Employee Dishonesty

“A second chance doesn’t mean anything if you haven’t learned from your first mistake.”- AnonymousEmployee

I remember the first time my wife and I left our children with a babysitter for an extended period of time. It was nerve-wracking to leave your kids in someone else’s hands while we spent a week on a secluded island. We did all the usual checks and were generally happy with the grandmotherly lady who appeared able to care for our kids while we took a needed break. As good as she appeared to be, she wasn’t perfect. We could live with certain shortcomings as long as we returned home to find our children and the house in good shape.

Hiring employees is very similar to hiring a babysitter. You essentially invite someone into your home, give them the keys, entrust them with the care and well-being of your most valuable assets, and hope for the best. Finding that person, the right person, is a time-consuming and expensive process. As you narrow your search, and your investment of time and money in a particular prospect grows, you are more likely to rationalize away reasons not to hire that person. It’s easy to ditch someone on whom you haven’t wasted any time, but the more you become invested in a prospective employee, the more likely you are to ignore warning signals which would otherwise direct you elsewhere.

Assuming you’ve hired the perfect employee, what do you do when you catch them stealing? That’s a tough problem, particularly in a small business where that employee may comprise 20% or more of your work force. Studies have shown that most people are fundamentally honest, except when two conditions present themselves. When presented with temptation and the belief that the theft will not hurt the victim, people will steal. In other words, if they don’t know the person from whom they are stealing, or there is no direct identifiable victim, the perpetrator can rationalize the theft as harmless. It’s like stealing a ream of paper from the office, as opposed to stealing a box of tissues from a friend’s home. The box of tissue has a cost and the friend is directly identifiable to the perpetrator, while ‘the company’ will never miss a ream of paper.

The ingredients for theft are motive, opportunity and rationalization, not necessarily in that order. Once found out, how does one handle the issue of employee dishonesty? On one end of the spectrum, one may forgive, overlook, and continue a relationship that has been tainted, while on the other hand there is the cost of legal remedies involving third parties and unwanted notoriety, which seldom leads to restitution and resolution.

The best defense against employee dishonesty is the removal of opportunity. Basic controls to safeguard the assets of your business help to dissuade dishonest behaviour. When someone is watching, people are less likely to risk being caught and will generally pass on the opportunity to enrich themselves at the expense of their employer. One of the strongest controls is your presence. Your visibility as a knowledgeable business owner, aware of the operations of your business and present goes a long way to promoting like behaviour and honesty in your employees. It’s just easier to steal from someone whom the perpetrator feels doesn’t care or ‘won’t miss it’, whatever ‘it’ is (inventory, cash, time). A key control is the regular record keeping and looking at the numbers and gleaning the story that those numbers tell you. You can’t be everywhere at once, but you can use summary information to identify problems and direct your energy to improving your business. When you fail to analyze regular record keeping, you deprive yourself of the knowledge to help you make your business better, and you open yourself up to various forms of loss.

You can hire and hope for the best, or you can hire and fire, or you can hire and build a team of dependable associates who understand that exemplary performance is the key to their well-being as well as to yours. If you ever find yourself in the unenviable position of dealing with employee theft of significance, you may find that it’s best to excise the problem as quickly as possible. The sooner you mitigate and repair the damage, the sooner you’ll start the healing process and the recovery. You may find that your remaining employees will speak up and support you, now that you’ve demonstrated your willingness to pull some weeds and help your enterprise flourish.

I would love to hear from you and invite your questions and comments. You can reach me by e-mail at With three decades of experience as an accounting professional, consultant to small business and business owner, there may be a few things I can help you with. Call me. Best wishes, Sid.