Preventing and Detecting Theft and Fraud in Your Organization

The importance of HR's role

Employee Theft And Fraud

Earlier this year an employee at an auto dealership in Western New York admitted to stealing over 4 million dollars from her employer over at least a seven year period. As the comptroller she had been writing herself checks from the company and transferring funds to personal accounts, all of it undetected for years by her employer. The reason? A lack of checks and balances within the organization. In a large company, creating and implementing policies and procedures within an organization that can help prevent and detect fraud are the shared responsibility of a company’s financial department, legal team, IT department, and human resources department. But in small and mid-sized companies, the responsibility may fall on much smaller team, or even a single individual.

Here’s how an organization can develop policies and procedures that can help detect and prevent fraud in the workplace...

Carefully screen potential employees BEFORE you hire them

Preventing employee theft and fraud in the first place starts by hiring the right people. Perhaps the most important factor in hiring the wrong person is that too often the entire process moves too quickly. When searching to fill an open position there are many factors that lead employers to rush to hire someone quickly, to hire someone because they’re a friend of a friend, because work is piling up in the meantime, because of any number of reasons. This can mean missing red flags on someone’s résumé or in their background. Take the time to thoroughly review a candidates’ work history, to check references, and to probe and validate answers they give in an interview.

The best way to achieve this is by creating consistent procedures for hiring candidates and to follow these procedures each time you’re filling an open position.

Setting and enforcing expectations

Theft and fraud can take many different forms depending on your organization- from the falsification of time cards so that employees get paid for time they haven’t actually worked, to taking or using company property improperly or without permission. It’s important that employees have a clear understanding of what an employer’s expectations are about when to punch in/out of a shift, whether or not a co-worker can punch in/out for them, whether they can use company vehicles for personal errands, what is and isn’t an appropriate use of a corporate credit card or expense report. The employee handbook should have a clear policy on these types of issues and they should be enforced. Employers should also regularly review these policies and make sure that their business practices match what’s in the handbook.

Creating a positive work environment


There are three principal factors that go into an employee committing fraud or theft of company resources (called the fraud triangle, developed by Donald Cressey in Other People’s Money):

  1. Opportunity
  2. Pressure
  3. Rationalization

The opportunity for an employee to commit fraud or theft can be managed by having checks and balances in place, either in the form of procedure or physical checks. An example of a procedure would be requiring that expenses over a certain dollar amount must be approved by two supervisors, while a physical check could be the installation of security cameras on the premises.

The two more significant challenges to manage are pressure and rationalization.

Understanding the pressure to commit fraud or theft

An employee may appear to be a model staff member to their supervisors and co-workers, someone who is always on-time, gets their work done, and maintains a friendly and positive outlook, while in reality they may be under immense pressure. This can take the form of personal financial difficulties such as a divorce, medical expenses, healthcare costs, etc. It can also be an issue with mental health or addiction, such as a gambling compulsion, drug habit, etc. In either case the employee is feeling some type of stress that makes them more likely to commit fraud or theft.

This is why it’s critical that employers create engagement with their employees and establish trust with them, so that if they are feeling these types of pressures they feel comfortable enough to seek help to address these issues before they feel overwhelmed. Identifying and addressing potential pressures and positive interventions can help alleviate pressure before an employee makes a very bad decision.


The third component to theft and fraud is rationalization- because even with opportunity and pressure, most people have an understanding of right and wrong, and so there must be some factor that allows them to justify actions which they normally would consider to be wrong. If an employee knows that their supervisor is always leaving early or that a manager is being reimbursed for personal purchases on a company expense account, then they will see that as acceptable behavior, and can justify taking those actions themselves. Therefore it is absolutely critical that employers, supervisors, and managers meet or exceed the expectations they have for their employees.

Another rationalization for theft could be the sense that an employee is undervalued in the organization, and that they deserve more, either in general or relative to others within the organization. One way to blunt this rationalization is to make sure that your organization recognizes employee achievements and has policies in place to manage employee performance when it isn’t meeting expectations.

Regular performance appraisals and an internal approach to managing wage and salary that recognizes performance can create a sense of fairness and internal equity that goes a long way.

Theft and fraud is a manageable human resources risk

Employers that want to avoid the possibility of theft and fraud can take steps in their organization, through concrete actions and by developing a positive environment.

  • Develop policies and procedures on the following
    • Interview procedures
    • Reference checking
    • Operational expectations (part of an employee handbook)
    • Performance appraisals
    • Wage and salary administration
  • Minimize opportunities for theft and fraud
  • Build trust and empathy with employees so that if they feel outside pressures they are addressed before developing into problems.

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