NJ Forensic Accountant, Robert A Bonavito - Presents Employee Theft Paper at Harvard UniversityPosted on July 25, 2018 by
Category: Forensic Accounting
Organizational Behavior and Employee Theft:
Key drivers of employee theft and how to prevent and mitigate theft through Organizational Behavior techniques
Robert A. Bonavito
Harvard University Extension School
Robert A. Bonavito is a forensic accountant with over 30 years’ experience in dealing with employee theft issues and has investigated for and testified in both civil and criminal actions involving employee theft.
Correspondence to this paper should be addressed to Robert A. Bonavito, Scotch Plains, New Jersey. Email firstname.lastname@example.org
This paper explores three published articles and two books concerning organizational behavior, employee theft and prevention. We researched and address three key components of employee theft 1) effect of employee theft on the organization, 2) reason why employees steal and 3) ways to prevent employee theft. Our first book, Forensic Accounting and Fraud Examination discusses why employees steal including assessment of The Fraud Triangle and M.I.C.E. heuristic which stands for, Money, Ideology, Coercion and Ego (Mary-Jo Francher, 2011). Our second book by James W Bassett, Solving Employee Theft, discusses ways to mitigate and reduce employee theft (Bassett, 2008). Our first article that appeared in MIT Sloan Management Review, The Hidden Cost of Organizational Dishonesty, discusses at length the cost of employee theft (Robert B. Cialdini, 2004). Our next article Employee Theft as a Reaction to Underpayment Inequality: The Hidden Cost of Pay Cuts which appeared in the Journal of Clients Psychology is a thorough investigation of why employees steal when they feel they are not well treated by their employer (Greenberg, 1990). The last article Employee Theft and Staff Dishonesty was an article written by Richard C. Hollinger and Jason L. Davis and appeared in the Handbook of Security, as a thorough overview of employee theft (Davis, 2006).
In order to develop good Organizational Behaviors a business needs to understand the cost of employee theft to the company and what drives employees to pilfer a company
Every year American businesses lose over $50 billion to employee theft. According to the Hiscox study, the average business loss from employee theft was $1.13 million (Bassett, 2008). Running a business is very difficult and complex undertaking, with many challenges. According to US Small Business Administration, last year 671,800 new businesses opened and 544,300 closed. Many of those businesses that closed had employee theft and they didn’t even know it (Bassett, 2008). The fact is that most owners of businesses do not realize that the biggest threat to the survival of the business may come from their employees.
The US Chamber of Commerce has indicated that employee theft was the main factor in 33% of all US business bankruptcies (Bassett, 2008).
By understanding the reasons behind employee theft and employing good organizational behavior practices including, hiring practices, positive work environment, and theft deterrence employers can substantially mitigate and eliminate employee theft. The first step in stopping employee theft is to understand why employees steal.
The Association of Certified Fraud Examiners “ACFE” has done an extensive study of employee fraud. Based on their studies published in the Forensic Accounting and Fraud Examination Book they indicate that 23% of fraud committed on the company are perpetrated by executives, 37% by managers and the remaining 40% by employees. It appears business owners must be concerned not only with the frontline employee, but executives in the C-Suite as well (Mary-Jo Francher, 2011).
The fraud perpetrator profile based on the ACFE study is as follows:
Male, middle-aged, with the company for five or more years, never charged or convicted of any crimes, well educated, accountant, upper management or executive and usually acts alone (Mary-Jo Francher, 2011).
Obviously, the above description does not sound like somebody who is a criminal, so you have to wonder why someone would steal who seems to be well educated and successful? Two widely used fraud assessment tools that explain why people steal are The Fraud Triangle: Opportunity, Perceived Pressure and Rationalization and the other is M.I.C.E. which stands for Money, Ideology, Coercion, Ego (Mary-Jo Francher, 2011).
The Fraud Triangle and M.I.C.E. states that employees can rationalize employee theft. For example, an employee may have pressure due to a gambling issue, living beyond their means or for children’s educational expenses. Employees will perceive pressure that they need more money. If they have an opportunity to commit fraud within the organization, they will because of the lack of effective supervision and internal controls.
Dishonest employees have a tendency to rationalize that they should be able to take money from the company for their own personal benefit. Many times employees imagine that they been unfairly treated by the company due to poor organizational behavior policy, such as over surveillance of employees, pay cuts, or other minor slights (Greenberg, 1990).
Common ways in which employee theft occurs
Employee theft mainly occurs in three specific areas as discussed below.
Cash larceny scheme-cash larceny usually occurs when an employee has access to cash or checks of the corporation. If an employee has access to checks from customers, they can deposit the checks into a fictitious account with a similar type name as the corporation (Jones Corporation, Incorporated vs. Jones Corporation International) and then write off the accounts receivable on the books (Davis, 2006).
Misappropriation of assets schemes-employee theft can occur when an employee takes the businesses office supplies, staplers, paper, pens, etc. Larger theft of assets such as computers and copiers can also be appropriated by the employee and sold online (Greenberg, 1990).
Inventory shrinkage-employee theft here can occur when employees take the inventory of the business and sell it for profit (Robert B. Cialdini, 2004).
How management can apply Organizational Behaviors to prevent and mitigate employee theft
The three main Organizational Behaviors that a company has to institute in order to prevent and mitigate employee theft are 1) strong hiring procedures, 2) theft deterrence and 3) punishment of employee theft and dishonesty (Bassett, 2008) (Davis, 2006).
It is important to realize that most employers are complicit in employee theft in that they do not institute good organizational behavior theories throughout the company. The need for a positive work environment and involved management that provides good oversight of employees is critical (Bassett, 2008).
Some management policies that create and add to employee theft are such things as too much video surveillance, pay cuts and low business morale (Greenberg, 1990).
Good hiring procedures are as follows:
- Have an application prepared and made directly by your company, and ask for specific information, usually a resume is worthless for screening employees for possible theft issues(Bassett, 2008).
- Do a thorough check of the employee’s application, call all their previous employers(Bassett, 2008).
- Perform a credit check, if applicable in your state(Greenberg, 1990).
- Always make a copy of an employee’s driver’s license and other important documents. The driver’s license is an important source of information and can provide an employer with many insights into the employee. It can be used to perform a background check and access an employee’s driving record to find out if they have had their license suspended. The license also includes their birthdate, signature and other information that is critical to the hiring of the candidate(Bassett, 2008).
There is no guarantee that by doing the above hiring organizational behavior techniques that an employer will hire an honest employee, but it will limit the risk substantially.
Theft deterrence is one way in which employee theft can be reduced substantially; Remember the formula
Employee Theft Probability = Perceived Risk of Detection + Expected Penalty (Bassett, 2008)
If an employee thinks they will get caught they are less likely to steal even if they want to. The main ways to increase the perceived risk of detection is by instituting some of the following:
- Anonymous tip lines and suggestion boxes-this gives employees a way to report possible theft or other actions to upper management anonymously. For example, if you have a toll-free number where people can call in and/or suggestion box where people can write comments or other information, this is likely to make potential theft by employees less likely(Mary-Jo Francher, 2011).
- Positive work environment-employees that feel respected by management are less likely to steal. If they feel they are treated fairly they will usually treat the company fairly. A positive work environment would have an employee ethics policy and training(Greenberg, 1990).
- Clean desk policy-instruct employees that their desk should be clean when they go for breaks or when they leave for the day. Stress that it is important that information not be left out in the open since unauthorized people or visitors to the office may have access to information that they should not(Bassett, 2008).
- Focus on the small stuff-instruct managers to stress to employees that company supplies are not to be wasted or used for personal use. The organization should be focused on ensuring that even small things such as letting employees leave early or take long lunch breaks is not encouraged by management. Stress that they are being paid for that time and that is considered a theft just as much as stealing cash from a cash register(Bassett, 2008) (Davis, 2006).
Employees that do not follow company rules and/or are caught stealing need to be punished
Many corporations overlook small theft such as missing office supplies, long lunches or leaving early (Bassett, 2008) (Davis, 2006) (Greenberg, 1990). Unfortunately, this does contribute to employee theft in that, employees feel they can get away with more and more until they get caught. If management brings up missing supplies and long lunch breaks in a tactful manner that will go a long way in letting employees know that the business is serious about employee theft, no matter how small. In many companies even when an employee is caught stealing, the employer may not fire them and/or not press criminal charges against them. This is a big mistake and sends the wrong message.
This paper has focused on employee theft from the point of view of Organizational Behavior. We have discussed the effects that employee theft can have on a company, even bankruptcy. In addition, we went through the reasons why employees steal including discussion of The Fraud Triangle and the M.I.C.E. heuristic, both dealt with how employees can rationalize their theft. From there we discussed the major ways in which employees steal from their employers. Through small thefts of office supplies and company time to larger schemes that can involve millions of dollars. It is fortunate, that many companies can avoid employee theft by instituting some of the Organizational Behaviors such as good hiring practices and other positive management techniques that will deter employees from stealing.
Bassett, J. W. (2008). Solving Employee Theft. New York: Booksurge.com.
Davis, R. C. (2006). Employee Theft and Staff Dishonesty. The Handbook of Security, 203-223.
Greenberg, J. (1990). Employee Theft as a reaction to Underpaymnet Inequity: The hidden Cost of Pay Cuts. The American Psychological Association, Inc., 561-567.
Mary-Jo Francher, R. A. (2011). Forensic Accouynting and Fraud examination (Vol. 1). Hoboken, New Jersey: John Wiley & Sons, inc.
Robert B. Cialdini, P. K. (2004). The Hidden Costs of Organizational Dishonestt. MITSloan Management Review, 67-73.