How to minimise your business’s risk of internal crime

Every now and then a new news story is published of an employee who steals a great sum of money from the company they work for. Most businesses aren’t at risk of losing millions through employee theft, but theft of smaller amounts is more common than would be evident from reading the daily headlines. Protecting your business against such cases could be the difference between success and failure.

Most comprehensive business insurance policies will include both theft insurance (protection against the risk of losses due to external theft) as well as fidelity insurance. Some businesses who find that an employee has stolen money or assets from the business, may try to claim a payment from their theft insurance, and fail, because theft insurance does not cover theft from internal sources.

Fidelity insurance, however, covers businesses from theft or fraud committed by employees, directors, partners, etc. within the company. This form of risk protection is especially necessary in industries where employees are expected to make payments from and have access to company accounts.

And since internal theft is often committed by employees who are trusted, it may take months for business owners to realise that there is a discrepancy in the accounts, at which point it may be increasingly difficult to trace back. There are some precautions that business owners can take, however, that will help protect them from these unwanted events.

Minimising your risk

The first of these precautions is to ensure that you do a thorough check on potential employees before appointing them. Checking for past criminal records, contacting references from previous employers, verifying the authenticity of qualifications, or conducting a credit score check can go a long way towards screening for potential internal threats to your business.

You will also want to monitor your financial situation on a regular basis – this means that you need to be able to scrutinise your monthly reports and have an accurate accounting system in place. If you are able to trace all your business expenses, taking action becomes much easier.

In the similar sense, implementing surveillance systems, whether physical (such as CCTV or an alarm system) or digital (such as enabling 2-factor authentication on transactions), serve as much more than just a safeguard against external threats. These systems can also help identify internal theft or fraud as they happen or, at the very least, help to compile evidence should an employee steal from you.

One of the main ways to limit potential internal threats, however, is simply to minimise access to physical locations as well as financial accounts. Implementations such as requiring two signatures on purchases, shifting from physical keys to access cards, and requiring authorisation for access to accounts, among others, can greatly reduce your risk. By minimising your risk, you also stand to receive a better premium on fidelity insurance.

This does not mean one should be unduly suspicious of all your employees; on the contrary, implementing safeguards such as these listed above can go a long way towards giving you piece of mind in the long run.

Can an employee be dismissed summarily due to theft?

One might think that theft is adequate justification for immediate dismissal of an employee, but in most cases, immediate dismissal will not be upheld by the CCMA, especially if they have a knowledgeable attorney to call upon.

Even in cases where there is clear evidence that an employee has stolen from you, there are legal procedures applicable, and the necessary steps need to be followed. Many companies have summarily dismissed employees for menial theft and, after a lengthy legal process, have suffered losses due to compensation for unfair dismissal and the reinstatement of employees.

Instead, one should have clear disciplinary processes in place in which the perpetrating employee has a fair disciplinary hearing. In these instances, you will benefit from having an expert legal advisor who is experienced in labour law and CCMA representation.

The final verdict

Employee theft is a real threat to business. While you hope each person that you appoint can be trusted, in reality you may be disappointed. To protect yourself from this unwanted event, you should perhaps consider taking out a fidelity insurance policy. In combination with your accounting system/team, and your labour law advisor, you will be able to not only reduce your risk but be able to act swiftly should the need arise.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)