Businesses see rise in employee theft

By The Wall Street Journal

In October, an accountant at 321 Takeoff in New York became suspicious after an employee who normally filed weekly expense reports for around $80 began requesting $120.

When Alona Fromberg-Elkayam, the branding agency's president, approached the employee, she says she was met with flimsy excuses. She fired the employee, a midlevel designer.

In the wake of the recession, more businesses are facing a growing financial threat: employee theft.

New research shows that employers are seeing an increase in internal crimes, ranging from fictitious sales transactions and illegal kickbacks to the theft of office equipment and retail products meant for sale to customers.

Employers suspect that workers are pilfering from them to cope with financial difficulties at home or in anticipation of being laid off.

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What's more, the most trusted workers are often the ones who are committing the thefts.

"In leaner financial times, people have a tendency to give in to temptation to commit criminal behavior," says Brian J. Mich, the head of anti-corruption compliance and investigations at BDO Consulting in New York.

At the same time, he says, "employers give additional attention to the bottom line, which results in more fraud being discovered. It's a little hard to tell which is the chicken or the egg."

About 20% of employers polled last month said workplace theft has become a moderate to very big problem recently, according to a survey from the Institute for Corporate Productivity, in conjunction with HR.com.

The survey polled managers and executives at 392 U.S. companies representing a range of sizes and industries. When asked if they had noticed a recent rise in monetary theft among employees, such as fraudulent transactions or missing cash, 18% said yes, 41% were unsure and the rest said they hadn't.

Further, 24% of respondents said they had detected an increase in stolen nonmonetary items, such as retail products and office supplies, while 43% were unsure and 33% hadn't.

In 2007, companies lost an average of $2.4 million to fraud, the majority of it by employees, up from $1.7 million in 2005, according to PricewaterhouseCoopers, which conducts biannual surveys of around 5,400 companies of all sizes worldwide.

Employers are hot targets for theft because workers "know their systems, controls and weaknesses, and they can bide their time waiting for the right opportunity," says Mark R. Doyle, the president of Jack L. Haynes International, a provider of workplace crime-prevention services.

The elimination of perks such as employee discounts and holiday parties can aggravate the problem, adds Mich, who, prior to joining BDO, worked for 12 years as a white-collar prosecutor in New York.

"They're thinking, 'I'm not being treated fairly by my employer anyway so I'm going to take this indulgence here,'" he explains.

It's not that theft doesn't happen when times are good, says Bob Zierk, the vice president of human resources for Black & Decker's (BDK, news, msgs) hardware and home improvement division, but these issues "come up with increasing frequency in a difficult economy."

Though he hasn't noticed a recent rise in employee theft at the manufacturer, he says, he saw the problem intensify in past downturns when he worked at other companies during his 32-year career in human resources.

Continued:  Cameras cross a line

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