Employee Crime: The Cost and Some Control Measures
Hogsett, Randall M.,, III, Radig, William J., Review of Business
Employee crime has gained much attention in the media in the last few years. Is it occurring more or is it just being reported more? The answer seems to be both. United States business owners and managers have long recognized that employee crime is a huge problem. Unfortunately, its dimensions are growing.
According to Neil Snyder, a University of Virginia business professor and co-author of Reducing Employee Theft (Quorum Books), losses just from employee theft have reached an estimated $120 billion a year.(1) And this does not include other employee-related crimes such as fraudulent reporting of financial statements.
Kenneth Weiss, a security consultant based in Massachusetts, believes about 30% of American workers plan to steal from their employers, another 30% are normally good employees but may give in to temptation occasionally, and the remaining 40% are basically honest.(2) These figures seem to generally agree with some other estimates.
According to a National Retail Federation study released last year, employee theft made up approximately 38% of all "shrinkage." roughly the same percentage as shoplifting.(3)
FDIC investigators report that one-third of all bank failures in the late 1980's were primarily caused by internal fraud.(4)
Justice Department statistics show that federal convictions were obtained for 10.733 while-collar criminals in 1985, an 18% increase from 1980.(5)
With all of this reported dishonesty, it seems employers would be ready to raise the white flag and surrender. However, because of the recent recession, businesses are focusing on employee crime more than ever. A company generally can expect to lose 1% to 2% of its annual sales to crime, most of which is committed by insiders.(6) For a company the size of IBM, this amount can exceed $500 million a year. Richard Hollinger, a University of Florida sociologist, says this "can mean the difference between viability and failure" for many companies.(7)
With such high dollar losses at stake, it is not surprising that companies are beginning to take employee crime so seriously. Employers are beginning to realize that what have been called costs of security are actually investments in their businesses.
Types of Employee Crime
Employees have always committed crimes at the workplace. However, as technology has advanced, so too have opportunities for employees to steal. Employees still commit the more "blue-collar" type offenses, but technology has enabled them to defraud companies in previously unheard of ways. Some typical employee crimes follow.
When people talk of employee theft, they typically are referring to the so-called blue-collar crimes. These include stealing office supplies, parts and inventory for personal use or resale, making long-distance personal telephone calls on company lines, and falsifying time cards. Although these activities have been historically simple, even they are becoming more sophisticated. For example, service department employees of several companies have been caught submitting false warranty claims and reselling the merchandise and parts that manufacturers thought were being destroyed.(8) With this increased sophistication, it is becoming more difficult to distinguish the blue-collar criminals from the white-collar criminals.
White-collar crimes by employees are by far the most costly to the employer and are often the most difficult to detect and prevent. Some of these crimes include using the company's computer for personal business (sometimes running entire operations on the company's time and with a free computer),(9) embezzlement, and falsifying financial statements.
With the advent of the computer and other technology, employees are finding more innovative ways to steal. Employees are using modern laser printers and copiers to forge documents and are employing computers to switch funds electronically from company accounts to personal accounts. …