Employee Theft:  The Missing Margin

A quick perusal of statistics coming out of this recession has been the rise in employee theft.  From petty cash misappropriations to stock shrinkage, employee theft is on the rise.

A study published by the Chubb Group of Insurance Cos. found that executives at 60 percent of the companies surveyed expect employees may steal money or equipment from the company. Executives at 34 percent expect their employees will steal from their clients. A  study released by the Association of Certified Fraud Examiners, estimates that the typical company loses 6 percent of its annual revenue to fraud, which can include theft of company property, corruption schemes and accounting trickery.  For many companies, the 6% can make the difference between profit and loss.

There are a number of tactics to prevent theft – restrict access to inventory, establish and maintain proper controls over cash, etc.  But as the economy moves to a service economy, how do you prevent theft by service workers, where there is little tangible evidence of their “production”?  In a service environment, what is often stolen is the most important asset – time!

Time can be stolen in a number of ways.  First and foremost – the internet.  Time spent surfing, shopping, or just checking up on their Facebook can steal enormous amounts of billable time.  One engineering company terminated an employee who was devoting over half his time to World of Warcraft play!  The best way to prevent theft is to eliminate the temptation.  Restrict access to the internet whenever possible through the use of software to eliminate websites and subnets to isolate computers.  Also, monitor usage on a regular basis – there are a number of software packages that allow you to see just how long your workers are spending at each site they visit.

Second – Second job.  Another company had a head of Engineering who was always busy, working in the lab or at his computer.  Trouble was, a lot of the time he was doing reverse engineering work for his own client base.  The company who provided him a paycheck was hosting this work unknowingly – providing the tools, equipment and time for this obviously profitable sideline.  Employees in a service environment need to have meaningful metrics for productivity and those metrics need to be Measured and Monitored.  And just as access to inventory is limited, time spent on significant pieces of equipment (spectrum analyzers, CMM’s, etc.) should be matched against work logged at that work center – better for costing and better for control.

Finally – Lead by example.  Employees can sense when the rules don’t apply to management.  If they see this inconsistency, they will seize it to justify their own actions.  This is true especially in this current economy where they are being asked to sacrifice in other ways.  They will see management’s ethical lapses as permission to pursue their own agenda.

At B2BCFO, we work with management to review potential sources of fraud, waste and abuse – those potential points where profit leaks from the company.  We can create the IT infrastructure to reduce lost time to the internet, internal controls to monitor billable time and contract costs, and finally to eliminate the sources of temptation that lead otherwise good people to hurt the companies they work for.