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A theft control approach.


INTERNAL THEFT IS THE SINGLE LARGEST profit drain on a business. The theory that today's errors are tomorrow's thefts is true. A business's environment, operating costs, physical configuration, or number of locations are all factors that provide an employee with the opportunity to steal. Combine this opportunity with a need to steal and a justification for stealing--three essential elements necessary for theft--and an employee will likely steal, especially when a business does not monitor its operations.

Managers expect a lot from employees. When errors occur, the system is blamed for having failed. In response, rules are changed or new rules are made to cover the inadequacy of the previous system. This step is basically an indictment of management's ability and effectiveness.

What was not realized before these policies on top of procedures were created is that if an employee is not complying or cannot comply with the basic system requirements, then all the additional rules and regulations will not force compliance or engender an errorfree system. It is better to have fewer rules and regulations that employees comply with than numerous systems that they do not follow. It is also much easier to monitor a few policies and procedures than a library full of checks and balances. Human hands-on inspection cannot be compromised. When it is, theft will occur, resulting in good employees going bad.

Take, for instance, the following example. You live in a two-story house and have two children. Your bedroom is downstairs; the children's is upstairs. Each day you ask the children if they have cleaned their room, but you never go upstairs to check. How do you think your children will respond to your question? They may say, "We owe you the truth. No, we have not cleaned our room." Or, they may say, "Yes, we have cleaned our room thoroughly."

If you said the first answer, I want your children! If you answered with the second statement, does this mean your children are liars, cheats, or headed for a life of crime? Of course not. Granted, we are not dealing with children in business. However, employees also require and need structured development and direction.

Managers often contribute to the problem of employee theft due to their lack of understanding of how theft evolves. Every internal theft investigation can be retraced through an initial undetected and unaddressed violation of a business system, policy, or procedure. Employees often know the company systems better than the company.

Yet, how can a business monitor everything? Obviously, it cannot. However, regular inspections and quality controls can identify those areas of concern that could lead to future theft. The amount of time between when an error occurs and when the employee is confronted--whether it is days, weeks, or months--tells an employee what his or her chances are of stealing and getting away with it.

AS A MANAGER, YOU SHOULD communicate with an employee as soon as an error is discovered. When errors are allowed to occur without anything being said, it sends a signal to employees that management does not care. So employees adopt the attitude, "Why should I care either?"

Also, most employees are afraid to ask supervisors questions. Instead, when they are not sure how to do a task, they ask other employees or fumble their way through a job, often making mistakes along the way. Discovering an error is an excellent time to take up where inadequate or no training left off, while reinforcing that errors do not go unnoticed.

An example of a positive approach to this problem involves a joint security and personnel closed-circuit television program. This is not a typical try-and-catch-a-thief-on-camera program--quite the opposite. Both policy and safety violations as well as good work habits are recorded on the film. Personnel--not security--invites the employee recorded on tape to view the film in the security office. As he or she watches the film, the personnel representative points out areas for improvement to the employee or congratulates the individual for a job well done. This meeting reinforces to the employee that work areas are monitored. If that employee considers stealing, he or she will probably think twice and wonder, "Are they watching me?"

Thus, the company has just kept an employee honest in a positive way. Isn't that your objective? And the time it took to execute this positive approach is minimal compared to the maximum return.

While managers may be able to understand the opportunity they have created for theft and even the personal need an employee may have to steal, they cannot understand an employee's justification to steal. Everyone has needs, and the majority of us have opportunity. Justification defines the propensity toward not what someone would steal but under what circumstances they would steal. Character is fragile, and, like our laws, business systems keep us in check. Police officers must enforce the law, and administrators must enforce systems. With the right laws and the right enforcement, most people live in harmony just as most employees are honest.

How is this theory applicable to deterrence and control of theft? You can monitor, audit, and inspect all documents that govern assets or procedural steps that control production. When employees realize they cannot steal without getting caught, losses will be subject to only those few employees who will steal regardless of controls or jeopardy.

The results of inspection will establish a more far-reaching benefit than curtailing theft. If you detect an error and apply the proper corrective action, the company has given that employee what he or she wants most. These actions tell an employee the company cares. No one wants to make errors, and an employee's approach to being developed will be positive and reflected in the individual's attitude and productivity. Obviously, the company's approach to correcting is critical.

Many good employees are lost when companies allow exposures for loss to exist that enable a few to steal. Hardworking associates ask, "Why should I care?" This attitude promulgates employees not reporting others who do steal. All the best morale-building programs instituted by a company's human resource department are totally negated if the company allows employees to steal.

In response to the question, "How do employees steal?" you should ask the following questions: How many systems does your company have? How much opportunity exists in your company to steal? Do you inspect and develop your employees? An inadequate approach to the problem, complacency, and inconsistency creates dishonest employees.

MANY EXAMPLES EXIST OF unmonitored system errors being used as the vehicle for theft. For instance everyone has returned merchandise to a store for one reason or another. Many store policies require that the refund have an approval signature by a store supervisor. Supervisors are instructed to see the customer and the merchandise before signing the refund. This simple policy is almost never followed.

Now enters the employee, believed by management to be not too bright. Sales have dropped so the store cuts back on salespeople. Those remaining are left to work extra departments alone. Hence, the opportunity for theft exists. This employee has just received a notice in the mail reminding him that his car insurance payment is due--$472.

Earlier in the day, the employee was instructed to stock a shipment of sweaters that had just arrived. The employee was not told how or exactly where the supervisor wanted the sweaters, so the employee fumbles through the task and the job is not performed as the supervisor envisioned. As a result, the employee is berated in front of customers and other salespeople, giving cause for the employee to mumble, "They don't pay me enough to put up with this!" The result is a justification for theft.

Now all the prime elements for theft exist. The employee knows that when customers return merchandise for a refund, the supervisor is irritated when the employee wants an approval signature. The supervisor grabs the refund, signs it, and hands it back to the employee, seeing neither the customer nor the merchandise, and never acknowledges the employee's existence.

One day, the employee writes a phony refund. No real merchandise was returned; no real customer returned it. The employee waits for the right moment and takes the refund to the supervisor. Like many times before, the supervisor does not hesitate to scratch down a signature, never seeing the customer or the merchandise. The employee returns to the register, opens it with a no sale ring (these are never monitored) and puts the phony refund--with the legitimate authorization signature--into the register. The amount of money noted on the fraudulent document is taken out and pocketed when no one is looking.

The impact of this theft on the company is greater than is apparent. By the supervisor not following one simple procedure, the company has lost $100 plus tax. The register now contains a phony document to compensate for the money removed, and the register balances, never indicating a shortage in the cash. A phony document, which states an item was returned, means at inventory time one nonexistent item will be noted as short.

As for the cost to make up the loss, 23 items at $100 will have to be sold just to break even for that one fraudulent refund. Even worse, the company has created a dishonest employee, one who will steal again.

This scenario does not apply just to sales or retail. Any industry or department, even human resource personnel, can manipulate documents that govern assets for the purpose of stealing. So when you expect all of your employees to be honest without inspecting them, don't expect much.

About the Author . . . Stephen C. Kilgo is vice president of operations for Intertect Inc. in Houston, TX. He specializes in business system theft and asset management.
COPYRIGHT 1989 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Author:Kilgo, Stephen C.
Publication:Security Management
Date:Apr 1, 1989
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