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Are Employees Stealing? Stay Alert

Friday, March 2, 2012

(GIFTBEAT)Have you ever wondered if employees steal from you? "If you have one or more employees, you have employee theft to some degree,” says Bill Bregar, president of Atlanta-based Loss Prevention Systems, Inc. “It may be pencils or paper they’re taking home, all the way up to cash or merchandise.” Bregar, who has interviewed and investigated more than 2,300 store staffers for employee theft, says retailers must take a proactive stance against this costly type of retail theft both before and after the hiring process.

Q. How prevalent is employee theft? Could you share the latest statistics?

A. According to the 2011 Global Retail Theft Barometer by Checkpoint Systems, the average employee theft incident in the United States costs the retailer $1,764. This is compared to a cost of $373 for the average shoplifting incident. In addition, a 2010 University of Florida study on retail theft losses reported that 45 percent of losses are the result of employee theft, compared to 31 percent for shoplifting; 14 percent for administrative errors; 6 percent unknown; and 4 percent for vendor fraud.

The differences there are very simple. Employees have unlimited access and time. It’s much simpler for them to be able to steal cash or merchandise. If retailers handle the employee theft problem and then address shoplifting, they’re left with very little in the form of loss. Medium and large retail stores like Home Depot and Macy’s use sophisticated software programs to watch for employee theft. A small retailer doesn’t have these tools, so there’s even more vulnerability.

Q. Are most business owners unaware of employee theft? Why should they focus on this topic?

A. It’s almost frightening how many are unaware. It’s pure economics. A lot of retailers have phenomenal sales but can be losing much of their money out the back door. [If this happens,] they’re going to eventually be out of business. The biggest problem with the way small-business owners think is that they believe that if they’re making money, they’re doing okay. They don’t understand that they could be making a lot more money [by reducing employee theft].

When they started their stores, most retailers were probably great buyers or store managers and knew the retail end of a store. But they have little understanding about things like human resources, loss prevention and insurance. Payroll is the largest expense for almost any business. When retailers make poor choices in hiring, these choices don’t just have an impact on theft but on customer service and the quality of work.

We find that a lot of small retailers are afraid of the hiring process. [The process] needs to start when a person walks in the door and puts in an application. [The retailer has] to have a selection process. Otherwise they will end up with people who steal. A lot of retailers use their gut to hire. They’ll say, “This individual seems like a really nice person” or “This person is really outgoing.” In reality, they’re only looking at a small aspect of a person. And that person is putting his or her best foot forward in an interview.

Before hiring, find out about a person’s criminal record, employment history and credit. Chances are that you’re going to put this employee in charge of one of the most important things in the store — the cash register. If you don’t vet that person carefully, you can expect to have theft.

Q. Can you share an example of one of the worst cases of employee theft that you’ve seen?

A. One of my clients had a manager who stole $110,000 from his store over an eight-month period. [The employee] was not ringing in merchandise. He did the calculations in his head, including tax. It almost put that retailer out of business. [The retailer] started seeing sales decline and didn’t know why. The same amount of merchandise was still coming in.

The retailer said “It can’t be this guy. We know him really well. He was the best man at my wedding.” [The employee] rationalized the theft because he felt he was actually part owner of the business, although he wasn’t. He felt he deserved more. Employees also rationalize theft because of peer pressure or an employer’s lifestyle. They think “I’d love to have that life. Look at how much time they have off. They come in to work later.” They don’t see that the retailer is really working 24/7, and all the worries they have about making payroll and paying bills.     

Q. What are some of the most common ways that employees steal?

A.
There are four things that employees steal. The first is cash, of course. The No. 1 way employees steal cash is with voids. They take a legitimate sale, void it and they pocket the cash. Or they run a refund and pocket the cash. Or they don’t ring up a sale at all and pocket the cash.

The second thing employees steal is merchandise. Putting merchandise in the trash and recovering it later from the dumpster is a prevalent way that employees steal merchandise. And who do retailers have take out the trash? It’s usually the guy who’s paid the least. Some stores have a policy where only managers or the owner can take out the trash.

Supplies and equipment are the third thing employees steal. A pack of toilet paper is no different than merchandise.

The fourth thing stolen is time. For example, somebody writes down that she came in at 9:30, when in reality she came in at 10. As a retailer, imagine what you could do with an extra three hours of labor that you’ve already paid for every week. That’s probably what you’re giving up by not having strict time controls.

Q. How can employers spot employee theft? What are some of the warning signals?

A. Retailers need to watch for changes in employees’ behaviors and their lives. Did they never have money but now they’re driving a new car? Are they living outside their means? If their only income is from you and you know what they’re making, but now they’re driving a Jaguar, that’s a red flag.

Also, know if they’re going through personal changes like divorce or school, or if they have gambling problems, illegal narcotics problems or peer pressure. Those are the things you want to watch carefully. You need to know what’s going on in their lives.

Another red flag is when customers come into the store and will only deal with that one employee. Why is that? Of course, there may be some customer service skills in there. However, in many cases, [if] they’ll wait until somebody else gets rung up to deal with that one employee, it’s usually because they’re getting hooked up. You can’t just brush that off to good customer service.

Q. If you owned a gift store, what key procedures would you put in place to protect against employee theft?

A. Most small retailers use personal trust in a business environment, in lieu of procedures. You cannot use personal trust here. Business trust is based on the Ronald Reagan adage: “Trust but verify.” That’s the mantra a retailer has to live by.

There has to be a piece count on orders from vendors. If there’s supposed to be 24 items to a case and 10 cases, make sure that’s counted correctly. You don’t have to count the whole load, but spot-check orders. Grab the manifest and do a count while your employee is counting. Or pick something that your employee has already counted then complement him about his accuracy. Make the frequency [of spot-checks on orders] often enough that it has an impact on employees. They need to know that you’re watching. This also helps with vendor fraud.

Also, keep two-party controls on cash. It’s harder for somebody to steal if two people are involved. Most thefts are not done in conjunction with another employee.

Have one person ringing on a register drawer at a time. If you have one cash register up front with three or four people ringing on it, how will you figure out who is stealing from you? It also opens you up for employee mistakes that you have no control over. Retailers groan about [this procedure] and say it’s not realistic. It is realistic, but retailers have to get nailed a few times before they figure that out.

Lock up cash and deposits. Some retailers might have $10,000 in cash that has been left on a manager’s desk, when they have a perfectly good safe. Then they wonder why it all disappeared. That’s happening more often than I would even like to think. Sometimes retailers are so busy that they forget what’s important.

Q. How would you respond to Giftbeat readers who say, “Employee theft doesn’t happen in my store”?

A. When they find themselves saying that, they are at the biggest risk because they have their heads stuck in the sand. Those are the clients that Loss Prevention Systems does the largest investigations on because they were asleep at the switch. [Store owners] can’t make assumptions like: “These people wouldn’t do that to me because they’re afraid of me” or “They wouldn’t do that to me because I’m so good to them.”

Retailers need to remember the 10/80/10 rule. Ten percent of employees will never steal from you, no matter what you do. Ten percent will always steal from you, no matter how you manage them. The 80 percent in the middle, depending on their morals and education, will steal from you if you allow it. You have control of 90 percent of employees in your workplace [because] normal management skills will work with these people. Your goal is to screen out the other 10 percent with proper pre-employment interviews, background investigations and management skills.

Note: Loss Prevention Systems specializes in preventing shoplifting, employee theft and retail losses. Bregar can be reached at 866-914-2567, ext. 101, or bbregar@losspreventionsystems.com.  

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