute if money is not repaid, or promise not to prosecute if money is repaid. Police, prosecutors, and jurors may refuse to investigate, prosecute, or convict, because they think you are trying to prosecute the person as a criminal only to get your money back.

Consider filing a civil suit. If the defendant has assets, you may be able to tie them up and execute a judgment on them. The criminal system does not do that. Sometimes through civil discovery you can learn what the police cannot learn, and can develop evidence sufficient to file criminal charges.

Why You Should Report the Crime and Prosecute It

Labeling -- the most important reason. Many employers worry about civil liability for a negative employment reference. A criminal conviction is a public record. When asked for a reference, you can direct the person to the public record of the prosecution. Additionally, prior convictions increase the sentence if the person reoffends.

Deterrence -- prosecution generally deters all employees who might commit similar crimes, and specifically deters your employees. Many businesses have recognized the value of specific deterrence and have adopted a policy of reporting all employee thefts to law enforcement.

Restitution -- will be ordered at sentencing and is very much like a civil judgment (interest, collection features). The court and prosecutor will try to collect regular monthly payments for you at no cost. Criminal restitution is not dischargeable in bankruptcy.

Concerns About Prosecuting Employee Thefts

Publicity -- many victims fear embarrassing publicity. In King County usually there is no publicity, unless the dollar amount is over $400,000, the victim is the government, the victim or defendant already is a public figure, or computers are used in some unique way to commit or cover up the theft.

Hassle -- some victims overestimate the likely hassle in prosecuting. Most cases result in a guilty plea, meaning the victim never has to come to court unless he/she wants to attend the sentencing. In those few cases that go to trial, witnesses typically are scheduled and do not spend the legendary "days hanging around the Courthouse waiting to testify."

How to Report the Crime

Employee thefts should be reported to the police department where the theft occurred.

This Information Provided By:
King County Prosecutor’s Office
Complex Prosecutions and Investigations Division
500 Fourth Avenue, Room 840
Seattle, WA 98104
206-296-9010

Dated: Sept. 9, 2004