I know I have discussed the issue of employee theft before, but it is clearly making a comeback.

Theft By Employees – Most of the time, when I see issues of internal theft reported by my clients, it is not petty theft, and it is not theft by rank-and-file employees.  The situations that come to my attention usually involve high level employees with some level of authority to handle financial transactions.   

I commonly write here about saving money from costly lawsuits.  But internal misconduct can cost employers far more than that.  I have seen several instances where one employee has misappropriated funds in excess of seven figures over the course of several years. These were not large companies.

Employees can get very creative with their handling of funds.  Over the years, I have seen tactics involving the funneling of money to fake employees or previously terminated employees.  Or sometimes embezzlement has involved creating fake vendors, false invoices, or fabricated bonus payments.

In every case, the situation perpetuates because of a lack of company audits and systems.  In my two recent situations, the misbehaving employees were identified when outside financial consultants were hired.

In some countries and industries, individuals with high-level financial authority are required to take a certain amount of time off annually so that someone else can put eyes on their transactions.  Occasionally, misconduct is discovered when employees are out on leave of absence.  But whatever your system, make sure you have redundancies in place.  Bringing someone in from the outside with a fresh pair of eyes is often the best way to accomplish this.

We have talked in the past about auditing payroll practices as part of the new PAGA reform. While you are at it, audit the rest of your financial practices.

Finally, double check your employee misconduct insurance.  Most companies have this included in their general liability policies but confirm the existence and limits of your policies with your insurance brokers.

That leads me to the second topic under this heading of workplace theft, and that is, “theft” from employees.

Theft By Employers (aka Wage Theft) – I use the term loosely, but “wage theft” is a phrase often associated with wage and hour violations.  Most commonly the term is used in conjunction with a practice I will call “time shaving.”

Times shaving involves editing an employee’s time, often by just a minute or two.  It is a practice we see across industries and across state lines.  Usually,  time shaving is conducted by managers, often without upper management’s blessing.  And most often, managers engage in time edits or time shaving in order to avoid paying unauthorized overtime or a meal break premium.  Let’s face it, many of us press our managers to cut labor costs.  And if we do not empower them with the best techniques in which to do this, they can resort to their own methods.

One of the issues I address in my wage and hour audit focuses on the ability of managers to edit time.  At your company, who has this authority? Can it be done without the approval of either or both the employee and upper management?

Once again, this is a question of putting the correct systems in place.  And once again, it is also an issue of management training. Managers must be taught that time records are sacrosanct. The only adjustments they should be making are when employees neglect to clock in or out.   Even those edits should be made with employee approval.  Managers should also be trained in the best ways in which to legitimately manage labor costs.  Working off the clock is never appropriate.

Managers may edit time because they believe employees are not being diligent with their time recording behavior. But the way to address employee misbehavior is to counsel, not adjust time. That is another topic we address by way of manager training.

These kinds of time edits trigger wage and hour actions, including our favorite PAGA lawsuits, as well as agency audits.  Saving a minute or two of overtime or even an hour of break pay is not worth it.   Audit your systems and train your managers.