Navigating Employee Suspicion and Cash Shortages: How Should HR Address This Delicate Situation?

I'm new to the HR dept and have not seen the following situation before:

A Dept. Manager is responsible for a small amount of money but has no standards or reliable procedures in place for keeping track of who has access, balance, etc. All department employees have access all day long. The monthly counts are done only by the department manager and admin assistant. In the past months, finance has noted cash shortages, and the department manager has intimated suspicion of a particular employee. The problem is the lax procedures for cash handling make it nearly impossible to prove who the culprit is, and the manager refuses to change procedures. The employee under suspicion otherwise has a very good record and recently received a good review by the manager. At the same time, the manager recommended a minimal salary increase not matching the review. The employee is now questioning why other employees with similar reviews received annual increases twice as high as their minimal COLA. The department manager had made open announcements to the staff publicly that there were shortages. Now the employee is questioning HR if they were under suspicion. What is the best way to proceed in a situation like this? Should the Manager be direct and tell the employee they are being audited, or pretend all is well until they are caught in the act or leave? The issue has already hit the company "grapevine"...

It is better to have checks & balances in your system which involves cash & it's access to employess otherwise it would have detrimental effect on the morale of the employees.
Review the current systems as to examine the pitfalls.
Regards,
Rajat

First, I would recommend that you, as the HR person, meet with the Department Manager's superior to determine (1) whether or not (s)he was aware of the shortages and (2) determine what corrective action is contemplated.

Second, if no action is contemplated, you should recommend that the Department Manager's superior, with you in attendance, direct the Department Manager to establish a security procedure as soon as possible. Underscoring the importance/priority by making it clear that any future shortages, as a result of the failure to design and implement a "control system," will be a deciding factor in his/her future employment.

Another point that should be discussed is the reason that the Department Manager "has intimated suspicion of a particular employee."

Is there anything that remotely points to the employee in question, i.e., indebtedness, appearance of living beyond his/her means, etc.? Or is it merely a diversion to throw suspicion off the Manager and/or the Admin. Asst.? Suspicion without facts can lead to some serious legal problems, not only for the Manager but also for the Company.

Finally, the manager should be questioned, again by his/her superior, as to the reason behind the "min salary increase not matching the review" and the public announcement to the staff of the cash shortages. Both instances create an atmosphere of suspicion and distrust among employees, lowering morale and productivity. Both of which bring into question his/her judgment.

The Department Manager should be made aware that this is a "counseling session," that future instances of similar behavior may have more severe consequences, up to and including termination.

Thanks for the feedback. The potential legal pitfall is uppermost in my mind at this point.

We may have to be more adamant with this manager as they've been very resistant to changing the cash procedures. If there's pilfering or dishonesty, we want to know who within the firm that is.

The employee has been told the issue is being investigated. I'm not sure how we will proceed beyond that.