December 04, 2018 | Posted in:

3 Types of Internal Theft and How to Protect Your Business

If your employees are stealing money from petty cash or strolling out the door with computers, you probably won’t need to hire a high-priced forensic auditor to catch them. Unfortunately, most internal theft isn’t so obvious.

By implementing a few tried-and-true controls, however, your business can establish effective safeguards against a wide range of abuses. Here are three common embezzlement schemes and what you can do to protect your business against them:

1. Abuse of company credit cards.

For example, say your line supervisor stops at the hardware store to purchase materials for the maintenance department. He spies a top-of-the-line power tool. Seizing the opportunity, he misuses the company credit card, hoping he won’t be caught. To prevent this type of abuse:

  1. Restrict access to company credit cards.
  2. Require receipts for all credit card charges.
  3. Periodically review receipts for compliance with written policies.

2. Diversion of company funds for personal use.

When under excessive financial pressures, some employees may be tempted to dip into the company coffers. Schemes range from fake vendor frauds to the creation of “ghost”” employees. To foil such frauds:

  1. Rotate tasks among personnel.
  2. Review vendor lists to identify phony businesses.
  3. Compare employee lists with payroll disbursements.

3. Theft of inventory and equipment.

One way workers may commit theft includes placing raw materials or tools in company garbage bins during regular hours, then returning after work to retrieve the stolen items. To control against this type of scheme:

  1. Conduct periodic inspections as employees leave the premises.
  2. Restrict access to company refuse containers.
  3. Install closed-circuit cameras at vulnerable locations.

Of course, even the strongest controls can be circumvented. Your company’s most basic and effective control starts with the hiring process. Conducting thorough background checks and employing workers with a proven history of integrity is often your greatest defense against fraud.


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