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Employee Crime Poses a Significant Threat to Small Companies

Research conducted by the Chubb Group of Insurance Companies revealed that over 36 percent of private companies have been victims of an employee theft within the past five years.  The dollar value of these thefts has averaged nearly $350,000. The researchers also pointed out that more companies are facing similar situations as they reduce staff and make budget cuts. Both actions motivate employees to steal funds, equipment and inventory. 

The insurer reported in its 2005 Chubb Private Company Risk Survey, that 31 percent of companies polled plan to outsource some aspect of their operations, 21 percent plan to eliminate employees, and 20 percent plan to reduce or completely eliminate some employee benefits this year. These actions will be the catalyst for an increase in employee theft.

Larger companies are better equipped to absorb the financial impact of employee crime, but theft of this magnitude could spell financial disaster for a smaller company. Interestingly, the insurer’s research shows that in spite of the possibility of losing everything due to employee theft, more than two-thirds of private companies don’t have crime insurance.

To help small businesses identify and eliminate the potential for employee theft, Chubb is offering a booklet titled “A Guide to Workplace Fraud Prevention” on its website (www.chubb.com/businesses/chubb3331.html). KPMG Forensic developed the booklet. This unit of KPMG International is made up of employees with expertise in a variety of disciplines connected with fraud detection and investigation.

One of the recommendations the authors make is to start by developing an ethical corporate culture. Have a written code of ethics that incorporate the firm’s key ethical values and be sure it is communicated to employees. Many companies also require an annual written statement from every employee that they understand the code and are in complete compliance with it.

Along with the development of an ethics code, KPMG recommends that companies develop an effective fraud response plan that includes:

·   Limiting fraud opportunities by establishing strong internal controls and limiting overrides of those controls.

·   Managing pressures and incentives to steal that are inherent in the business process to the extent possible.

·   Focusing fraud detection and prevention efforts on risks where potential financial loss is the greatest or where cumulative losses from smaller frauds may be significant.

·   Fostering a strong “perception of detection” through proactive fraud identification, detection and investigation efforts.

·   Responding to identified fraud by consistently applying a “zero tolerance” policy.