Theft of Cash by Employees

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Some of the most common claims incurred by small businesses are theft claims. Many of these claims involve cash stolen by employees. Cash is king from the standpoint of an employee thief. It is often readily available and easy to steal. Cash is also highly liquid. Thus, it is more attractive to thieves than other types of property.

Small businesses are particularly vulnerable to the theft of cash by employees.

For one thing, workers at small firms often perform multiple functions with little oversight. An example is a bookkeeper who handles accounts receivable, accounts payable and the monthly reconciliation of the balance sheet. Secondly, many small companies lack basic controls, such as spot financial checks and an annual outside audit, to prevent fraud. Thirdly, many small business owners put too much trust in key employees and are reluctant to acknowledge signs of dishonesty.

Types of Cash Theft

The Association of Certified Fraud Examiners cites three types of cash theft. These include skimming, cash larceny and fraudulent disbursements. According to the ACFE about 19% of all cash misappropriations from employers involve skimming. About 13% involve larceny and 68% involve fraudulent disbursements. Each of these acts is explained below.


Skimming refers to the theft of cash that has not yet entered the employer's accounting system.

For example, a customer makes a purchase using cash. An employee pockets the money and never rings up the purchase on the cash register. The business owner is unaware of the theft because no record of the sale exists.

Skimming can also involve the theft of checks. For example, a worker in a dental office collects checks mailed by patients as payment for dental services.

The worker deposits some of the checks into a personal account instead of her employer's account. The missing checks were never entered into the employer's accounting system so the employer doesn't know they were received.

Cash Larceny

Cash larceny refers to the stealing of cash after it has been recorded on the employer's books. Larceny is more difficult to conceal than skimming because the stolen funds have been recorded in the employer's accounting system. An example of larceny is the theft of cash from a cash drawer after an employee has rung up a sale. The worker may later try to cover his or her tracks via a cash register scheme (discussed below). He or she may create a false refund, void a sale, or alter or destroy the cash register tape.

Fraudulent Disbursement

Like cash larceny, fraudulent disbursement involves theft of cash that has been recorded on the employer's books. In fraudulent disbursement an employee uses his or her position to release funds  for a purpose not authorized by the employer.

There are several types of fraudulent disbursement. These include:

  • Check Tampering An employee may create a fraudulent check or alter an existing one. For instance, a worker alters a check from a customer. He replaces the employer's name with his name as the payee. The worker then deposits the check into a personal account.
  • Cash Register Schemes A worker steals cash from the register by voiding a previous sale or creating a fake refund.
  • Billing Schemes This type of fraud involves a fake document such as a purchase order or invoice. After creating the false document the worker issues a check. He or she then cashes the check or deposits it into a personal account. A billing scheme may also involve false expenses or false payroll records. For instance, an employee may submit an expense report using faked receipts. Alternatively, he or she may alter a time card or create a "ghost employee."

Insurance Coverage

Theft of cash by an employee is not covered by a typical commercial property policy for two reasons. First, cash does not qualify as covered property. Most policies exclude accounts, bills, currency, money, notes or securities under the definition of covered property.

Secondly, most policies exclude loss or damage caused by a dishonest or criminal act committed by an employee (including any temporary worker or leased worker).

To protect your company against theft of cash by employees you can purchase employee theft coverage (also called employee dishonesty coverage). This coverage may be added to a property or package policy via an endorsement or crime coverage form.