Study Shows Employee Theft Involves Money and is Rarely Reported
A study of 314 small business owners in Cincinnati found that 40 percent of thefts in small businesses are of money. The study also found that 64 percent of small businesses have experienced employee theft, only 16 percent of those reported the incident to police.
“It's important to look at this topic because such theft represents a loss to the tax base and would also seem to put such businesses at risk, and so, put our overall economy at risk," said study author Jay Kennedy, a University of Cincinnati criminal justice doctoral student.
Kennedy found four main reasons why employers are hesitant to get the authorities involved.
- No real victims: The business owner does not see the victimization as serious enough to warrant his or her time and trouble beyond firing the employee.
- Attorney advises against it: The business owner seeks counsel from a third party, usually his or her attorney, who often advises that the employer's costs in time and effort for a successful prosecution outweigh any likely benefits to the employer. For instance, one company went through all the time and steps for a successful prosecution of an employee who stole $200,000. "The employee was convicted, put on probation and ordered to make restitution at the rate of $50 per month," Kennedy said. "In essence, the small business will never recoup the stolen funds."
- Emotional ties: Many of those employees caught in theft have worked alongside business owners for many years, and may even be family. "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."
- Business owners see the police/criminal justice system as ineffective or incompetent: Since thefts by employees may involve complex finances that are not the specialty of a beat cop, small businesses often assume that a responding officer won't have the business background to appreciate or even, initially, do much about a reported crime other than write up a report. Or, small business owners assume the police are busy with more traditional, street-level law enforcement duties.
The research found that the most common item stolen was cash. Overall, 40 percent of thefts in small businesses are of money. Kennedy said that the cash thefts reported in his study ranged from $5 to $2 million, with $20,000 being the average amount stolen.
Kennedy hypothesized that the higher the dollar amount in a theft, the more trusted the employee conducting the theft. He said most people believe that employees who steal are doing so because they are poor, in desperate need of money for, say, medical treatment or other dire circumstances.
"Anecdotally, I've founded in my research that these crimes actually tend to be a matter of lifestyle enhancement," Kennedy said. "Those convicted of fraud cannot account for how they spent the money."
In addition to cash, 18 percent of thefts were of products sold by the business, 12 percent were of materials (items that go into the production of a firm's product offerings), 8 percent were of tools and 6 percent were equipment.
The study revealed that most of thefts do not happen in a one-time incident, but represent an employee who steals over time. According to the research, 61 percent of reported thefts were ongoing schemes and ranged in duration from a low of about two weeks to a high of 20 years. The average duration of a theft scheme was 16 months before the employee was caught. Kennedy said in most cases the theft is discovered by sheer luck.
"Say the employee who is stealing goes on vacation, and someone else steps in to take over duties," he said. "The person stepping in notices something funny and begins asking questions."
The research found 60 percent of the employees most likely to steal were categorized as general or first-line employees, those at the lowest hierarchical level without supervisory responsibility. About 20 percent were managers/executives; the rest consisted of small percentages of accountant/bookkeeper/finance professionals; receptionists and secretaries; and billing/purchasing professionals.
The study covered a range of industries, including the finance/banking sector; manufacturing sector; service sector; and restaurant/retail sector. Kennedy also conducted 30 in-person interviews with some of those surveyed.