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U.S. Retail Workers Are No. 1...
In Employee Theft

The above headline surprised me when I came across it in the January 2015 issue of Fortune Magazine. Like many of you, I felt U.S. retail employees stole about the same as any other country, maybe less, because the US is blessed with more jobs and opportunities. Besides, retailers everywhere deal with shrinkage. What make the US different from the rest of the world?

Here are the numbers from Fortune Magazine. Dishonest employees account for 28% of inventory losses and shoplifters account for 39% across the globe. However, in the US, employee theft accounts for 43% of lost revenue, approximately $2.3 billion more than shoplifting “customers.”

What can a small independent employer do? Control what you can and check on the rest.

The psychology of a thief rests in a triple matrix:

  • Motive for personal gain

  • Opportunity

  • No Consequences

Some retailers are so afraid of offending an employee that they are not sending a clear message about their views on what is theft to their employees. Most employees, when caught, expressed surprise because they believed they would never be caught nor were they doing anything “bad.”

There is also no fear of the consequences. From a February 20, 2014, article by Chad Brooks, there may be little to fear. Mr. Brooks’s example was an employee who stole $200,000 from his employer. Following procedure, the company went forward with the prosecution and won a conviction. The employee was given probation and ordered to repay the $200,000 . . . at $50 per month. Although the company proved the wrong-doing, they will never recoup their loss.

Sadly, most employee theft statistics have changed little over the years other than the amount stolen grows larger. 75% of employees admit to having stolen from their employer at least once. 37.5% admit to stealing more than once. One-third of all retail bankruptcies are still caused by employee theft. On average, it takes 18 months for an employer to discover theft. Sadly, 60% of employees say that their employer could and should do more to prevent theft. Employee dishonesty is the greatest single threat to profitability at the store level.

Managers and small business owners need to be aware of tell-tale signs which, when appearing frequently, may be the tracks of a thief at work inside the company. A useful checklist to keep in mind can includes:

  • Missing records (such as shipping and/or receiving bills).

  • Company checks that bounce or someone is surprised that the company is doing business with XYZ and then asks: "Who is XYZ anyway?"

  • Frequent and puzzling mix-ups in inventory.

  • Managers who insist on performing clerical duties.

Most retail theft happens at the point of sale, when an associate purposely manipulates a transaction for the benefit of themselves or someone else. 59% of total shrink in a department store is due to employee theft. The other major arena for employee theft is in bookkeeping especially when the bookkeeper is never audited or there are no accounting controls in place.

Following is a list of a few things to do to help prevent fraud and employee theft.

  1. Hire carefully. Check references; check the last place worked. Complete both background and credit checks before the hiring process is complete. Yes, they do cost money. As Warren Buffett said, “In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And, if they don’t have the first [integrity], the other two will kill you.”

  2. Give each employee a copy of your procedure manual. Be sure to say the words, “We have a zero tolerance for theft.”

  3. Make yourself an example by never stealing. Yes, it is your store. Do not take money from the register anyway. It sends the wrong message to employees.

  4. Practice separating duties. Your bookkeeper should never be the one to open the bank statement; that responsibility lies with the owner / manager.

  5. Complete surprise audits frequently. This does not mean take a store inventory monthly. The best thing would be a monthly surprise (that means not on the same day or time each month) audit of petty cash or reconciling the cash drawer.

  6. Make sure all purchase orders, checks and invoices are pre-numbered. Periodically ask for a run of those to examine (invoice numbers 55650 – 55675) and look at each one. If you, the owner, have never heard of that vendor, you need to thoroughly check it out.

  7. Do not use a stamp for check signing.

  8. Never sign a blank check.

  9. Be alert to unhappy or stressed employees—especially those who feel they cannot take a vacation. Vacation time is available to re-“create” a person and each person needs that.

  10. Be aware of employees that are living above their means or are worried about money.

Some employers are afraid to talk with employees about theft, fraud or embezzlement worrying that it may offend some or give ideas to others. People who steal from their employers are looking for blind trust as it makes all of their ambitions easier to accomplish. Honest employees will not turn into criminals because the subject is addressed. The truth of the matter, psychologists tell us, is that 10% of the people are completely honest and would never steal.10% will steal even if they know they will be caught; they can’t resist the challenge. The other 80% can be influenced either way. Those are the ones you are trying to keep honest. Hopefully, the background and credit checks will weed out the 10% always a thief and you can influence the others to honesty.

Does it cost money to protect your store? Absolutely! However, it costs much more to recover from theft. If you are unsure of what to do or where to start, we offer an Internal Control Manual to help you determine areas of weakness. Click here to view a page or here to see the Table of Contents.


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