STRATEGIES FOR EMPLOYEE THEFT PREVENTION AND DETECTION

To reduce employee theft, it is essential that appropriate preventive and detective techniques are in place. According to Managing Business Risk: A Practical Guide, a report sponsored by The Institute of Internal Auditors, The American Insitute of Certified Public Accountants, and Association of Certified Fraud Examiners, prevention emphasizes policies, procedures, training, culture setting, and communication to prevent theft from occurring, while detection involves activies taken to identify theft that is occurring or has occurred (IIA, AICPA, & ACFA, 2008, p.30).

Organizations that want to prevent employee fraud must plan carefully and continually monitor the effectiveness of their anti-fraud controls. To fully achieve a corporate culture that emphasizes and reinforces employee honesty, companies should develop theft prevention strategies that could be “effectively implemented while minimizing the impact of [potential] problems” (Steven 2006)
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Employee Theft Prevention

Employee theft prevention is a proactive approach to deter theft perpetrators. The program includes selective hiring policy, implementation of positive workplace culture, and segregation of duties.

Selective Hiring Policy

The primary preventive technique is to implement a detailed and effective hiring policy. Brian P. Nichoff, professor of Entrepreneurial Studies at the Kansas State University College of Business Administration, and Dr. Robert J. Paul from Kansas State University College of Business Administration, suggest (as cited in Appelbaum, Cottin, Paré & Shapiro, 2006) that background checks should be conducted in the pre-employment stage as thoroughly as laws will allow. BDO Stoy Hayward is an audit, accounting and business service firm in United Kingdom. In its annual study called FraudTrack 3: Rising fraud in the spotlight, it states that it is critical for organizations to take enough time to have reference checks, and honesty questionnaire (like screening tests) in the pre-employment stage in order to make an informed selection (BDO Stoy Hayward, 2006).

Reference Checks

Reference checks can be very helpful to weed out the potential thief. According to The Small Business Fraud Prevention Manual published by Association of Certified Fraud Examiners, many employers don’t bother taking a few minutes to check employees’ references and risk their company by hiring potential theft (ACFE, 2004). Employers should verify the candidate’s employment history with their previous employers. Problems like alcoholism and drug addiction which have the potential to create the urge to steal can be easily identified (ACFE, 2004).

According a survey of global fraud cases in the ACFE 2010 Report to the Nations, 8% of fraud perpetrators had been previously punished and 10% had been previously terminated for fraudulent conduct. However, Appelbaum and Cottin (2006) note that criminal records rarely contain charges of employee theft, as victim companies often do not fully prosecute the perpetrators. Therefore, reference checking is not adequate to screen out potential perpetrators.

Employee Tests

Employers should use various tests and interview techniques to screen out dishonest employees before they are hired (Appelbaum 2006). Another technique is to use integrity tests, which “identify what employees consider ordinary, normal, acceptable behavior” (Engelman & Kleiner 1998).

Implementation of Positive Workplace Culture

Nichoff and Paul’s study shows (as cited in Appelbaum et al., 2006) that a corporate culture which reinforces workplace honesty, and promotes punishment procedures for dishonesty should be implemented by the management group. Both creating positive organizational climate and formulating a code of conduct have played a key role in preventing employee theft.

Creating Positive Organizational Climate

According to “Organizational Culture and Employee Counter-productivity”, Michael W. Boye