Archives for category: Theft

Book Review: The (Honest) Truth About Dishonesty by Dr. Dan Ariely

February 26, 2023 //
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Its no secret that I loved Dr. Dan Ariely’s book Predictably Irrational that I reviewed here. I’ve also been interested in theft and dishonesty as a manager. I even wrote a five-part series on theft and theft prevention; the first part of which you can find here. So a book that focuses on dishonesty by Dr. Ariely should be right up my alley – and I was not disappointed.

While The (Honest) Truth About Dishonesty:  How We Lie to Everyone – Especially Ourselves; covers similar ground, and even features some of the same studies as Predictably Irrational, to write it off as a retread would be a huge mistake. What this this book focuses on is the balance between honesty and dishonesty. Most people hold a belief that dishonesty and theft are a mixture of temptation and a cost benefit analysis with regards to getting caught. What Dr. Ariely shows, however, with a mixture of empirical data and real-world examples, is that things are a lot more complicated.

Our own self-image plays a large part in instances of dishonesty and not in the way you may first believe. While people do weigh whether they are going to be caught before being dishonest, how we weigh that risk, and whether to act on it can often be influenced, by simple measures. Placing a space for a signature at the top of a form, for example, can significantly increase the truthfulness in the answers on that form compared to just having a signature line at the bottom that is filed out once the form has been completed. Likewise having students reminded of a school’s honesty oath dramatically reduces cheating on an exam, even when there are no other preventative measures, and the school does not actually have a honesty oath. The mere act of reminding someone that something is wrong can be enough to prevent dishonesty – even if just for a short while.

What seems to happen here is that we have our own self-image of how honest we are. However, we can over tax our sense of honesty, which then makes us more susceptible to temptation. The longer we resist temptation, the easier it is to justify be dishonest to ourselves. We “fudge” the truth depending on circumstance. But we can temporarily change our circumstances with simple reminders or independent oversight.

Of even more interest to companies, is the fact that dishonesty can be contagious and feeds into group dynamics therefore feeding into a company’s culture. The need to belong to the group can be enough to tempt us into being dishonest. One bad apple can spoil the entire barrel it would seem as the norms of group culture shift the individual’s perception of honesty. Likewise, decision fatigue can also impact our honest self-image and thereby lead to actions of questionable judgment.

This is a fascinating book with significant implications for managers and owners of companies. Told with wit, humor, and devastating evidence, The Honest Truth About Dishonesty changes our understanding of ourselves and more importantly those around us. By understanding dishonesty, and what gives rise to it, we can better understand what we can do to prevent it happening in the first place.

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Categories Books, Business, Theft

Book Review: Bad Blood by John Carreyrou

July 13, 2018 //
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Ever get the feeling that the Silicon Valley Startup culture is more con than the pinnacle of new business development? If the answer is yes, or if you are afraid the answer may be yes, then Bad Blood is a book you should read.

Written by the reporter who blew the lid on the Theranos scandal in the Wall Street Journal, when they were still considered the darlings of the healthcare startup world, it is a remarkable story. If it was fiction, the story would have been laughed out of the editor’s office or thrown in the trash. It is a story of just how far networking and connections can get a company when they have a product that has really never worked. Of how the best, and the brightest, can be so intent on finding the next great thing, and of not missing out, that they will overlook almost anything.

But at its heart, Bad Blood is a story about rules and ethics. About how some people break rules and other refuse to. How some discover their own ethical lines, and how others see those same lines and cross them anyway without a second thought.
For those who do not know, Theranos claimed to have developed a spectacular new blood testing technology that only required a tiny finger prick of blood to be able to run hundreds of lab tests. They raised millions in investments but we never really able to get their technology to work properly; if at all. It is claimed that Theranos repeated lied to investors, business partners, and employees. They are, and continue to be, at the center of a number of private lawsuits and criminal prosecutions.

As with any book about a still emerging scandal, it does suffer from being a little out of date. Since the book’s publication, the two central characters; Founder and CEO of Theranos Elizabeth Homles, and President Sunny Balwani were both prosecuted by the SEC. The charges were resolved by a complicated agreement with regards to company ownership and a fine; however, in June of 2018 they were both indicted on wire fraud and conspiracy charges by the Northern District of California.

It is obvious from the writing that there is no love lost between Mr. Carreyrou and his subjects; Ms. Holmes and Mr. Balwani. But this is a minor quibble and, to be honest, quite understandable given the levels to which they pushed back against his reporting.
It is an extraordinary tale for any one in business that raises an interesting question. How does a competitor prepare for, and compete, with a disruptive new technology that does not actually exist? The real victims of the Theranos scandal may not be the investors and employees, but competitors who undoubtedly spent millions, and hundreds of R&D hours, chasing a technology that so far has not worked. Not to mention the consumers waiting for better blood tests while the industry chased its tail searching for Theranos’ secret.

Of course, Bad Blood is also a cautionary tale about the cult of personality that surrounds many entrepreneurs today. It is a book filled with larger than life personalities, chasing larger than life dreams, that leads to larger than life crimes.

Here is a Silicon Valley worthy investment tip: the movie rights should be worth millions.

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Categories Books, Business, Leadership, Management, Marketing, Theft

Employee Theft Prevention Strategies Part Five: Prevention and Cures

July 7, 2018 //
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In the fifth and final part of this series, we look at some examples of employee theft, and overall prevention measures. In part one we looked a cash handling methods, in part two we looked at credit card theft, in part three we looked look at best practices for preventing theft from inventory, and in part four we looked at employee time theft.

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As we’ve talked a lot about during this series, there is an overriding concept that helps to protect against employee theft: Trust No One. As we mentioned in part one – thefts are almost always crimes of opportunity. The goal of this series, and of owners and managers, is to remove those opportunities wherever possible and to make it easy to find the culprit where removal of the opportunity is not possible. If your business does not have video cameras in place, you are at a serious disadvantage due to the protection they provide to employers, and also to employees. If you take nothing else away from this five-part series it is that video cameras with solve far more problems than they ever create.

Unfortunately, the number one culprit for serious theft from a business is a trusted manger. It should therefore be the responsibility of all managers to create systems that are robust, create a significant paper trail, and to welcome oversight.

Thefts occur for a number of reasons including to solve money issues and general opportunity. A significant number, however, particularly when it comes to managers, occur to get revenge on an employer or prove how clever the employee is to “beat the system.”

Even when thieves are not managers, in retrospect it is often found that they have flaunted their methods to co-workers or not taken basic precautions. These are employees who feel significantly undervalued and feel that they are “owed” what they are taking. What other excuse can there be for an employee who sells high specialized products on eBay under their own name?

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image courtesy of Pixabay

Managers

Giving managers freedom to act of the behalf of the company, does not mean that processes should not be implemented to ensure that the freedom and power that they wield are not abused.

Whether a manager has a company credit card, or just has access to one, statements should not be received at the place of business but to the home of the owner, if possible, and religiously reconciled each month. Similar precautions should be taken with company checkbooks, and company bank accounts. Not giving a manager a company card; but making them use their own which they then have to submit receipts to get reimbursed, can seem like a solution to company credit card abuse. However, a manager using their own credit card only works as a theft prevention method if the expenses claim, that this will ultimately result in, is reconciled with the same care that would be taken with a company credit card statement.

Payroll reports should be inspected every time a payroll is ran. Any employees who are not recognized should be thoroughly investigated. Ghost employees, employees who don’t actually work but collect a paycheck which is then spilt with whoever prepares payroll, can bankrupt a business if not caught.

Accounts such as fuel cards which should also be monitored for abuse. Fuel cards in particular are easily abused as the transactions are often automated and happen offsite. Thankfully, fuel card vendors have a number of systems in place to help monitor and catch embezzlement. Unfortunately, it is often managers with little oversight that setup such systems.

Owners and managers must embrace transparency when it comes to theft prevention, not just pay lip service to it. It is in a manager’s own best interest to create robust systems that create double checks on their own work for their own protection if nothing else. General expense tracking should catch embezzlement, or certainly lead to further investigations but this only works if someone is looking.

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image courtesy of Pixabay

Other Thefts

Stamps, or automated postage machines, are effectively cash. We rarely treat stamps with the same level of reverence and security as cash however. The employee who is running a side business on Ebay and offering free shipping courtesy of your business’s postage is not unheard of.

Cash tips often cause issues when certain employees have jobs that are considered “tip-worthy” and others are not. Tips given to one employee, to give to another, is just a recipe for disaster. If this happens in your business consider implementing a strict handling protocol, such as: the tip is placed in a sealed envelope, in front of the client, and deposited into a lock box to which only the tipped employee has access.

Access to the incoming mail can lead to corporate identity theft. Loan and credit card offers are routinely cold submitted to businesses through the mail. Just like with personal identity theft, it can be difficult to prove that a loan or credit card has not been taken out fraudulently in the name of the business. Corporate identity theft also has the added drawback, for the owner, that the amounts can be so much larger and unless you can prove embezzlement, the company will have to repay the loan. The sorting of mail, unless the business receives considerable volumes, should not be a low-level task. It should be left to the owner or a senior manager. Employees should not receive private mail at their place of employment. If private mail is received, employees should be aware that it may be opened.

Employees should not be able to change prices in your sales system. If it is not possible, or desirable to restrict this ability, a daily report should be ran to ensure that modifications of price have been done in line with company policy and not as a method of theft. Few clients check their receipts, and fewer still say something when they think something looks off.

Always take complaints from clients with regards to wrong change, forgotten change, or overcharging seriously and investigate thoroughly. If the employee can’t come up with reasonable explanation, you may very well have interrupted a theft.

 

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image courtesy of Pixabay

Prosecuting Theft

Always terminate thieves!

Always prosecute thieves!

To an employer the penalties given out in most employee theft cases make it seem not worth the time or effort; however, unless a thief has already been through the process, to most employees being prosecuted carries significant weight. Nowhere is that weight felt more strongly than with your remaining employees. When controls are lack it is not uncommon to have multiple employees stealing at same time in different ways.

When terminating an employee for theft, try to get the police involved at the termination stage. It makes a significant impact on the employee concerned and sends a significant message to everyone else in the business. Of course, if you are going to do this you must have your facts laid out and they must be easy to follow. If the police can’t, or won’t, get involved at the termination stage you may have to go to a police station and report the theft in detail. Again, ensure that you have all your documentation, and facts straight; however, do be careful not to over do it. I once had a case of what I believed was a $1,000 embezzlement that took place over six months. The prosecution never went anywhere, I believe, because the stack of paperwork I presented to the detective was too overwhelming for the amount of the theft involved.

Different states have different amounts at which a theft stops being a misdemeanor and becomes a felony. This will have an impact on how the case is handled and sentence that the accused will ultimately receive if convicted. Always be prepared to go to court, and always make a victim impact statement if given an opportunity to. You cannot complain about being unhappy with the sentence a thief has received from a court if you are not prepared to help the prosecutor and the process.

 

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image courtesy of Pixabay

Examples of Thefts

The following are examples of the type of thefts that I have either been involved with uncovering or have heard about from colleagues. Some are quite ingenious and some are just plain stupid.

1: A late night receptionist who used a reloadable visa gift card to give themselves refunds each night. They would batch out the credit card machine, run their refund, and then rebatch the credit card machine. The only way they were ultimately caught was that the visa card had been a gift from their employer and they had registered it online in case it got lost.

2: A cashier engaging an elderly client in significant conversation so they lose track that they have not received their change.

3: An employee changing prices of items in the sales software, but charging the client full price and pocketing the difference.

4: The super helpful employee who takes the trash out from all around the building, including the inventory storage room where they help themselves to some easily resalable items. The items are removed from the building with the rest of the trash and they then return in the evening after the building is locked up and retrieve the items from the trash. They were ultimately caught because they stole some items that were discontinued and so relatively rare. A search on eBay uncovered the items being sold under their own name. A look at their eBay history provided a history of everything they had stolen over a two-year period. In addition, their listings offered free shipping which explained the thefts of stamps.

5: The employee who discovers that the payroll app has a feature that allows them to clock-in from home before leaving for work and then clock out when they get home giving them an extra 30 minutes every day.

6: The employee with money troubles who intercepts the deposits after they have been placed on the business owner’s desk, taking a portion of the cash of the day and the deposit slip, and replacing it with a new deposit of their own making.

As mentioned before employee thefts are crimes of opportunities. Remove those opportunities and half the battle is won. Create a culture of transparency, and of checks and balances, and the other half will also be won. I mention to employees all the time; “Don’t put me in the position of where I may have to suspect you of something. Make it obvious that it can’t be you.”

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Categories Business, Management, Theft

Employee Theft Prevention Strategies Part Four: Time

June 30, 2018 //
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In this ongoing series we look at ways of preventing employee theft. In part one we looked a cash handling methods, in part two we looked at credit card theft, in part three we looked look at best practices for preventing theft from inventory, and this week we look at time theft.

In most of this series, on preventing employee theft, we have been envisioning an individual who uses subterfuge to steal from their employer. Employee time theft can be a subtler and it can lead to shift in culture which makes time theft seem almost a perk to employees. Time theft can happen with both salaried and hourly employees; but since salaried employees should either be senior management or professions such as lawyers or doctors time theft, other than unproductivity, time theft primarily affects hourly employees.

Since the ultimate result of time theft is that the company is paying for labor it is not receiving, it is still theft and the amounts involved can add up dramatically; particularly if it becomes a widespread problem and culturally acceptable.

 

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image courtesy of ShutterStock

 

Clocking-In

All hourly employees should clock-in and clock-out; whether this is by using a manual time clock, a computer, or some other system. Try to have the time clock in a visible location, not hidden in a corner. This discourages employees from clocking each other in. It also discourages employees from arriving, clocking in, and then getting ready for work (putting items in their locker, taking off their jacket etc.)

All employers should have a system in place for tracking employees who call in sick or who call in saying they are going to be late. This call-in information must make its way to whomever is entering payroll so that it can be reconciled with who has been clocked in and out. If this does not happen “employee A” can call in sick but “employee B” can still clock them in and then out at the end of the day. If the report of the call-in just ends up in their employee file, “employee A” will still get paid for a day that they were not even in the building. If this happens at the beginning of a payroll period it is unlikely that anyone is going to remember the absence unless there is a protocol for recording it in the payroll system.

Be very wary of systems that allow for employees to clock in off site. They must be under strict control and ideally there should be some kind of flag in the system to ensure that the off-site clock-in system is only used when it has to be used because the employee actually is working off site.

 

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image courtesy of Pixabay

“I Forgot To Clock-In”

 

Employees can, and do, forget to clock-in. However, it is a good practice to spot check the time of arrival of an employee who has “forgotten” to clock-in with another system, such as looking at video playback of them walking through the door. An employee who is late, and their lateness is not noticed by a supervisor or manager, can make up when they arrived and claim that they forgot to clock-in. Therefore, spot checks are essential.

 

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image courtesy of Pixabay

 

Meal Breaks

Currently, federal law does not require employers to provide meal breaks. However, rules do vary at the state level with currently 21 out of 50 states requiring that employees get a meal break of some description. The rules vary widely from state to state; but usually work along the lines one unpaid break of half an hour, or an hour, and one or two shorter unpaid brakes per 8-hour shift. A perennial problem is employees not taking a required unpaid break, thereby going into overtime, and also potentially getting the employer in trouble with the state labor board if the state requires that breaks be observed. A time thief may take their lunch but not clock-out. If confronted at the time the thief may fall back on that they “forgot” and after the fact they may rely on “we were too busy.”

A potential resolution to both the above issues is to automatically clock employees out for their meal breaks and make them receive formal supervisor approval to work through their break and get paid for it. This is potentially fraught with legal issues and a labor law attorney should be consulted before instituting such a policy due the differences in labor laws between states. However, is it a very powerful way of ensuring that breaks are observed, but it also suffers from its own issues as employees, knowing that their break will be automatically deducted anyway, may take longer breaks than they are strictly entitled to.

Questioning employees who miss significant numbers of mandated breaks should go hand in hand with the implementation of a systems which allows employees to take their breaks at times that are both convenient for the business and the employee.

 

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image courtesy of Pixabay

 

Time Clock Security

As mentioned before, placing a time clock in a readily observable space will help alleviate the worst abuses of time theft. If using a mechanical time clock, however, it is imperative that only a very senior member of staff can set the time of the clock itself. If any employee can change the time of a time clock and get paid for an additional 15 minutes that they did not work, you can be sure that it will happen. Likewise, with computer-based systems, it is important that something as simple as changing the time on the computer does not affect the time that an employee is clocked in at.

For ease of catching issues, it is important that time clocks, whether mechanical or computer based, are set to the correct time. Although, it does not affect the number of hours worked or the length of an employee’s break, having them set to the correct time engenders trust in the system and makes tracing issues using other systems, such as time stamped video, much simpler.

 

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image courtesy of Pixabay

 

Employers Stealing Time from Employees

Employees, in order to get ahead of their day, or just gain extra hours, may come to work ahead of their shift and clock-in as soon as they arrive. This is a scheduling matter that should be handled as a coaching and then disciplinary issue. What should not happen is that the employer adjusts the employee’s clock-in time to match the time when their shift was scheduled to start. This is theft.

The Department of Labor takes a very dim view of such things as employees are entitled to get paid for the time that they have worked and to overtime for anything over 40-hours.

To protect themselves, employers should have employees receive copies of when they have been clocked in and out each day and ideally return them signed. Several payroll systems give employees direct access to see their hours, but not change them, at any time. Any change to an employee’s hours that is made should be made in complete transparency with the full understanding and approval of he employee.

It should also go without saying that meetings, lectures over a break which are mandatory, and travel to off-site locations, should all be paid unless your labor law attorney specifically tells you otherwise.

It is easy for employees to accuse employers of not paying them for hours worked. In these instances, it is almost always up to the employer to prove why this is not the case. Integrity of employee times and strong policies and procedures for making adjustments will provide significant protection and reduce the likelihood of any misunderstandings.

Next week, in the final part of this series, we look at overall theft prevention measures, company culture, and examples of real employee thefts.

 

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Categories Business, Management, Theft

Employee Theft Prevention Strategies Part Three: Inventory

June 23, 2018 //
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In this ongoing series we look at ways of preventing employee theft. In part one we looked a cash handling methods, in part two we looked at credit card theft, in this part we take a look at best practices for preventing theft from inventory, and in part four we look at time theft.

As with credit cards, and particularly cash, inventory control and theft prevention are a matter of sensible precautions, double checking, and never allowing any one person too much control. Video cameras are also a prerequisite for any kind of inventory theft protection. The deterrent factor alone makes them a worthy investment. It is important to consider placement with video cameras, however, and to consider this when placing items in storage that are more likely to be stolen.

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Image courtesy of Pixabay

Risks

Identifying the high-risk items that desirable to a thief is an important first step in any prevention strategy. What makes items desirable to a thief? High value, small size, and / or easy to sell or use themselves. In a veterinary practice, controlled substances would be at the top of this list for obvious reasons, but pet food and treats would also make the list as they are routine supplies for any pet owner. Any establishment that sells alcoholic beverages, needs to consider just how easy, and desirable, it is to steal them – particularly hard liquor. It is informative to walk around your local grocery store and check out the different levels of security in different items and then apply those to your own business. Alcohol, of course, has additional measures in place in a grocery store, but so do razor blades (due to their expense and small size) and movies (due to their small size and ease of resale.) High risk high value items should have significantly higher levels of security and scrutiny than other items. That means that only key people will have access. This will make things more complicated for their handling, but the alternative is no security at all.

Certain items are always at risk of theft due to their ubiquitous nature: toilet paper, stationary, and cleaning supplies. Keeping an eye on reorder quantities is really the only way to ensure that a problem with theft is not missed; however, just watching the cameras on the employee entrance/ exit can often be enough.

Businesses that have significant issues with employee theft, will often ask to look in employee bags before as they leave the premises. While this can seem overly intrusive, it is important that your employee handbook contains language to make this a possibility if required.

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Image courtesy of Pixabay

Ordering & Receiving

Ordering in any business needs to be controlled. The person that is responsible for ordering, should not be the same person who is responsible to receiving goods and ensuring that what was ordered has indeed arrived. In addition to having multiple people involved, there also has to be a paper trail. When an item is ordered, the order has to be logged through a purchase order record of some description. When the item arrives, it should be received by someone other than the person who ordered it, the packing slip should be signed off on (or a packing slip created if the goods did not come with one) and then forwarded to accounts payable.

The packing slip should be matched to the purchase order which it turn is then matched to invoice. When things are paid for by credit card, it should be indicated on the purchase order, and then the credit card bill should be reconciled against packing slips and purchase orders.

The above may seem over the top for most small businesses, but the question that has to be answered is what is to stop an employee ordering an item from a supplier, destroying any paperwork, and taking the item home? Is your accounts payable person, assuming that they are not the same person who has been ordering, going to be able to find that one uncounted for item in amongst everything that is ordered when a supplier’s statement comes in weeks later?

On a side note, it should be made abundantly clear to all involved with ordering and receiving that “free product” or “gifts” from suppliers belong to the business, not to whomever receives them. There is sometimes the impression that because items have not been ordered, or have been nominally given a $0.00 value, that they are free to anyone who wants them. This cannot be the culture in your business.

Items which arrive outside the hours when they can be received properly, and by the appropriate members of staff, should be locked away unless there are serious reasons why they should not be (items that need to be refrigerated for example.) This prevents well intentioned, but misguided attempts to “help” and also more nefarious outcomes. It also prevents the frustration of knowing that an item is in the building but being unable to find it due to it being put away somewhere other than where it should be.

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Image courtesy of Pixabay

Stock

In order to sell products, employees need to have access to those products. That does not mean; however, that all employees need access to all products, at all times. A limited amount of non-high risk non-high value items should be placed on employee accessible shelves. Your main stock should be under lock, key, and camera. The inventory manager, or a supervisor, should be the only one who moves stock from one location to another. For high-risk high-value items, senior members of staff should be the only persons who can have access, and they themselves should have a strict protocol (a log book at minimum) which they have to follow when retrieving an item.

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Image courtesy of Pixabay

Counting

Inventory has to be tracked. If you order 10 widgets and have 5 widgets in stock your inventory system should be able to tell you that after you have received your new widgets that, yes you can fill that order for 15 widgets.

The reality, of course, is rarely that simple. When it comes to inventory control you get out what you are prepared to put into it. An accurate inventory management system, where you can spot that five items are missing almost as soon as they are gone, only happens through hard work and effort. Good systems that are easy to use will work well, but they have to be maintained and repaired. Not just so that the system is correct, but so that the faith of employees, and managers, in the system is maintained.

High risk items should be counted once or twice a week. Discrepancies should be resolved or reported. All inventory items should be counted once or twice a year and the running count in the inventory control system reset. Constant shortages should be investigated as to whether it is shrinkage (theft), orders in process, or the mis-selling of items.

This level of effort put into inventory control can seem expensive and wasteful; however, you cannot track what you do not count. And you cannot know what is going on with inventory unless you count it.

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Image courtesy of Pixabay

Auditing

In addition to counting, there is another way to see if items are walking out of your premises and not being accounted for. At the beginning of the year you bought 100 fidget spinners. You look up the invoice from Fidget Spinner Inc. and confirm that you were billed and paid for 100 units. At the end of the year you have 10 fidget spinners on the shelf. You run a report from your sales software on how many fidget spinners you have sold. Hopefully, it says you have sold 90. But what if it says you sold 80?

The inventory control side of things says that there should only be 10 in stock, which there are, but you have not sold 90. The problem could have been in the number that were received originally from the supplier, or whomever received them, or someone with access to the inventory control system has manipulated the system to make it appear that 10 fidget spinners are not missing.

You’ll notice in the above example, that it does not rely on inventory management to find that there is a problem; but it does allow for the problem to be narrowed down. This can really only ever be used for spot checking, but it does provide a backup system to the general inventory control system.

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Image courtesy of Pixabay

Employee Sales

Sales of items to employees can be tricky to navigate from a theft prevention standpoint. An employee leaving the building with a bag of dog food from the vet’s office looks identical to an employee stealing a bag of dog food from the vet’s office. Having a strict protocol in place for sales of items to employees so that all items can be accounted for is essential. Do not allow employees to process their own transactions; there is just too much opportunity for issues to arise. All items should be billed for at full price and then a senior member of management should handle any discounts.

Inventory can be difficult at the best of times. Employee shrinkage; however, can be a serious problem and significant inventory controls will not only serve the needs of the business, but protect it from those should have its interests at heart.

Next week we will look at Time Theft.

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Categories Business, Management, Regulations, Theft, Veterinary

Employee Theft Prevention Strategies Part Two: Credit Cards

June 16, 2018 //
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In this ongoing series we look at ways of preventing employee theft. In part one we looked a cash handling methods,  in this part we take a look at best practices for preventing theft with Credit Cards, in part three we look at inventory theft , and in part four we look at time theft.  

When it comes to credit cards, preventing theft is not only about preventing theft from the business, but also preventing theft from customers. As with cash which we looked at in part one, the solution to preventing theft with credit cards is having the correct policies and procedures in place that conform to the basic idea of “Trust No One!”

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Image courtesy of Pixabay

Credit Card Basics

Your credit card processor can bring you up to speed as to the best practices for running transactions, but what follows are some generally accepted procedures which should help protect any business.

Have cameras on your credit card machine / terminal(s) or at minimum keep them in an open area where multiple staff members can see them. Always use the chip option if possible when processing transactions. Try to avoid taking credit cards over the telephone. If you have to take cards over the phone, ensure that you are using all the security features; such as address verification and the CVC code on the back of the card. Try to always keep a customer’s credit card in sight of the customer. This is not always possible, but there is less chance of a customer’s credit card information being stolen if their card does not leave their sight.

Do not store credit card numbers, or photocopies of cards, unless you have an air tight system in place that is highly secure. Some of the biggest names in retailing have fallen fowl to having customer’s credit card numbers stolen from their systems. You should think very carefully before exposing your business to that kind of liability.

The ability to give a refund using your credit card terminal should always be protected by a pin or password. An employee giving a refund to themselves using their own credit card, if they are not very smart, or using a reloadable generic card is an easy way for an employee to steal if controls are lax. Members of the public are also not above trying to give themselves a refund if given the opportunity.

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Image Courtesy of Pixabay

Batching

At the heart of preventing employee theft using credit cards is batching. A batch is a report of everything that has been run on that credit card machine since the last batch. Once the batch has been run all the transaction are removed from the machine. Credit card processors will set your terminal(s) to batch out automatically, usually in the middle of the night. A better system is to manually batch your terminals at the end of each shift.

Batching at the end of a shift draws a line as to which shift ran which transactions. At the end of the shift, the batch(s) should be matched to the daily report in the sales system. Please do not use the credit card transaction slips to match up to your sales system. Credit card slips are very important, particularly if there is a dispute with a client; however, slips can get lost either by accident or on purpose. With a batch you will be able to see how many transactions have been run, for how much, and what refunds have been run. As mentioned before, refunds are an easy way for an employee to steal from a company, so it is important to pay them particular mind. Matching batches to your sales system, should also catch unauthorized refunds.

Good practice, particularly if you only have a few credit card terminals, is to ensure that there are no gaps in batch numbers. For each credit card terminal, the batch number should increase by 1 every time a batch is run. A missing batch is almost certainly an indication that transactions have been run, on the missing batch, and one assumes that they have not been recorded in the sales system. If you are missing a batch and realize it, you can always request a copy from your credit card processor or ask them to read out what should be on the batch.

Recording data in your in-house sales system accurately is not only important from an accounting standpoint, but it makes things much easier when trying to match batch transactions to the sales records. Try not to record transactions as “credit card” but as “MasterCard, Visa, or Discover” etc. Also, try to impress upon employees that if a client is paying with multiple cards, even if they are both Visa cards, that they should really be recorded in the sales system as they are ran on the credit card terminal. For example; two visa card payments of $20 should not be recorded in the sales system as a credit card payment of $40, but as two visa payments of $20 by the same client.

Just as with cash, matching the batches to your sales system should be initially performed by a supervisor and the person who has been running the majority of the transactions. Every transaction must be accounted for one way or another. This, of course, can get complicated, particularly when dealing with multiple terminals; however, there really is no substitute for ensuring that all transactions have been recorded properly, and that there are no orphan transactions or transactions that were not actually made.

Of course, the matching of each shift’s credit card batches should also be double checked by a manager who has not taken part in running any credit card transactions, usually the following day.

It can sometimes seem pointless to track down small inconsistencies between what was recorded in the sales system and what was processed on the credit card terminal. However, with a business that runs hundreds of transactions, small amounts can add up quickly. Overcharging clients by $1.00 and then refunding that $1.00 to an employee’s own card can be hard to detect unless small errors and constantly, and consistently, tracked down and resolved.

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Reconciliation

It should be noted that with some terminals it is easy to run a report, which prints a batch like list of all the transactions but does not batch out the credit card terminal. When this is done by mistake It is usually caught by the following shift as their batch will have all the previous shifts transactions as well as their own. This will be annoying, and make the matching of batches to sales system reports more difficult, but this is almost certainly just a mistake. More concerning is when a report is ran deliberately instead of a batch. In theory, this means that refunds could then be run on this credit card terminal after the report is ran, and then terminal could be batched out properly and the batch destroyed.

With the method outlined above, even keeping track of batch numbers one shift to the next does not protect the business. Of course, if batch numbers are not being kept track of then all an employee would have to do in order to steal is batch out the terminal, run whatever refunds they want to, and then re-run the batch.

For these reasons it is important, just as it is with cash, to reconcile the credit card transactions with statements from the credit card processor and with the monies deposited into the bank account of the business. This is usually the only way to be sure that there is not money being stolen via credit processing. Ideally, this reconciliation should be performed by someone who has not been involved in any of the previous steps.

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Image Courtesy of Pixabay

Theft from Customers

If credit cards must be ran out of sight of customers, and in a private area, it is easy matter for a thief to write down credit card details, or take a picture of the front and back of card. It is not usual for victims of such schemes, which usually happen at restaurants, to find that additional charges have been ran of their card before they have even got home from the restaurant! The thief texted the card details to an accomplice. If they are not greedy, it can difficult trace where the credit card details were copied from.
When credit card transactions must be ran in less than ideal circumstances, consider banning your employees from carrying cell phones. It is not an ideal solution, but it does make things harder.

As mentioned before, keeping credit card details onsite is an enormous liability and should be avoided unless a 3rd party is prepared to accept the liability, such as a software developer. However, even then I would be wary of such systems.

Next week we are going to look at inventory thefts.

 

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Categories Business, Management, Theft

Employee Theft Prevention Strategies Part One: Cash

June 9, 2018 //
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In this ongoing series we look at ways of preventing employee theft.  In this part we take a look at best practices for preventing theft when working with cash, in part two, we look at how to prevent Credit Card theft from the business and customers, in part three, we look at inventory theft, and in part four we look at time theft.

There is an old saying in management circles; if you have not found theft in your business you are not looking hard enough.

Most business thefts are crimes of opportunity. If you remove these opportunities, or make the likelihood of a thief being caught more certain, you can prevent most thefts. Don’t underestimate the value of deterrence! The way to remove these opportunities is to have systems in place that immediately indicate when there has been a problem.

Although all thefts are about money at some level, there can also be a certain amount of revenge and intellectual challenge. The disgruntled employee proving how clever they are by being able to “beat the system” and thereby the manager, or owner, they feel undervalued by is a common theme in workplace thefts.

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Image Courtesy  of Pixabay

Trust No One

A key concept in theft prevention is to not trust anyone – that includes the people that you trust. While that sounds like an oxymoron, it is actually an appropriate way to ensure that you do not place your team in a posted tells difficult situation. What that means is that the systems you put in place should never place too much trust in any one person and therefore there should be no suspicions about anyone, because there are never any situations where more than one person has access to cash. A system that embraces this model is not put in place because you do not trust the people that you work with, or who work for you. They are put in place so that you do not have to be put in the position of having to distrust them.

It should go without saying, that there must be a system in place for recording inventory and services sold and paid for by clients. Even if you are selling penny candies by the lb. there needs to be a system in place to know how many lbs. have been sold by the end of the day, or shift, and how much money has been brought in. This most basic of elements is what all other elements of a theft protection system stem from. This system must also be capable of issuing a receipt to the customer showing what they bought, how much they paid, and what change, if any change, was given back.

Video cameras which record, and are secure, should always observe all transactions. The quality of cameras is such now that individual bills can be counted, and identified, significantly simplifying the job of finding errors or theft. It should be noted that cameras can also be used to exonerate employees and therefore should be seen as a win-win for both employer and employee.

If a theft is uncovered then the employee concerned must be terminated. It is generally up to the manager, or an owner, of a business whether to prosecute. I generally advise to go ahead and prosecute as long as there is evidence and not just a strong suspicion as it sends a message to other employees. If procedures where not followed, and there is a suspicion that a theft may have taken place, then at minimum disciplinary action should be taken, depending on the employee and whether this a repeat offense should indicate whether this action should be termination.

It is important to keep in mind that the discovery of an issue or potential issue should be seen as the first sign of a much bigger problem. This will not be the first theft, but only the first theft that you have discovered.

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Cash

When cash handling is involved in the daily operations of a business, then there should be a dedicated cashier per shift. If the requirements of the business are such that multiple people handle cash, then each cashier should have their own cash drawer. The cashier should count their cash drawer that the start of their shift. A standard and set amount cash should in the drawer each day. I should clarify that only a cashier has access to the cash drawer. Other members of staff may receive a cash payment from a customer, but only the cashier should process the payment and issue the client’s change. In an ideal world, the cashier would be the only one to be involved in all cash transactions, but that is not always possible.

At the end of the casher’s shift the cash drawer needs to be counted and the cash taken in should match the transactions recorded in your sales system, leaving the starting amount of cash that the drawer for the following shift / day. The cashier can be involved with the balancing of their drawer; however, a supervisor, or manager, should also be involved.

If the cash drawer is over then most likely a transaction has not been processed correctly: services / inventory was given to the customer, but the transaction was not recorded in the sales system. It should also be noted that the client would also not have received a receipt. High cash volume businesses, such as fast food restaurants, often enlist the help of customers to ensure they receive a correct receipt by offering a reward, such as the meal for no charge. This is to ensure that transactions are recorded in the sales system.

There are two explanations for cash being over. A genuine mistake in the processing of the transaction was made, or a potential theft has been interrupted. Hopefully a partially completed transaction will be able to be traced down through your sales system and the mystery resolved. However, it is important to be on the lookout for employees telling customers that the printer is broken, and therefore they cannot have a receipt, or unconcluded invoices being printed as receipts. These are indications of a theft taking place – the employee places the cash in their pocket and the transaction not processed at all, or only partially processed. An ongoing search for partially completed transactions should be part of a general auditing process.

Cash being under is, again, either a mistake with the transaction (unlikely – particularly if it is a large amount) or just straight theft. If the integrity of the cash drawer has been maintained throughout the shift, then the cashier is responsible. This could be cause for disciplinary action up to, and including, termination. I am not in favor of making cashiers pay back drawer shortages. If the cashier is stealing, they are just giving the business back the money they stole, and everyone thinks that is the end of the matter. If the cashier did not steal they are being penalized for a system problem.

If cash drawers are routinely under, but by amounts that could be human error, and the cashier(s) themselves seem just as frustrated by the problems as you, then a potential solution is the put each cash amount received into a sealed envelope and then into the cash drawer. This allows for the balancing of the individual transactions against the sales processing system. The down side to sealing the cash from each transaction, other that the quantity of envelopes used each shift, is that is significantly increases the amount of cash in the drawer that is required as all change has to come from this “float” and therefore a larger amount of cash may be required. This carries its own risk and the total volume on cash on the premises is higher than it might otherwise be. But it might be the only solution to constant shortages. It should be noted that I have never needed to employ this strategy for any length of time. The theft was either uncovered or the errors stopped when an employee unexpectedly left; one assumes because of the additional scrutiny.

 

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Image Courtesy of Pixabay

 

There are additional red flags to watch out for. Cashiers, who use their own pockets for “storing change because we are busy” should be treated with suspicion. This is the mishandling of cash and should lead to at minimum an explanation of why this is a problem with additional disciplinary action and increased scrutiny. Clients who complain about not receiving the right change, that their receipt / invoice is wrong, or that don’t understand why they owe money when they are sure they paid their bill during their last visit are all red flags of theft. Usually in these instances the employee concerned, if you can track them down will not be able to explain what happened. Of course, customers can make mistakes too, but in my experience these are easy to find and show to the customer why they are mistaken.

Once the day’s cash is counted, is found to be correct, and the cashiers drawer has the correct float, the cash should be sealed, with a deposit slip, and secured; ideally in a safe.

A senior manager, not one that helped settle the cashier’s drawer, should then double check the settlement, usually the next day, with the sales system. It is important that a copy of the deposit slip that actually goes to the bank is kept on site. The senior manager, or a 3rd party, should then deposit the cash at the bank and the deposit receipt should be matched to the deposit slip. These, of course should also match the sales system and ultimately the amount recorded on the bank statement.

Next week we look at Credit Cards!

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Categories Business, Management, Theft
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