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Law Offices of Jonathan M. Cooper

Does the Struggling Economy Cause a Rise In Employee Theft and Fraud?

Much ink, time and expense has been and is still being devoted to the question whether businesses that run the gamut from large companies to small business have greater reason to fear employee theft or fraud due to the recession. As a case in point, in an article that was published earlier today, a recent poll conducted of executives concluded that over 67% believed that accounting fraud will rise over the coming months and years.

The participants in the study apparently believed that employees’ fear of losing their jobs, failure to receive their customary year-end bonuses or raises (assuming they were fortunate enough to retain their jobs) would make these disgruntled employees a greater risk to steal from their employer.

Naturally, these studies suffer from multiple confounding factors, and are far from scientifically reliable. As a case in point, the only quantifiable statistics that are available for comparison are when the thieves are caught – not when the business theft is committed. In theory, there could be three or four times as many thefts occurring during an economic boom, but as long as no one is discovered, it remains outside the purview of the study.

Moreover, these studies seem to ignore the flip side of this argument, namely, that employee theft may be more likely to occur during economic prosperity.  And the reasons for this are dual: first, when times are good, a company’s owners are less likely to examine critically their expenses, and a few unaccounted for hundred (or thousand) dollars may very well go unnoticed; and, second, when the money and customers are rolling in, some salaried employees, or “worker bees,” may resent the huge profits that are being realized by the “fat cats,” and rationalize that they “earned” these additional funds, or might even try to make a few extra bucks on the side by stealing trade secrets and diverting them to a competitor.

 In the final analysis, I think all of these studies miss the central – and only -- point: the economy, whether good or bad, really has nothing to do with whether an employee is more or less likely to steal from you; it’s irrelevant. The critical question is whether your employees are ethical people.  And if you spend enough time with your employees, you should get a sense of whether they are trustworthy or not.

 Make no mistake about it -- the ones that are supposed to start work at 9:00 a.m., but arrive at 9:05, at which point they start to remove their coat, only to retreat back downstairs to get their breakfast, and when finally finished with their coffee and bathroom break, are ready to begin working by 9:45 – and you surely know people like this – these employees are stealing from you. And it is this type of employee rather than the rather than the type of economic climate that will ultimately determine whether they will breach their contracts or fiduciary duties and steal from you.

Jonathan Cooper
Employment Litigation and School Negligence Lawyer