Detecting Theft in a Small Business

“It won’t happen to me” is the song so many of us sing, when it comes to theft, loss, accidents or anything that’s particularly unpleasant. But the fact is that 80% of small business in Australia, during the business life, will be hit by employee theft or fraud with the median loss being $98,000. Analysts believe that internal theft is a primary cause of a large percent of business failures. Here are some tips on how to detect theft in your business. Each of these items on their own do not automatically correspond to there being theft; they are just indicators – the majority of employees are honest; but you should keep your eyes open. General business indicators:

• Missing records or gaps in number sequences (ie shopping dockets, orders or job/invoice numbers being skipped)
• Missing stock, inventory or merchandise
• Unlocked exits, especially at the back of the business
• A large number (dollar value or volume) of credits in the books
• Your business takes in a fair amount of cash, but has virtually no reconciliations in place
• Financial reports are rarely provided – although an excuse is always provided.
• You are working “like a dog”, have heaps of work on, but just don’t have any money
• Downturn in your bottom line (or change in ratios) – don’t automatically blame the economy
• You are a business with a turnover of $1.2-2 million
• You have 1 office person handling purchasing, invoicing, receipting, banking and book work
• The business owner is so busy, doesn’t have time to check things (and staff know this)
• The business owner is trusting; in fact they think of their staff as like their family.

Specific indicators about the staff member:

• Shows signs of alcohol or drug abuse (or is a gambler, which may be harder to detect)
• Displays abrupt changes in emotional behaviour
• Complains a lot (and often they are planning on leaving your employ)
• Defensive or hostile when asked about their work
• Says “sure” then you ask for something, but you never get that information
• Overly diligent, want to do everything, even tasks normally they would not need to
• Won’t take holidays (because this is frequently when theft is discovered)
• Work long hours, especially outside normal business hours
• Puts things away when the owner enters the room; like they are hiding something
• Grab the mail (as naturally they don’t want others to see what’s happening)
• Parks near exit doors (for easy access to steal stock out the back door)
• Appears to be living beyond their means.

It’s believed that 25-40% of staff will steal at some point; it might be only a box of pens, or with a mechanic this year, it was $480,000 in cold, hard cash. If you feel something is not right, keep your eyes open, get financial reports (even if you have to learn the computer system to do so), ask an independent such as your accountant to review your figures and start checking things like your bank and credit card statements. If you spend an hour a week monitoring your business, checking your financial reports and being attentive, would this be worth saving $480K in theft? Discovery can be devastating; but not as much as your thriving business going under.