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Employment Law - Employee Theft

Date: March 07, 2011

Authors: Annette Wood B.A. (Policing), LL.B.

Employees stealing from employers in an increasing problem. This is increasingly evident when approximately 80% of workplace crime is carried out by employees. Employee dishonesty is a crime, it can take many forms such as embezzlement of funds, false invoicing, theft of cash, false inventory, payroll fraud and computer fraud.

The Statistics on Employee Theft

The Australian Retailers Association estimates that more than half of stock “shrinkage” is from employee theft. The Australian Federal Police say that 70% of business fraud losses are from staff and former staff, amounting to at least $1.5 billion a year.

In reality experts believe the true level of employee theft is higher than the statistics show, because much of it is undetected and, even when it is uncovered, many business owners do not report it.

The Australian Institute of Criminology found that only 1 in 17 incidents of employee theft were actually reported to the police.

A Big Example at Clive Peeters

There are signs and evidence that the level of employee financial fraud is growing, both in the number and size of incidents. This was particularly highlighted in the recent collapse of whitegoods retailer Clive Peeters, a company whose financial troubles were exacerbated by the $20 million fraud by an employee. It involved a woman who was their payroll manager. She used the proceeds to buy property and cars.

Things you should look out for

Economic conditions can have a significant effect of fraud levels, it can be found that levels of employee theft increase following a boom period. People want to maintain a certain standard of living, even it means that they have to resort to criminal activity to do so.

Fraud often starts with small amounts and as employees find that they can get away with it, it gets bigger and bigger. Many recent cases have involved theft by employees of large sums of money. Many smaller companies have the advantage over fraudsters especially if the principal knows about every contract, payments and employee. But any loss to a small company can be devastating.

Many frauds stem from the fact that one person may be the only one dealing with payments and that person may have the opportunity to fake suppliers and accounts, as well as false invoices. It is therefore important to ensure that no single person has sole control over payment systems.

Some of the underlying causes of why employees commit theft from their employers may be to feed an addiction, such as gambling, drugs or alcohol. Fraud can also be triggered by a period of financial distress, such as a messy divorce. However not everyone fits this profile and there may be many other reasons or factors involved. It can actually be anyone who has the opportunity and desire. Companies need to watch for employees who are under financial stress or whose lifestyle is out of line with their salary.

Some of the things a company can do to identify and track employee theft is through specialized software, which is able to track and report anomalies. There are other red flags to look for such as employees who don’t want to take leave, or seem to have a lifestyle out of line with their remuneration.

Options available to employers once you suspect or have uncovered Employee Theft

In terms of recovering the assets, an important tool is an Anton Piller order, which can allow company representatives or a supervising solicitor to enter specified premises and search for, copy and seize specific items of evidence. Another process that can be used is a Mareva injunction, which prevents the alleged fraudster from removing or disposing of assets.

If the stolen assets cannot be recovered it might be possible to recover losses from the other assets of the fraudster. The real problem with this is when there are no assets left. The employer has spent all the proceeds of their crimes. When there are no assets left available or the company is embarrassed, it can be tempting for the company to simply dismiss the employee and not take the matter any further. It is true that any fraud can damage a companies reputation. 

Contact LAC Lawyers for the right advice

Our view is that a company should always be willing to investigate and pursue recovery to the fullest extent. It is important to send a message that the company takes fraud seriously. It is also important to do proper pre-employment screening. It has been found that 14% of employees engaging in fraudulent conduct had a history of dishonesty with previous employers. It was also found that false invoicing and theft of cash or inventory were the most common frauds.

It is only by setting up sound processes, accountability and investigating all suspected acts of theft by employees, that will enable a company to protect itself.  A company should have clear policies on theft, employee purchases, refunds, use of equipment and staff discounts. Businesses need to have strict reporting procedures around the areas they are most vulnerable, such as cash, stock, plant & equipment, and intellectual property.

If you are uncertain as to what systems, policies, procedures or how to investigate employee theft, contact us for assistance. We have trained and experienced fraud investigators with experience in the Private and Government sector, who will be able to provide you with the necessary expertise and assistance.

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