How to Spot an Internal Thief

In 2018, the former president of a credit union was indicted for the theft and embezzlement of over $375,000. That same year, an office manager for a medical practice was accused of embezzling $1 million and then posing as an IRS official to cover up her illegal activities.

These incidents might seem extreme, but employee theft results in losses of over $50 billion annually for businesses in the United States. Many of these infractions can seem minor, an employee rounding up hours worked on a timesheet, for example. But, small losses add up, and vulnerability to internal theft can potentially impact your business in huge ways. So, what are some things you can do to prevent and identify internal theft?

Preventing Employee and Contractor Theft

Conduct a thorough screening process before hiring, including requesting a background check. That goes for all employees. Set workplace policies that require accountability and limit solo projects whenever possible and educate your employees by talking through the behavior that constitutes theft in the workplace. In addition, see to it that no employee has full control over a business process that has a theft risk.

If it’s applicable in your industry, you might require contractors to sign a non-disclosure agreement (NDA) before working with you. And always limit unnecessary access to company information and property.

Identifying Internal Theft

Prevention is an essential piece of the puzzle, but it’s equally important to be able to identify internal theft when it happens. Here are some of the main types of internal theft and signs that can help you spot an internal thief.


When an employee or contractor uses intentional deception to steal from you, they’re committing fraud. Fraud involves gaining access to information or hard assets and then taking it for personal use.


When an employee or contractor is trusted to oversee assets, but then steals them, they’ve embezzled funds. Think of a bank manager taking money from customer accounts.

Here are a few warning signs that may point to internal fraud or embezzlement:

  • Discrepancies in accounts payable and accounts receivable
  • Requests for reimbursement without corresponding documentation
  • Undocumented expenses on credit card or bank statements
  • Delayed bank deposits
  • An overall decrease in profits
  • Lack of thorough record-keeping

If you notice any of the above signs, you may want to investigate further.


Also known simply as theft, larceny means that an employee or contractor has taken property they do not lawfully possess. To prevent internal theft, make a habit of monitoring physical inventory and cash flow. If it’s already happening, you might notice missing inventory, cash loss or an overall reduction in profits. An internal thief may offer to work late, avoid taking days off, prefer to work alone or seem to live well beyond his or her means.

In some small shops or instances where a single employee must have control over a specific risky business process (such as employees who make cash deposits and perform reconciliations) special actions should be taken to mitigate theft risk. It can be beneficial to rotate said responsibility between employees to help identify any ongoing fraud. Some offices even require week long vacations at least once a year for those employees to allow time for another person to manage the risky process and identify any irregularities.

Intellectual property (IP) or data theft

Internal thieves may target trade secrets, inventions, proprietary products or ideas, customer lists, and other intangible assets. It’s just as crucial to inventory IP and data as it is to keep track of hard assets. Use security tools such as data loss prevention (DLP) software to protect your information. Monitor employees’ work email strictly. Pay extra attention to departing employees and contractors who might still have access to sensitive information.

Security breaches involving data sometimes happen inadvertently, when employees are careless with data. Set clear security policies for your employees and review them regularly.

Time theft

When employees round up their hours (timesheet fraud), have a friend clock in for them (known as “buddy punching”), or neglect job duties while on the clock, they’re committing time theft. Employees may also take long breaks or spend too much time on personal tasks without accounting for those actions on their time sheets.

To combat time theft, use technology instead of paper, making it more difficult to fudge the numbers. Set clear policies about job responsibilities so there’s no confusion.

When You Suspect Internal Theft

Investigate claims or suspicions of internal theft thoroughly and retain legal counsel if necessary. For minor infractions involving time theft, follow disciplinary procedures according to your company policies. Be sure to regularly review your policies with your staff. And, if you uncover criminal activity, you will have to consider termination, restitution and contacting law enforcement. The best way to prevent internal theft is with clear policies and education. If you’re not confident in your current policies and procedures, we can help. Contact one of our friendly associates today or click here to review our menu of consulting services.


*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.