EMPLOYEE THEFT, 15 BILLION BUSINESS LOSSES
Employee theft has always been a problem for business. A few years back I had a client who ran several small convenience stores located in different small towns sprinkled throughout Northwest Oklahoma. Her daily trek to check on each store was over 100 miles per day.
Because she couldn't possibly be in all places at all times, she was dependent upon the management she hired to maintain each store from day to day. However, over the course of a few months, she began to notice that, while her inventory was being depleted, her sales were actually going down. Unfortunately, this was true in not just one of her stores, but in all of them.
Suspecting what the problem might be, she contacted me to help her get a handle on the problem. Using our SCORE (Service Corps of Retired Executives) volunteers with experience in the grocery business, it didn't take long to determine that the client had been correct. Merchandise was being stolen from each of her stores.
This kind of tactic is nothing new. It happens every single day. Take a bottle of white-out here, a legal pad there; borrow a few stamps. Who is going to notice and how are such minor things going to hurt such a thriving business?
Unfortunately, this kind of thinking wreaks havoc on businesses all over the U.S. In Newport News, Virginia a $1.3 million lawsuit has been launched by the Mariner's Museum against a former employee they accuse of stealing museum property to sell on Ebay.
The employee - - an archivist - - was fired last fall over breach policies including theft of museum property. The lawsuit claims he sold the items, which included historical documents, maps, letters, and plans to buyers all over the world. The estimated value of the items in question is approximated at $160,000.
Mariner's Museum is seeking $250,000 in compensatory damages, $750,000 in other damages, and $350,000 in punitive damages. They are seeking attachment of the former employee's assets until such time as the individual returns the property that was stolen as well as any money earned from the sale of the merchandise.
Although the scope, method, and use of theft behind this case are a bit out of the ordinary, the action itself is common place. In fact, a study conducted by the University of Florida in 2002 estimates that employee theft is the cause of about 48% of inventory shrinkage in business. In dollar amounts that equates to more than 15 billion dollars per year.
The study goes on to estimate the average loss cost per employee to be in excess of $1,300, which is significantly higher than the just over $207 cost normally attached to individual incidents of shoplifting. This explains why business is now forced to spend a great deal of time, effort, and money on loss prevention techniques.
The U.S. Small Business Administration offers the following techniques as a means to help curtail employee theft:
The most important step is education. Businesses must develop an understanding of the more common forms of employee theft. It is only through such understanding that business can develop methods for subverting them. Such education must be passed on to all executives and managers so that they are aware of what they need to be looking for as well.
It is also imperative that businesses take time and care in their hiring procedures in order to find people that they can trust. All potential employees should be thoroughly reviewed through background and reference checks. Another technique is to provide new employees with an honesty test. There are a number of standardized honesty tests that are commercially available, which have been reviewed and found helpful. Most have built it psychological evaluations that can help to gage a candidate's ethical standards.
Businesses should also take every effort to make it difficult for their employees to steal. The best defence, after all, is a good offence. By building in a check and balance system where employee's double check each other's work, which is then double checked by a supervisor or manager, businesses create roadblocks to theft. Steps like unscheduled inspections and surprise audits of inventory can help to root out potential problems before they get out of control.
Managers should work along side employees, at least from time to time. Workers are less likely to steal in environments where there is a good potential for being caught. Additionally, the interaction between employers and employees helps to build a camaraderie and sense of belonging or family. Employees are less prone to steal from those whom they respect and consider their "partner" in building the business.
Businesses must also know their employee's potential needs. The most difficult cases of employee theft generally happen when workers are in desperate financial straits. Problems like exorbitant medical expenses or substance abuse problems can cause employees to consider options that they normally would not entertain.
Businesses that allow employees to turn to them for assistance when they find themselves in unusual situations often take away any need for theft. Certainly, businesses cannot be expected to be charitable organizations, but that doesn't mean they should turn their back on reliable employees in need either. They might consider emergency pay advances, financial and/or psychological counselling, or other methods of providing their employees a way out of the problem or situation.
It is also important to have a set of clear, written policies on the ethical behaviour expected of all employees. Employees should sign it at the time of their hiring. These policy statement should emphasize that employee theft is always unacceptable. All infractions should then be punished in the manner outlined in the policy, with no exception.
Management should always represent positive role models for employees. If management is found dipping into petty cash, fudging on expense accounts or taking home equipment, employees will feel justified in doing the same.
The only way to deal with the issue of employee theft is head on. However, hopefully, with education, information, training, clear set guidelines, and role modelling the issue can be handled before it reaches critical state.
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