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When employees beat the system.

On a typical weekend several months ago, a husband and wife came into a department store, purchased a new washer and dryer, and charged it to their store charge card. Over the next couple of weeks, the wife, who worked for the store, credited her account by creating fraudulent refunds. Claiming to have brought back merchandise, she would ring the "returns" into the register as refunds and credit her account. In two weeks, the washer and dryer were paid for.

According to the department of Commerce, employees steal as much as $120 billion a year from their employers. A third of all employees steal from their companies in some form.

One industry that feels the effects of employee theft in a big way is the retail business. While in the past a great deal of attention has focused on shoplifters, statistics show that employee theft cannot be ignored.

The findings of a major security and loss prevention survey released this year revealed that shoplifters who were apprehended did outnumber employee apprehensions by nearly 13 to 1. However, the survey, conducted by Ernst & Young in association with the International Mass Retail Association, revealed that the average value of merchandise recovered from employees who were apprehended was seven times greater than the average value of merchandise recovered from shoplifters who were apprehended - $1,350 versus $196.

A total of 160 companies participated in the 12th annual "An Ounce of Prevention" survey, one of three major studies in the retail industry. Participants included department stores, drug chains, general merchandise/mass merchants, specialty apparel chains, specialty hardlines, and supermarkets.

The losses were found to be great, yet, only slightly more than half the respondents (55 percent) sought civil restitution from employees (and shoplifters) who were caught stealing. Of the nearly 50,000 employees who were apprehended, the average dollar value recovered was a mere $109.

Another study conducted by the University of Minnesota revealed that about 3 percent of dishonest employees in the retail industry steal on a daily basis, 7.6 percent steal weekly, 19.7 percent steal between four and 12 times a year, and a whopping 69.7 percent steal once or twice a year.(*)

While the numbers on employee theft vary depending on who has conducted the study and disagreement in the industry exists over how accurate these numbers really are, one point is clear. Employee theft is a serious problem and one that is not likely to go away - ever.

AS THE MANAGER OF national headquarters security for Chicago's Sears Roebuck and Company, Jerry VanderPloeg knows all about theft. The scenario described at the beginning of this article occurred at a Sears store.

"We have actually caught people stealing when they've been in for training before they start work," says VanderPloeg. "Not too long ago we had a girl who stole three white dress shirts she was using during training to practice ringing up sales on the register."

While VanderPloeg agrees that employee theft is a huge problem, to specify how much a company loses a year to employee theft, he says, is virtually impossible. "I know there are companies that give figures like that out, but I don't know how they can come up with them." (He did point out, however, that Sears participates in surveys like the one done by Ernst & Young.)

"You have a loss," continued VanderPloeg, "and of that total loss, after you take your physical inventory, you have a figure that you are over or under. You know what that figure is, but to determine how much of that figure could be paperwork errors, how much is due to theft - let alone internal theft - is impossible."

Although VanderPloeg declined to cite specific numbers on how many cases of employee theft Sears had in 1990, he was very specific about the means employees use to steal.

"There are just thousands of ways they find to beat the system," says VanderPloeg. "Everything from just taking merchandise off the shelf, concealing it, and leaving with it just like a shoplifter would do to sophisticated ways of manipulating the cash register.

"But what's really hitting us the hardest are the refund scams," says VanderPloeg. "We've done lots of things in the last couple of years to try to stop our refund losses, but it really seems to be that that's where, numberwise, we've had our most apprehensions and, dollarwise, the highest dollar values of apprehensions."

A refund scam, explains VanderPloeg, works like this: An associate (what Sears calls its employees) in the shoe department, for example, rings in a fictitious return on the register, which indicates he or she has taken merchandise back from a customer. That refund automatically puts nonexistent merchandise back into inventory. The employee then takes the money for the refund out of the drawer and pockets it.

"That negatively affects your inventory just as if you had merchandise stolen off the floor or out of the stockroom," says VanderPloeg. (He points out that refund scams are also popular among shoplifters. Instead of stealing merchandise and selling it on the street, as was commonly done in the past, they bring it back to the store and try to get the full face value of the merchandise at the register.)

"The point of sale is probably where the majority of our losses are coming from," says VanderPloeg. "Just about all revenues are rung up at the point of sale somewhere along the line. It gives associates who might be a little devious the opportunity to manipulate the register, whether it be for merchandise or for cash."

A common scam that does not involve the point of sale is putting additional merchandise into a bag that contains legitimately purchased merchandise. "We do have a package check area where associates are supposed to check their packages. But stopping a lot of these problems is really dependent on the discipline within each unit," the security manager explains.

Although VanderPloeg says Sears has uncovered rings of employees who steal, for the most part internal thieves work alone when committing their crimes. The most likely reason, he says, is that they don't want their coworkers to know they are stealing. The retail chain has experienced most of its problems with part-time workers between the ages of 17 and 25. Notes VanderPloeg, "I don't think they have the allegiance to the company that year-round associates do."

AS TO WHAT EMPLOYEES STEAL, YOU name it, they'll steal it. And they'll steal as much as they can get away with. Historically, soft-line departments are the big losers in the industry. Soft-line items include such merchandise as accessories and ladies', men's, and children's clothes. VanderPloeg believes those departments are big losers due to the relative ease of concealing such items. "It is easier to put a garment in a bag and walk out with it than it is to conceal a piece of electronic equipment," he says. It is not uncommon, he says, to find five or 10 garments in a bag.

But in VanderPloeg's 26 years with Sears, electronic equipment - stereos, VCRs, and camcorders in particular - appears to be the primary target of employees who steal. "Personally, I think that internal thieves prefer electronic merchandise because it is easier for them to peddle. Telephones," he adds, "are also real big today."

One way internal thieves get larger items like stereos and VCRs out of the store is through the customer pickup area. "That is one of the most vulnerable areas for theft because associates have the availability of getting merchandise from the stockroom and taking it out and putting it in their car. That is one area we watch very, very closely."

As to what is least likely to be stolen, VanderPloeg replies: "I don't care if it is towels, washcloths, or hardware. If we've got it in the store, it is because people want it. Thieves are the same way."

Departments with the lowest levels of theft are those with the least amount of merchandise out on the floor. In the case of the automotive and shoe departments, "all you have out on the floor is a display model," says VanderPloeg. "So when you have a theft of tires or a battery, it is almost always internal or at least someone from the inside working with someone from the outside."

An item's size also deters theft, as in the case of large appliances like refrigerators and stoves. "When they are stolen, they are most likely to be stolen from the distribution centers," VanderPloeg points out.

The various security measures Sears has in place, of course, are the primary means of deterring theft. Some measures serve a dual purpose: to augment customer service and to deter theft. Many measures are common throughout the industry.

Employee name tags, for example. While it is helpful for customers to know the name of the employee they are dealing with, especially when they have a complaint about the individual, name tags are also helpful for managers. "If someone is walking around the stockroom and doesn't have a name tag on, you can identify him or her as not being an associate," VanderPloeg notes.

Employee parking areas are another example. At most stores, employees have designated parking, which usually translates into spaces that are farther away from the store. While on the surface it would appear that stores have designed parking with customers in mind, that is only half true. Requiring employees to park farther away from the store makes it more difficult for them to go out to their cars quickly to deposit stolen merchandise without being observed.

The same is true for employee entrances and exits. Such separation is just one more way to monitor employees and what they are bringing in and taking out of the store. During peak periods, when employees are changing shifts, the employee exit at Sears stores is staffed by a loss prevention associate, whose primary purpose is to watch employees as they leave.

When employees purchase merchandise while they are working, they are instructed to leave bags at the package check area, which is usually located by the employee exit. All packages are inspected to make sure the merchandise matches the receipt. Employees who have forgotten to leave their bags at the package check area are required to open them up for inspection.

Sears has also used honesty shoppers for as long as VanderPloeg can remember, but he thinks they are more helpful when it comes to pinpointing customer-service problems. "Occasionally, they will give us some information about something an employee did which needs to be investigated," says VanderPloeg. "But my personal opinion is that they're much more effective in the customer service end of the business."

ONE SECURITY MEASURE THAT SEEMS to be particularly effective is exception reporting. These reports act as red flags. They signal when an employee is doing something out of the ordinary - such as ringing in a high number of no-sales or voids. But VanderPloeg is quick to point out that exception reports don't necessarily mean an employee is stealing.

Explains VanderPloeg: "When an employee rings up a sale, a stock number is entered, which tells you that the item just entered is a bicycle, for example, for $159.95. If the register came up with that price but the item was on sale, the sales associate would have the ability to override the price and enter in another one.

"Whether it was legitimate or illegitimate, we have a price override report that comes back and tells you who overrode the price and the new amount that was entered. Exception reports," he explains, "develop a lot of clues for us."

Why employees steal is anyone's guess. "You always wind up with one kind of excuse or another," says VanderPloeg. "For some people I think the thought just goes through their minds and they submit to the temptation. For a lot of people," he surmises, "I think it just boils down to the fact that it is nice to have the extra money or merchandise, and they think it is easy to put that money in their pocket or walk out with the merchandise."

One factor that does not play a big role in employee theft at Sears, according to VanderPloeg, is drugs or alcohol. "I think drugs and alcohol play a much bigger part in shoplifting incidents. Not that our associates don't have drug or alcohol problems," he adds.

"The folks we are predominantly catching," he continues, "are not stealing to support a drug or alcohol problem, nor are they under the influence of drugs or alcohol."

While VanderPloeg did not want to specify amounts taken, he did say that the biggest internal theft case in a Sears retail store last year was more than $100,000 and involved a refund scam. The company's biggest cases, he says, however, generally occur in distribution, where entire trailer loads of merchandise are stolen. Cases like that have run in the "neighborhood of a million dollars," according to VanderPloeg.

AMAZINGLY, DURING THE COMPANY'S much-publicized reorganization, employee theft did not shoot up. "That was a big concern to us," says VanderPloeg. "You are bound to have disgruntled employees when you are cutting your employee base back for whatever reason, and it's something you really have to be alert to.

"But in my opinion," he continues, "it was handled very professionally. Everything was aboveboard. People didn't come in one day and find out their job was gone. Everybody was aware of the restructuring that was going on within the company, whether it was at the home office or out in the field. It was something they were ready for."

When Sears discovers an employee stealing, the matter is not treated lightly. While many businesses, retail included, prefer simply to fire the employee and not incur the legal costs involved with such an action, Sears's policy is to prosecute.

"We will prosecute unless there is a valid reason not to prosecute," says VanderPloeg, "which sounds like double-talk, I guess. But if you are going to send a case for a dollar before a prosecutor that is really going to make him or her mad, then you are foolish to do it."

But sometimes extenuating circumstances are a factor, and in those cases, says VanderPloeg, "prosecutors generally don't mind if the case is for 50 cents."

VanderPloeg is sure that employee theft is here to stay. He offers a solution to eradicating the problem, though. "You could weigh employees in and weigh them out," he jokes, but he adds that "even with that you wouldn't stop employees from crediting their charge accounts."

On a more serious note, he says, "I don't think we'll ever have a perfect society where nobody steals. Unfortunately, it's a fact of life. But you know what the most frustrating part about the whole thing is? You never get caught up. It just keeps going on and on and on . . ." (*) Peter Berlin, "Stalking Internal Dishonesty," The Peter Berlin Report on Shrinkage Control, March 1990, p. 1.

Table : Departments with the Highest Share of
 Total Store Shrinkage
Department Department store All stores
Fashion accessories and costume 5.41% 7.57%

Fine jewelry 1.68 4.71
Records, cassettes, CDs, and 5.53 4.13

Health and beauty aids 1.73 3.51
Sporting goods 2.95 3.44
Radios, TVs, and stereos 3.86 3.37
Juniors 2.84 2.65
Ladies' apparel 2.78 2.44
Toys, hobbies, and games 2.42 2.10
Men's apparel 2.19 1.84
Shoes 1.50 1.84

Source: 12th Annual IMRA Security Survey by Ernst & Young, 1990.

Karen K. Addis is assistant editor of Security Management.
COPYRIGHT 1991 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:Special Seminar Issue; employee theft and fraud
Author:Addis, Karen K.
Publication:Security Management
Date:Sep 1, 1991
Previous Article:Growth the old-fashioned way.
Next Article:Panes that pay.

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