A recent study by the University of Cincinnati found 64% of small businesses surveyed to have experienced employee theft. The study surveyed 314 small business owners in Cincinnati in a range of industries: finance and banking, manufacturing, service, and restaurant and retail. Despite the high number of incidences of employee theft, only 16% of those businesses reported the incident to the police.
Why don’t small businesses report employee theft? The reasons vary, but they’re important to understand in order to avoid potential pitfalls. Jay Kennedy, leader of the study, found four primary reasons why employers didn’t involve the authorities:
- Lack of Serious Victimization: The business owner does not see the theft as sufficient to warrant the time of contacting the police and filing a report. The owner simply stops the theft (solving the immediate problem) by firing the employee.
- Attorney Advice: The business owner who experienced the theft may seek the counsel of an attorney. The attorney may advise that the cost of the owner’s time and effort for a successful prosecution outweighs the potential benefits to the employer. In one of the businesses surveyed, the company filed suit against an employee who stole $200,000.00. “The employee was convicted, put on probation, and ordered to make restitution at the rate of $50.00 per month,” Kennedy said. “In essence, the small business will never recoup the stolen funds.”
- Emotional ties: Sometimes the employees involved in a theft are longtime, trusted employees. They may even be friends or family members. “In the intimate environments that are small businesses, you may know this person’s spouse and children, or may see him or her in family settings at the holidays,” Kennedy said. “All in all, you just want to put the betrayal behind you as much and as quickly as you can.”
- Viewing the Police/Criminal Justice System as Ineffective: Small businesses often assume that the police don’t have the business background to do much about a reported crime other than write up a report. Owners also assume the police are busy with law enforcement duties on the streets.
Why It Matters
It takes time and effort to recover stolen money and the odds aren’t great. According to the Association of Certified Fraud Examiners’ 2017 report, 15% of organizations fully recover their losses, 32% partially recover their losses, and 53% recover none of their losses. Experts urge owners to report the crime regardless of the dollar amount, nature of the employee, or duration of the theft. Reporting the loss sends a message to employees. The business owner is taking action, which encourages employees to report any future suspicious activity. Such practices could possibly prevent or mitigate future incidences of theft.
More employers are doing background checks. Thus, if a police report is filed, employers may prevent others from hiring. Employers also want other business owners to file police reports to help prevent them from hiring dishonest employees.
For many business owners it’s tempting to try to move on quickly. Dealing with betrayal by someone who may be a trusted employee, friend, or even relative isn’t easy. Many owners want to put the incident behind them or shield the employee from the repercussions. Experts urge owners not to let emotions dictate their business.
Even if a business owner decides not to file a police report and pursue legal action, it’s important, at minimum, to document the theft. Owners should detail the events leading up to the discovery of the theft, the actions they’ve taken, and gather financial documents related to the theft. If they do decide later to prosecute, the documentation will be on hand.
In addition, some crime insurance policies dictate the loss must be reported to the authorities.
Some policies require a conviction for the policy to address the loss. Speak with your individual carrier to determine the requirements.
Every case is different. However, most police departments do have fraud units that specialize in issues such as employee theft. Officers might be able to provide valuable advice about how to proceed. Reporting the theft also sends a powerful message to employees, which may help to protect the business in future. Reporting theft also improves employee morale because employees know and gossip about who is taking advantage of the company and resent those who get away with it.