Signs of Employee Theft and How to Stop It

You trust your team, and that’s a good thing. But when inventory numbers don’t add up, cash drawers come up short, or financial records start to look off, that trust can quickly turn into suspicion. Employee theft costs businesses billions every year, and the worst part is that most owners don’t catch it until the damage is already done. The good news? Once you know what to look for, you can shut it down fast.

How Big Is the Employee Theft Problem, Really?

If you think employee theft only happens at large corporations, think again. According to the ACFE’s 2024 Report to the Nations, organizations lose roughly 5% of their annual revenue to occupational fraud. That same report analyzed over 1,900 real fraud cases across 138 countries and found a combined $3.1 billion in total losses. The median loss per case came in at $145,000 – and the average scheme ran for about 12 months before anyone caught on.

Small businesses tend to get hit the hardest because they usually have fewer internal controls in place and are more prone to payment security mistakes that go unchecked. When one or two people handle everything from the register to the bookkeeping, opportunities for theft multiply quickly.

Here’s a snapshot of how the losses break down by fraud type:

Fraud Type	% of Cases	Median Loss Per Case
Asset misappropriation	89%	$120,000
Corruption	48%	$200,000
Financial statement fraud	5%	$766,000

As you can see, asset misappropriation, which includes cash and inventory theft, is by far the most common. This is the category that most small and midsized businesses need to watch out for.

Red Flags That Point to Employee Theft

Catching theft early saves you money and headaches. Here are the warning signs you should have on your radar.

Cash discrepancies: A theft is one of the most obvious signs and also one of the easiest to track. If your register is consistently short at the end of the day, even by small amounts, something is wrong. One of the simplest ways to catch these discrepancies early is to count cash at every shift change, not just at closing.

When the register total shows $2,400, but the actual count comes back at $2,340, you can pinpoint exactly which shift the discrepancy occurred during. Using a bill counter helps speed up the process so it doesn’t slow down operations. Kolibri makes machines designed for this kind of daily use. Combine that with a dual-custody policy where two employees verify each count, and most opportunistic theft will be stopped before it begins.

Inventory mismatches: Products disappearing without a paper trail are a classic sign. If your stock counts are regularly off and there’s no clear explanation, such as damage or shipping errors, it’s time to dig deeper.

Lifestyle changes: An employee suddenly showing up in designer clothes or driving a new car might be unremarkable on its own. However, when paired with access to company funds and other red flags, it’s worth investigating.

Other behavioral warning signs to watch for:

Refusing to take vacations or time off
Getting unusually defensive about sharing work or financial tasks
Unusually high rates of voids, refunds, or transaction adjustments
Insisting on working alone or staying late without a clear reason
Showing sudden favoritism toward specific vendors or customers

Common Types of Employee Theft

Not all theft looks the same. Here’s a quick breakdown of the most common forms:

Cash theft – Taking money directly from the register, safe, or petty cash
Skimming – Pocketing cash before it ever gets recorded in the system
Time theft – Inflating hours, buddy punching, or clocking in while not working
Inventory theft – Taking products, supplies, or equipment for personal use or resale
Expense fraud – Submitting fake or inflated expense reports for reimbursement
Data theft – Stealing customer lists, trade secrets, or proprietary information

How to Prevent Employee Theft

Prevention is always cheaper than dealing with the fallout. A solid fraud prevention strategy doesn’t need to be complicated. Here are practical steps to implement today:

Run thorough background checks before hiring. Verifying employment history, checking references, and running a criminal background check can filter out high-risk candidates before they ever touch your register or your books. This helps create a safer work environment for everyone.

Separate financial duties. Never let one person handle an entire financial process. The employee who writes checks should not be the one signing them, and the person counting inventory should not also be the one updating the records. Separating duties is one of the most effective fraud deterrents.

Set up an anonymous reporting system. Tips from employees are the top way fraud gets detected. Provide a safe, anonymous way for employees to report suspicious behavior without fear of retaliation.

Conduct surprise audits. Scheduled audits are helpful, but savvy thieves learn the routine. Random spot checks of your cash, inventory, and financial records catch people off guard and send a clear message that you’re paying attention.

Create a clear anti-theft policy. Put your expectations in writing. Clearly define what constitutes theft, outline the consequences, and have every employee sign the policy. The U.S. Chamber of Commerce has a helpful breakdown of policy elements worth including if you’re building one from scratch. Regularly review and update the policy as needed.

Build a culture people don’t want to steal from. Pay fair wages. Recognize good work. Treat people with respect. Employees who feel valued and fairly compensated are far less likely to justify stealing from the business.

What to Do If You Suspect Theft

If you think an employee is stealing, don’t confront them impulsively. Follow these steps:

Document everything by pulling financial records, reviewing camera footage, and gathering evidence.
Consult with a lawyer before taking action to protect yourself legally
Have a calm, private conversation with the employee with a witness present
Follow through on the consequences outlined in your anti-theft policy

Frequently Asked Questions

What is the most common type of employee theft?

Cash and asset misappropriation are the most common forms, appearing in nearly 9 out of 10 fraud cases, as reported by the ACFE. This includes everything from register skimming to pocketing petty cash and stealing inventory.

How long does employee theft usually go undetected?

The average fraud scheme lasts about 12 months before being detected. The longer it goes unnoticed, the more expensive it becomes, with average monthly losses around $9,900 per case.

Can you fire an employee for stealing?

Yes, theft is generally grounds for immediate termination. However, you should document your evidence thoroughly and consult legal counsel first to protect yourself from wrongful termination claims.

What’s the best way to catch employee theft?

Anonymous tips from coworkers are the most effective detection method. Pair that with regular audits, shift-based cash counts, and proper separation of financial duties for the strongest results.

Key Takeaways

Employee theft costs organizations an estimated 5% of annual revenue, with a median loss of $145,000 per case.
Watch for red flags like recurring cash shortages, inventory mismatches, lifestyle changes, and unusual financial behavior.
Count cash at every shift change, not just at closing, and use dual-custody verification to catch discrepancies early.
Separate financial duties so no single employee controls an entire process from beginning to end.
Set up an anonymous tip line, since employee tips are the top fraud detection method.
Conduct surprise audits, run background checks, and create a written anti-theft policy with clear consequences.
Build a positive workplace culture with fair pay and recognition to reduce theft motivation.