Employee Theft – What is your Risk?

Employee Theft Risk

Employee Theft Costs $60 Billion Annually

If you have employees there is a risk of employee theft. That is not to say that all employees are thieves, because they are not, but do we know for sure who we can trust?

You only have to read through the daily news to see where an employee stole from their employer. In some cases those employees are very well liked and trusted and yet they have been found to be embezzling hundreds of thousands of dollars.

Did you know that in 2015 United States retailers lost a reported $60 Billion due to shrinkage, and that is up from $57 Billion in 2014? Additionally, this report – the US Retail Fraud Survey – identified employee theft as the prevalent source of loss to retailers.

Employee Theft Indicators

First we will start with the qualification that the true indicators of employee theft can be affected by the type of business, economic status of the geographical area in which the business is located, and in many cases the hourly wages of the staff. That is not to say that only low paid employees are at risk to steal from their employer, because even management staff paid over $100K annually can be a thief. So what can us as business owner’s watch for that may be warning signs of employee theft?

Let’s start by saying that if you are not tracking inventory losses you are not likely to know if anything is amiss at your business. If there is a way for staff to manipulate the inventory numbers, or bypass loss control measures, your business is also at risk.

As a point of fact, we worked with a very large scale tourist destination where the majority of visitors were from countries outside the United States. While conducting a normal security risk assessment we found that employee cashiers were manipulating the cash registers, in essence taking advantage of both the customers and the business. This had been going on for years and no one in management knew of it. However, had they had an inventory control system in place, and conducted regular and surprise audits proactively, they would have caught this early on.

In another case a trusted executive assistant of a finance department, who had been with the organization for 20+ years and who had been able to control the books without oversight, was able to embezzle over $1 Million. There were warning signs, such as the fact that the employee was living way beyond the means of their salary. This employee also was able to convince the CFO that there was no need to hire an outside auditor to review the financial records, because the executive assistant could save the company money by doing the audit internally. It was only after the CFO resigned and a new CFO was hired and requested a full audit by an outside entity that the embezzlement was uncovered. In the end once investigators completed their report they documented dozens of warning signs that had been present and were ignored by everyone. The employee was terminated, prosecuted, convicted and sentenced to prison. The real kicker with this case is the fact that I advised the COO ten years earlier that the organization should be conducting background checks on staff with fiduciary and financial management responsibilities.

Policies Regarding Employee Theft

If you do not have any policies in place, or you have policies but have not reviewed and updated them in over 3 years, it is time to get to work.

Policies do not prevent employee theft, but they do lay the ground work and set the rules. Set the expectation upfront and be sure to include a Zero Tolerance statement, and mean what you say. The policy should also speak of the employers rights to search anything that the employee brings into work (e.g. backpacks, purses, duffle bags….); and employees are subject to video monitoring and that they consent to such. It is also a good idea to include verbiage that employees are required to participate and cooperate with any investigation, and if they refuse they could be terminated.

Cash Security Measures

There are numerous ways in which a cashier can divert cash receipts to their personal use, as well as numerous ways that management can identify such activity in the early stages and manage the revenue stream from the time that the money leaves the customer hands until it is deposited in the bank. The point being that management has to know and understand the ways in which funds can be diverted and demonstrate a strong position on cash security management.

Random cash register audits are easy to conduct without warning, and can actually determine a diversion in progress. When conducting security risk assessments at locations that utilize cash registers we will always inquire as to how often management conducts surprise cash drawer audits. Over the years we have on numerous occasions observed very perplexed looks on manager’s faces when this subject comes up. After a minute or so they will often understand what we are asking for, and then they will state that they do the cash counts often. However, not once have they conducted an audit on the spot, nor could they provide any documentation of any cash drawer audits ever being performed.

There any many things that your organization can and should do to provide the proper security measures for your businesses financial assets, and contrary to the opinions of some they are not costly or time consuming. There are proven loss prevention strategies that can be utilized to protect your revenue stream, but if you do not know and follow them there is no telling if all of the revenue that your business generates actually makes it into your business banking account.

John White

John White

In 2002, John was awarded the designation of Board Certified in Security Management; Certified Protection Professional (CPP) by ASIS International the largest international security professional’s organization. Over the past 39 years, John has gained experience in numerous disciplines including, but not limited to: courtroom testimony, loss prevention, physical security, investigations (both civil and criminal) and security risk assessments. John’s professional experience includes honorably serving in the United States Military, serving as a police officer/training officer/supervisor, owned and operated a private investigative agency, served as a security executive for a university and two medical centers and worked as both an internal security consultant and an independent security consultant.

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