Employee Theft Articles

by Jack Sparagowski

I read quite a few articles that are related to employee theft. Some are quite good, some contain a lot of fluff (not much substance), and others should never have been published because all they do is confuse and mislead business owners and managers who have a serious theft problem.

The articles that really "get my goat" are the ones that talk about keeping up morale and complimenting employees. After reading this stuff, I just shake my head and think, "Are they really serious? Do they really think this will cause someone who is stealing to stop?"

Now please don't get me wrong. I'm all for keeping morale high and giving praise where praise is due. My point is simply that boosting morale and giving compliments don't have a thing to do with employee theft. In fact, in many cases, giving a dishonest employee a compliment only encourages that employee to continue to steal. How so?

Picture this! You have a dishonest employee who is a good worker. This employee works hard and does a good job but he has been stealing from you. You walk up to him and say, "Man, you've been doing great. Keep up the good work."

Do you realize what you have just done? In effect, you've just confirmed for this employee that you do NOT know he has been stealing from the company. Obviously, this wasn't your intent but it came across loud and clear to him. He knows he has been stealing and you just told him what a fine job he has done. Do you see my point?

Keeping morale high and giving out "pats on the back" are all fine and good and they likely do have an impact on productivity. Just don't let anyone try to tell you that these sorts of things will keep employees from stealing - because they won't!

GIVE 'EM MORE PAY

The worst articles of the bunch, though, are the ones that talk about giving employees more pay because that will keep them from stealing. I think the last article I read on this topic said something like, "A just wage makes a just employee." Frankly, that one gave me a headache!

I don't know where the writers of these articles have gained their so-called expertise on employee theft - but they are dead wrong! Higher wages and pay raises simply don't have a thing to do with employee theft. Once again, I'm not suggesting that employers not pay fair wages. My point here is that what an employee earns has little relevence as to whether or not he will continue to steal.

People who write these articles obviously don't know a whole lot about how dishonest employees think. Let me explain.

Nearly every employee that is engaged in dishonest activity against their employer, has made a conscious decision to do so. Before making this decision, however, almost every one of them will somehow "justify" to themselves that their decision to steal is okay.

Interestingly, the most common justifiable reason used by these individuals is that they are not being paid enough. So they begin to steal based on their justification of not being paid what they are worth. But how much can they be worth if they are stealing from the company?

The fact is most employees who steal already have a need to steal. It may be that they are simply behind on their rent and other bills or it may be that they have an addiction to drugs, alcohol, sex, gambling or whatever. Giving them a $1 or $2 an hour raise doesn't usually make much difference at all. Some might argue that point but my experience tells me it won't.

I'm sure most of you have read or heard about theft situations where bookkeepers, comptrollers or others in management positions have stolen thousands or hundreds of thousands of dollars from their employer. Most of these individuals were earning very good wages. Therefore, if pay was somehow related to theft, why would these well-paid management individuals have stolen?

I can tell you from the hundreds of losses I have investigated that a fair percentage of individuals involved in those crimes were well-paid employees. What they were earning was of no consequence in their decision to steal. Therefore, those who espouse the theory that more pay will result in less theft are simply advocating you throw your money away.

I want business owners and managers to know that I do support fair wages and a positive work environment. I just want you to know that neither of these play a role in reducing or eliminating employee theft.

Trust and Theft

One of the human elements that is most frequently involved in employee theft is trust.

Surprised? Most business owners and managers are!

Throughout my years of investigating employee theft cases, one of the things that stands out most in my mind is how utterly shocked and saddened business owners and managers became whenever a loss was caused by a "trusted" employee. It was not only the significance of the loss but the violation of the trust that was equally, if not more, painful.

It has always been my opinion that business owners should not be surprised when long time and/or trusted employees steal from them. Why? Because these individuals almost always are in positions that have the greatest opportunity to steal. After all, employees who are trusted are put in positions of trust - and positions of trust usually provide great opportunities for theft.

Now I'm not suggesting that you place an individual whom you absolutely distrust in a position of trust - although in some cases you may be better off. Why? Because if you really distrusted someone, you would likely be checking on that person very closely. Unfortunately for them, most managers and business owners rarely check on individuals whom they trust. Sadly, this is the very core of the problem with trusted employees. In most cases, they are trusted to a fault.

Picture this. You have a position open in your company that requires the handling of a significant amount of cash. There are two available individuals that could be placed in that position.

The first employee is someone who you really don't like. This person has a drab personality, a scraggly appearance, has not always been pleasant with your customers and you don't know this individual well at all.

The second employee is pretty much the opposite. This person is friendly, has a nice appearance, has done his job well and is known to come from a good family. You like this employee.

Which of these two employees are you most likely to trust handling your cash?

The answer is probably pretty obvious! Most people would place the second employee in that trust position.

But in spite of their differences, let's assume each individual has the same degree of honesty. In other words, neither would be more or less inclined to steal from you. Which employee do you now think you would be more vulnerable to?

I can tell you that, in most cases, it would be the second employee - the one you liked. Why? The reason is because if you don't like or trust an employee, you will be much more likely to believe that person could steal from you. Therefore, you would likely check that person much more closely than you would someone you liked and trusted. It's human nature!

In many employment situations I have seen, trusted employees get what could almost be called "license" to steal. Rarely is anyone checking on these people!

In several cases I investigated, the so-called trusted employees were actually the ones who developed the company's cash and/or inventory controls and were the ones who monitored them. The owners never bothered checking these numbers because they had "trust" in these employees. You can only imagine the amounts these companies lost. Talk about getting "license" to steal!

So what am I suggesting you do?

Back in 1987, former President Reagan made a statement that since has been quoted many times over. He said, "......trust, but verify." Obviously, he wasn't using this in the context of controlling employee theft, but he certainly could have been.

A lot of business owners and managers have a tendency of getting "sloppy" controlling some very important parts of their business. This frequently occurs when they have someone in a trust position they are comfortable with. Certain controls might exist within their organizations, but they frequently leave the ultimate control to one trusted employee. That should never happen!

To prevent major losses and to keep someone from feeling they have the ability to manipulate and steal from whatever system exists, a dual check and/or control system should always be in place. Having no less than a dual control system creates a risk factor to anyone who may be thinking of stealing and provides the ability to identify a theft, should one occur, more quickly.

So in the same sense as President Reagan was suggesting to the Russians.......It's okay to trust your employees - just make sure you verify their actions!

Who Could Be Stealing?

It's not unusual for a company having a shortage problem to not recognize who or what is causing their loss to occur. Unless your organization has a "Security Department", it is likely that someone who has little or no experience in theft prevention will undertake the responsibility of determining the cause of your shortage problem. This can be a daunting task!

But let me help simplify this task by defining for you the groups or categories of people who are responsible for every theft related shortage. In other words, if you have a shortage problem or a specific loss of money or inventory and this loss is theft related - not caused by some other reason - then the loss would have to be attributable to one of following four groups of people.

Here they are:

Robbers & Burglars
Customers
Vendors
Employees

Let's look at each group a little more closely.

Robbers & Burglars

The first group, made up from an external source, is usually pretty easy to identify. Robberies and burglaries can be documented by cameras, eye witnesses, employees, signs of forced entry and other sources. So there isn't usually an issue with recognizing when a real robbery or burglary actually took place.

Dishonest employees, however, have been known to fabricate or stage robberies or burglaries to cover up money they have already stolen. In other words, they can attribute the loss of money to the robbery or burglary.

This frequently occurs in smaller retail environments where money has been stolen over a period of time and audits or inventories have not yet identified the loss. The robbery or burglary, therefore, provides a plausible excuse for why the money is missing. In some cases, the employer may never even be aware of the loss - other than believing it occurred from this external source.

The bottom line, however, is that most burglaries and robberies are legitimate. In other words, they are perpetrated by individuals who are not in any way associated with the company.

Keep in mind, however, the total loss to American business attributable to these two groups is minimal - less than 1% of all losses.

Therefore, while robbers and burglars can be a cause for human safety concerns, they are not a significant cause for overall losses and can usually be recognized very easily.

Customers

The second group creates loss largely through shoplifting. Obviously, it doesn't have much of an impact on industries outside of retail. So for many companies, customer theft really is a non-issue and doesn't have to be considered.

For those companies where customer theft could be an issue, keep in mind that customer theft is usually limited to what is readily accessible to them. Likewise, customer theft is unlikely to continue in the same mode for any length of time.

Therefore, if you are able to determine that the loss has occurred for an extended period of time and the loss is with one item or group of items, it is not likely that customer theft is the issue.

The point is, it is highly unlikely that a customer can continue to steal for any length of time without being identified by an employee, a camera, a security person, another customer or some other source - possible but very unlikely. Only if an employee is somehow in collusion with a customer is that customer likely to have the ability to steal large sums for an extended period.

Customer theft may be an issue for some companies but overall it represents no more than 3% to 5% of all losses to American busisness.

Vendors

When I use the term "vendor" I am referring to individuals who deliver product, merchandise or materials to a business. They may also be referred to as a "driver".

Vendors can and certainly do steal but their access is generally limited to their own product. In other words, vendors can intentionally short a company the product they are delivering but they do not generally have the ability to steal outside of this product area. So if your company was experiencing a shortage with product, merchandise or materials received from the same vendor, the loss could certainly be the result of a dishonest driver.

If, however, your company was losing product or merchandise brought in from different companies or if there was a shortage of cash, it is highly unlikely that a vendor could be responsible.

It is estimated that overall, dishonest vendors are responsible for somewhere between 5% to 10% of all losses incurred by American business. Some industries are obviously more affected by this group than others. Be aware, however, that if your company accepts delivery of any product without doing a thorough and accurate physical count of that product, your organization is extremely vulnerable to this type of theft.

Employees

If your company has been experiencing a significant loss and you are unable to identify one of the other groups based on what has been described, the likelihood is your loss is attributable to one or more of your employees.

If this sounds like too much of a blanket indictment against employees, consider if you will the fact that most estimates suggest that employee theft represents over 90% of all losses sustained in American business. And I certainly concur based on the results of my investigative experiences.

When attempting to identify the cause of your company's losses, keep the term "access" in mind. Remember that any thief needs to have "access" to whatever he or she is going to steal. And employees always have "access" to their area of responsibility.

Therefore, whether you are referring to someone in accounting, a cashier, a supervisory person or whomever, these individuals will always have "access" to some company asset.

There certainly are a number of other "signs" that would not only suggest but confirm that your company's loss was caused by an internal source. If you are interested in learning more about how to identify employee theft, log on to thesparagowskireport.com. There you can sign up for some free issues of The Sparagowski Report that will not only identify how you can identify employee theft but how you can stop it as well.

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Trust and Theft

Who Could Be Stealing?