Is Management Creating Employee Theft?

Internal theft also known as employee theft causes close to fifty percent of all retail business loss. In thirty years of conducting employee theft investigations I am still shocked by how poor a job most businesses do in common sense prevention. For example I conducted an investigation where $5000 in forged business checks were cashed. It turned out that the stock of checks was unsecure in an office supply room. The janitor’s stole 20 checks from the middle of the stack, waited a while and them began to cash them. These checks should have been secured in a locked cabinet with strict controlled access. The checks should be logged out and issued to the person that processes them.

We drop our guard because it is “more difficult” to do it the right way. You prevent employee theft by doing it the “right way” not the easy way. The key is “prevention”. Another excuse is we say, “oh I trust that person, they would never do that”. Those words get more business people in trouble. When a management person says that they are basically saying that they have no business common sense.

Another case involved employees that stole hundreds of thousands of dollars in product from a warehouse they worked in. They had keys to the warehouse that contained millions of dollars of merchandise. The alarm system was not reporting opens and closes. So coming back at night and loading up a truck was not a problem.

Internal theft or employee theft lurks around every corner. You have to be actively watching for it to prevent it. Internal theft will not go away or stop on its own. In fact it will get worse. Get your policy manual off the shelf, dust it off, update it and make sure people understand that this is your companies “business bible”, live it, enforce it! This doesn’t mean that it never changes. As your business changes your policy and procedures should change.

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Management Failure At It’s Worst…Not Reporting Employee Theft

In some companies employee theft has been occurring for so long that it has festered into a serious dilemma that is not only right under managements nose but also actually condoned. Let’s use a retail store as an example. Management overlooks employees who take small items such as candy, sodas… It goes on long enough that it not only becomes the norm but also happens right in front of management. Managers do nothing about it. So the employees learn that this is acceptable. Even worse, in some cases the same managers do it to!

The candy bar that sells for $1.25 (remember when they were $0.50?) stolen by an employee does not just cost your business a $1.50. If your stores profit margin is 2% that employee just ate $62.59 (1.25 / .02). You will have to sell $62.50 to just BREAK EVEN. Let’s say that same employee does that four times a week for a year. That’s $13,000.00 that you will have to sell to break even on a thief with a sweet tooth.

If management condones it then others will see and in many cases do the same thing. “It’s alright” becomes the culture. Which means employee theft is the norm. I can tell you for a fact that it will not stop there.

Look at the issue in another way. Some companies have a policy that if a cashier is only short $5.00 (or whatever) at the end of the day that they do not look into it because it take to much time. That tells cashiers that it is OK to steal $4.99 and or less. That’s lunch money, gasoline…(OK not very much gasoline, but still!).

This problem is one that can simply sneak up on a business. It starts out small and gets much bigger. That’s the culture that has been established. Most employee theft gets its start this way. After that the thief gets more confident because “it’s alright”. We then wonder why it has happened.

You must establish a zero theft tolerance policy. A line must be drawn in the sand. You must not just look the other way at this and hope. Employee theft cannot and will not go away on its own.

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Conducting Employee Theft Investigations

Employee theft investigations must be initiated whenever you suspect employee theft. I have seen a large amount of business owners and managers that hesitate or bury their heads in the sand and act as if theft is not occurring. For years now the University of Florida study has routinely shown that employee theft accounts for approximately 48% of company losses.

If not addressed employee theft will continue and grow. If the employee has gotten away with it one time they most likely will continue to steal. Businesses that do not attack the issue will not prosper. I have even seen businesses tolerate employee theft because they do not want to lose a “trusted or important” employee. That begs the question, how trusted or important is the person who is stealing from the very company that pays them?

Leaving this person in place is business suicide. We have recently conducting employee theft investigation of a person who has stolen hundreds of thousands of dollars in cash and was not terminated because the company owner was afraid to let this “important” person go.

Nobody is that important where employee theft should be ignored. Employee theft investigations are normally a fast simple investigation. Go to the police? No, most law enforcement agencies do not have the experience, time or even desire to do a proper investigation of this type. Use an experienced LP Investigator.

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Employee Fraud And The Police

A number of business owners believe that the Police will conduct employee fraud investigations. While this may be true in some situations. The fact is that most Police Departments are busy. Their caseload is overwhelming at best. As a former Police Officer I can tell you that most crimes reported do not get investigated. There is simply not enough resources to handle it all.

If you go to the Police with a mostly unsolved situation of employee fraud they will most likely take a report but in most situations nothing more will be done. Even if they do open an investigation the fact is that very few Detectives know how to investigate employee fraud and theft. That is one of the reasons why the retail industry has Loss Prevention Departments. LP professionals specialize in these investigations. Good LP investigators can conduct the normal employee fraud or theft investigation in a matter of a few days.

Once the facts and information are pulled together an LP investigator will interview the subjects with the goal of obtaining a written admission. After the necessary elements of the investigation come together a presentation can then be made to the Police or Prosecutor.

White Collar Crime

Wikipedia defines white-collar crime as “a crime committed by a person of respectability and high social status in the course of his occupation”. We have found that this kind crime is not just reserved for the Senior Management of a business or retail establishment. Department Heads, Assistant Managers and Managers are frequently involved in white-collar crime.

We have investigated thousands of people in these positions. This type of management has access to cash, inventory, bookkeeping records and deposits. They can make changes to records and inventory and are in fact expected to do so in a legitimate business situation.

Because of this access and trust there are some that end up committing white collar crime by voiding sales, modifying the accounting records, stealing inventory and depositing checks to their own account in order to steal cash and merchandise.

The reasons for this type of theft are as diverse as the people committing white-collar crime. Not only are the standard “excuses” there such as drugs, gambling and plain old greed but others as well. For example during this time of economic problems we are finding that a spouse that is out of work puts pressure on the family finances since the possibility of finding a job is bleak. People are also justifying theft because they are used to a certain level of income, which brings with it “toys” that they now can’t afford.

How does an employer protect it self from white-collar crime? To begin with the hiring process must screen out candidates that have high-risk backgrounds. Some of these include:

  • Termination from a previous job for theft
  • The candidates credit record shows a poor history. If they cannot manage their own money do you really want them managing yours? There are some exceptions such as a massive medical problem. But beyond that type of issue a poor credit record tells you how they manage their life.
  • Traffic violations beyond an occasional speeding ticket. DUI’s, reckless driving and frequent accidents will also tell you about the person.
  • Criminal histories also give us a window into a person’s mindset. I am not talking about the check they bounced in college for pizza. Assaults, fighting, domestic violence, drunk and disorderly type incidents show that a person is not in control of themselves. And of course convictions for serious crimes such as robbery, murder, rape and kidnapping are not only showing us that the person is out of control but is a high-risk liability for an employer. If you hire someone like this and they commit any crime against your employees or customers and you will most likely be held liable.
  • Testing candidates with one of the many employment-screening tools that sort out people that are prone to theft are very effective.
  • Drug testing
  • Conducting several interviews by more than one management person skilled in pre-employment interviewing.
  • Do not forget checking references. This tends to get down played but it has merit. Insist on references with previous co-workers, supervisors, teachers and others beyond the ones that are listed on the resume. Ask for more and specify the type.

White-collar crime will never go away, ever. Protect your self by being proactive.

Internal Theft Of Your Company Information

It can happen to all of us. A disloyal employee decides to take a job with a competitor or start his or her own business. What makes them disloyal is that they download and take with them your customer and confidential information. This is internal theft. What can you do? I most cases it depends on your states law. However, there is also the Federal Computer Fraud and Abuse Act.

But you must first take preventive actions. The internal theft of your information should be prohibited in your employee handbook that the employee signs when they come to work for you. Their access to your data is only for the furtherance of your business only and ends when they terminate. Even if you forget to remove them from your computer systems.

Next make sure that you retrieve laptop computers and immediately delete their access to your building, alarm system, remote access passwords. The courts cannot help you unless you first help yourself prevent internal theft.