Employee theft is estimated to cost Australian businesses billions of dollars each year. Sadly it is frequent and employers need to take preventative measures to ensure their business does not suffer loss. This can be done through a combination of internal processes and transferring risk to insurers. Business owners need to consider the types of thefts which could occur in their business. Legally there are several different types of theft. Each instance of theft needs to be considered individually as the circumstances will decide the type of crime which has been committed and which insurance cover will respond.

So what types of employee theft are there, and what can business owners do to prevent loss to their business? You might be surprised at how many types of theft exist.

Types of employee theft

Larceny

It is considered larceny if an employee takes any property belonging to his or her employer. Examples of larceny are:

  • Taking cash from the till
  • Taking sale stock from the business and either keeping the item or selling the item and retaining the profit
  • Transferring cash from business accounts to a personal account
Embezzlement

Embezzlement has occurred if the employee has stolen property which has been entrusted to the employee during the course of their employment. An examples of embezzlement is:

  • A lawyer misappropriating funds in a trust account

The difference between larceny and embezzlement relates to the possession of the property when it is being taken. If the property was in possession of the employer when taken, this is larceny. Where the property is taken by the employee when they have been entrusted with the property during the course of their work, it is embezzlement.

Fraud

Fraud is stealing where a person obtains property from another by way of a dishonest act. Examples of employee fraud are:

  • Creating bogus suppliers, with payment being made to the fraudster’s bank account
  • Obtaining kickbacks or bribes from suppliers or contractors
  • Manipulation of financial data to receive performance based bonuses
Obtaining

The term “obtaining” applies when the property or money is not physically taken but is taken in some other way. Obtaining property by deception is charged where a person dishonestly engages in a deception and as a result obtains ownership or control of property belonging to another person. Examples of obtaining are:

  • Theft of money from an employer by way of deceptive conduct, such as illegitimate refunds
Burglary

Burglary is the entry into a building or part of a building by a person as a trespasser with the intention to steal something from the building or part of the building; or commit an offence punishable by imprisonment for a term of five years or more involving either: an assault to a person in the building or part of the building; or damage to the building or to property in the building or part of the building. An example of burglary is:

  • If an employee were to enter a workplace after hours and steal property from within for example, then that satisfies the burglary definition and so the employee may be found guilty.
Extortion

Extortion is another way of saying black mail and is the use of threats to obtain the property of another person. The following is an example of a recent case in April 2018:

  • The employee tried to extort money from his employer and then deliberately withheld information about work health and safety (WHS) issues, forcing his employer to shut down a site for 1.5 days
Theft

The definition of theft under the ACT Criminal Code (effective 2 March 2018) is when a person commits an offence (theft) if the person dishonestly appropriates property belonging to someone else with the intention of permanently depriving the other person of the property. A recent example of employee theft in the Canberra region whereby a former trusts officer working for the ACT Public Trustee pleaded guilty to four counts of theft, though they were “rolled-up” charges and represented more than 200 different transactions.

Robbery

Under the ACT Criminal Code (effective 2 March 2018) a person commits an offence (robbery) if —

  1. the person commits theft; and
  2. when committing the theft, or immediately before or immediately after committing the theft, the person—
  1. uses force on someone else; or
  2. threatens to use force then and there on someone else; with intent to commit theft or to escape from the scene.

The following example was from a local Canberra case several years ago whereby the employee was charged with robbery. His role in the robbery was to draw and give two men the layout of his workplace. The following day the two men used the layout to commit an armed robbery.

Why are the definitions important in relation to your insurance?

The definitions of theft are important in relation to your insurance because depending on which type of theft has been committed, it will depend on which type of insurance cover will respond. Some types of theft, especially those without forcible or unlawful entry, are covered by a specialist insurance, known as Fidelity Insurance. Fidelity Insurance covers losses sustained by the employer as a result of an act of forgery, fraud or dishonesty from an employee.

Insurers will consider a Fidelity Insurance policy whereby a business can demonstrate:

  • The business has checked the record, standing and reputation of their employees
  • The credentials and reputation of the employer
  • The business has a system for protecting financial transactions
  • The business has a demonstrable system for supervising employees

Key things to know about Fidelity Insurance:

  • The insurance covers a direct financial loss, not a consequential one
  • The loss should be of monies or goods of the insured
  • The act should be committed in the course of the worker’s duties
  • The theft must be committed by an employee
  • Losses that may have been caused by bad accountancy are not payable, they must be supported by evidence of acts of dishonesty

Preventing employee theft

Prevention is an important component of avoiding employee theft. As the old saying goes, ‘Prevention is far better than the cure.’ It is far better to avoid the theft happening in the first instance so as not to have to claim on your insurance. New South Wales Crime Prevention has a checklist for methods for retail employers to prevent employee theft. Whilst the checklist is for retail, the tips are universal and be equally applied to all businesses. A summary of the tips are:

  • Create a positive work environment – Fair employment practices, written job descriptions, clear organisational structure, comprehensive policies and procedures, open lines of communication between management and employees, and positive employee recognition will all help reduce the likelihood of internal fraud and theft.
  • Implement internal controls –  These measures are designed to ensure the effectiveness and efficiencies of operations, compliance with laws and regulations, safeguarding of assets, and accurate financial reporting.
  • Separation of duties –  No employee should be responsible for both recording and processing a transaction.
  • Access controls – Access to physical and financial assets and information, as well as accounting systems, should be restricted to authorised employees.
  • Authorisation controls –  Internal controls will reduce opportunities for fraud.
  • Restrict personal belongings –  You should provide staff with lockers or a secure area to leave their personal belongings.
  • Recruitment checks – Pre-employment background checks are an excellent way to cut down on hiring dishonest employees.
  • Educate your employees – Inform your employees about your policies and procedures relating to fraud prevention and other loss prevention strategies.
  • Aim at the target – Measures should be centred on items that are the most expensive and easiest to steal.
  • Implement an anonymous reporting system – Provide a confidential reporting system for employees, vendors, and customers to anonymously report any incidents.
  • Perform regular, and irregular, audits – This can help identify new vulnerabilities, and measure the effectiveness of existing controls.
  • Keep a watchful eye – No prevention step can be truly effective if it is not frequently checked and observed for flaws.
  • Investigate every incident – Will give you the facts you need to make informed decisions and reduce losses.
  • Staff sign in – This helps you identify who is working and the hours they worked.
  • Lead by example – A relaxed approach to rules and regulations will be reflected in the attitude of employees.

If you would like to talk through your business’s risk management requirements together in relation to your business activities, even if you are positioned with another brokerage, we’d be only too happy to sit down over a coffee and discuss your needs. There are options available to you should you wish to have Mitchell’s take over the management of your insurance program, allowing you the control of a strong insurance program that is positioned correctly to your requirements. More information on how that can be achieved is here.

At anytime though, feel free to call Mitchell Insurance Management on 02 6113 0478 or contact us. Again, we are only too happy and would enjoy the opportunity to talk through your potential business risks, proposing solutions that will fit and support your business activities going forth.

The information contained in this blog provides only a general overview of subjects covered. It is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult Mitchell Insurance Management regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Mitchell Insurance Management cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk.