Employee Fraud, Theft Cost Firms $40 Billion Yearly

Dec 30, 2008 3:09 PM

As many as one-third of all business failures annually can be attributed to employee theft, according to the U.S. Department of Commerce.

The cost of theft and fraud to American business nationally hovers around $40 billion a year, and "some experts believe as much as 40 percent of the losses are internal," said Tim Zehring, a retired Mesa police officer and director of the International Crime Free Association.

The Commerce Department also says employee theft is on the rise, thanks to the recession, a fact confirmed anecdotally by several Phoenix-based security experts.

"In my experience, what we're seeing is an increase, partly because some employers are more aware," Daniel Perez, head of Subrosa Investigations, told the Arizona Republic. "But it's also true that when some people feel in need, they will take what they believe they can."

Perez said that the effect of hard times can contribute to employee frustration and, coupled with some feelings of entitlement, can lead to a sense that "it's not really stealing."

"It's need plus opportunity plus rationalization," agreed Don Hesselbrock, president of Corporate Security Systems Inc. "People say, 'I worked hard and the company was bought out or merged; I got laid off anyway.' It gives some people a kind of cynicism and a 'get-what-you-can' attitude."

Rick Lew of Scottsdale's Core Security Consulting said, "Businesses need to take the time to assess and address the problems. Usually, companies know the problem but haven't addressed the issues."

The Arizona Republic reports that theft ranges from petty pilfering of a company supply closet to cash siphoned from payroll accounts to pay personal bills to warehouse items that "walk away" during the night.

Critical problems identified by security professionals included business owners' willingness to rely on "gut feelings" in making hiring decisions, a failure to adequately check references or do background checks, a lack of random audits of either company books or warehouse items, and an assumption that employees, especially long-term employees, will protect the company.

Often, these professionals said, employees may be aware that other employees are engaged in theft or fraud but are reluctant to report it. If a problem seems to be relatively minor, many business owners and managers will ignore it.

Additionally, many employers choose not to prosecute when theft is discovered. Many prefer instead to terminate the employee involved and attempt restitution through private arrangements.

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