Employee theft and the role of accounting, legal expertise and fidelity insurance
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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
2020 was an immensely difficult year. Because of the economic downturn in the country, it left a lot of businesses with insurmountable odds to make things work and so, many businesses have had to shut up shop. While this has been unfortunate for many business owners, it does present those who have been able to continue their business successfully with new opportunities and new questions to ask themselves.
Not least of these is knowing whether your business is scalable (even after a torrid economic year). In fact, scalability is often made possible because of economic downturn. Despite the disaster of 2020, it does look as though the economy will grow by quite a margin in 2021 (as is normal after a recession). There is no doubt that business will pick up and that businesses that have fallen away as a result of the pandemic have opened up space in the market, leaving clients ready to be picked up.
Here are some things to think about as you consider growing your business in 2021:
Scaling a business is an endeavour that should never be taken lightly, but should come as a result of good deliberation and forethought. That is to say that scaling for scaling’s sake is a risk that endangers all stakeholders in the business. Make sure that it is something you want to do and are ready for before taking the plunge.
The more opportunities you have to turn down shows that there is room for expanding your business in some way or another. You will have to evaluate what kind of opportunities it is that you are turning down – even if these are outside of the regular scope of your business. Is it perhaps an opportunity to bring in someone with greater superiority and experience in a related business activity? Is it time to increase the workforce with just one or two people to fill the gap? Are the opportunities you are turning down due to seasonal demand?
Note that there are many reasons why you might need to turn down an opportunity, but getting down to the root of the cause is the only way to determine what your next step should be (dissecting your finances is one way to assess your situation before you decide to proceed or not).
If you’re finding that your cashflow is strong but you are perhaps are unsure what to do next to take your business to the next level, a strategic financial review may do wonders to show you where you are over- and underspending. As soon as you are aware of the areas of your business where you can reasonably focus more attention (whether that is in infrastructure, staffing, product/service development, or somewhere else), you will be able give your energy to those aspects that lead to business growth. In order to make the most of this step, it is will be of great value to speak to your financial advisor.
One important consideration in and after a recession is that while there may be businesses that have closed, their customers will need to go somewhere to have their needs/wants met. This means that there is great value in rounding up the customers and clients who are looking for someone else to fill a gap that was created. Take time to find out who your target market is and how to reach them. Also, don’t be afraid to broaden your horizons: if the COVID-19 pandemic has proved anything, it is that new trends can form very quickly as people reprioritise their lives. The faster you move to engage with the lost consumers and clients, the more opportunity beckons your business’s growth.
If you do not have the necessary infrastructure in place (or if you cannot reasonably expand your infrastructure to increase your capacity), scaling can be extremely difficult, if not impossible. If you have assessed your available assets and resources and deem it to be a good foundation on which to expand your business, you may just have what it takes to increase your revenue by accessing a larger part of the market share in your industry.
Are you ready to assess your business and take the necessary steps to grow and take advantage of the gaps created due to the COVID-19 pandemic? If you do, the world may just be your oyster.
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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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).