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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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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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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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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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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.”

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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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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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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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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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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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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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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