Management Internal Theft Workshop[1]


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Management Internal Theft Workshop[1]

  2. 2. LOSS PREVENTION MANAGEMENT WORKSHOPTHE LOSS FROM WITHIN<br />Internal theft is considered to be the most serious Loss Prevention problem facing companies today. Measuring the monetary loss of dishonest employees is extremely difficult, but many loss prevention executives have concluded that upwards of 40%-70% of losses and shrink is attributable to dishonest employees.<br />Insurance companies presently estimate that a third of all business failures each year are due to employee theft, and many companies lose money and merchandise to internal theft than they earn in profits.<br />Dishonest employees have a distinct advantage in that they are familiar with companies systems and with the strengths and weakness of the companiy.dishonest employees invariably have the trust of their manager which enables them to commit dishonest acts with comparative ease. <br />
  3. 3. Why Do Employees Steal?<br />The realization that we may have employees stealing from our company is extremely unpleasant. It is even more agonizing to apprehend such an individual. Internal theft is the most serious aspect of our loss prevention efforts.<br />One of the major concerns is the case with which dishonest employees have been able to complete their crimes. This illustrates in some of the investigative videotapes ha s recovered and in speaking with several of the dishonest employees apprehended.<br />
  4. 4. Why do employees steal Cont.<br />When dishonest employees are asked how they were able to steal, common replies are:<br />“It was so easy. There was nothing to stop me”<br />“I knew no one was watching”<br />“No one ever follows those procedures so I knew I wouldn’t get caught”<br />Whenever a dishonest employee is apprehended, we, as management, must assume part of the responsibility.<br />
  5. 5. ‘What did I do or what didn’t I do, that encouraged the employee and made it possible for the crime to be committed”<br />Creating an Environment for Internal Theft <br />There are some things that we as management do that contribute to creating an environment for internal theft:<br />When we don’t set the proper examples<br />When we don’t follow and enforce policy and procedures<br />When we cut corners in the interest of expediency<br />When we ignore infractions to avoid conflict<br />When we bend rules for an favorite<br />
  6. 6. Creating Environment for Internal Theft Cont.<br />Most employees prefer and need to work in a disciplined environment where they treated fairly and equally, and are recognized for their efforts and achievements.<br />This affords the feeling of company stability and personal security most employees seek. On the other hand, a complacent atmosphere may contribute to insecurity and encourage contempt for regulation and management. Dishonesty usually follows<br />
  7. 7. Job Frustration <br />Frustration on and off the job can be a factor, which contributes to theft. Job related frustrations might occur because of:<br />A lack of communication with management<br />Unequal treatment true or only perceived<br />Unfair pay<br />Improper training<br />Failure to implement the companies policies and procedures<br />
  8. 8. Personal Need<br />Personal need can be perceived on many different levels and to different extremes. One extreme would be an employee who needs to steal because they cannot pay bills. The other employee may need to steal because they cannot afford the type of shoe “everyone is wearing at school.<br />
  9. 9. Know Your Employees<br />The employee who is suffering financial difficulties:<br />Recent divorce<br />Car troubles<br />Medical Expenses<br />The employee who is overly materialistic:<br />Always need the newest footwear style<br />Always seem to need to have large amount of money<br />
  10. 10.  Personal Habits<br />Personal habits such as gambling, high spending or drugs can eventually affect the workplace and cause an employee to become dishonest. When an employee lives beyond their means, they will often do whatever necessary to continue their habit.<br />As a member of management, you need to be aware of the employees who may fall into this category. Be aware of the following possible situations:<br />An employee who frequently talks about gambling or going to an casino <br />The employee who always buying a new car, motorcycle, expensive golf clubs, or other high ticket items (does their rate of pay cover such things)<br />Information related to drug use by an employee<br />
  11. 11. No Feeling of Retribution<br />Little fear of punishment is another crime causing element that is completely within our control as management. The aggressive, frustrated person who does not anticipate being caught and punished may be encouraged to engage in dishonest acts.<br />Although most dishonest employees do not begin work with the intention of stealing money or merchandise, it is important that management is firm in setting down a policy to all employees that any dishonest activity will be quickly detected and severely punished.<br />
  12. 12. No feeling of Retribution Cont.<br />The task facing management is to prevent the motives of dishonest employees and to reduce opportunity for theft thereby following practices and procedures outlined by your company’s standard operating procedures.<br />
  13. 13. Spotting the High-Risk Employee<br />There is a fine line between suspicion and objective awareness of employee life styles. The prudent manager should evaluate the indicators of employee theft, which may exist in his or her location.<br />If there is reason to suspect employee dishonesty, management should assure that methods and procedures for preventing and detecting theft are in use. Further, the Loss Prevention Department should be contacted to discuss your thoughts and suspicions and chart a plan of action to determine if the suspicions are warranted.<br />
  14. 14. The following is a list of a number of the possible indicators of employee dishonesty:ALARM BELLS<br />Employees who appear to live in access of their apparent economic means<br />Employees requesting to work rather taking an earned vacation<br />Employees inordinately resisting changes in procedures and rules<br />Cliques of employees, particularly when the group includes representatives from several departments.<br />Cashiers with high exception rates<br />Employees known to use drugs, alcohol, or gamble heavily<br />Employees who repeatedly borrow money from other employees<br />Employees in high shrink locations<br />Employees who bring personal problems to work<br />Tips from customers and employees of wrong doings at your location<br />Overly attentive employees<br />An employee with serious financial problems<br />Employees with friends that loiter in the employees department at their assigned location<br />
  15. 15. Alarm Bells Cont.<br />Experienced managers and supervisors can add their own thoughts to the preceding list. Bear in mind, the factors listed are only indicators of potential employee dishonesty, but where any one or more of the factors are present, the risk of loss is greater than it would be if they were not present.<br />
  16. 16. Factors of Employee Dishonesty<br />There are generally three stages in most incidents of employee theft. A number of employees, who would otherwise have committed a theft, did not do so because of their inability to move from one stage to the next are as follows:<br />Element of need or desire for money or property<br />Mental justification (rationalization)<br />Opportunity or easy access to money or property<br />
  17. 17. Factor 1: element or need or desire for money or property<br />This factor is present to a degree in practically every person. Most individuals satisfy the immediate need for money than the occupation provides by drawing on savings, working overtime hours or obtaining a loan from a bank.<br />The need for extra money may not be caused by something as serious as owing a gambling debt to a bookie or a professional card game<br />When a person with either a real or an imagined need for money sees no alternative, they may begin to consider stealing from a company.intially; the person must justify the theft in their own mind before committing the dishonest act. The individual moves into the next stage. <br />
  18. 18. Factor 2: Mental Justification (Rationalization)<br />The dishonest employee will want to justify the intended dishonest act by making themselves believe taking the money won’t be stealing. Some of the factors, which will probably enter the mind of the individual, are listed below. These factors will help the individual rationalize the dishonest act:<br />“Ill just borrow the money. Ill return it”<br />“ I work hard and I deserve higher pay”<br />“Management is overpaid. My hard work makes him/her look good”<br />“ This company doesn’t care about us”<br />“ I don’t think anyone cares anyway”<br />“ My job performance has been saving the company money for a long time”<br />
  19. 19.  Employees Aware of other Employees Stealing:<br />The individual will weigh the possibility of getting caught. The employee will fear getting caught for stealing more than they fear the penalty for stealing. The controls and procedures the company uses-or doesn’t use-now become important. Some of the consideration will be:<br />Management’s attention to cash overages/shortages, P.O.S Exceptions<br />Frequency of professional shops and audits<br />
  20. 20. Employees Stealing Cont.<br />Frequency of weekly meetings in which policies and procedures are discussed<br />Frequency of unannounced visits by corporate management<br />Presence of a knowledgeable loss prevention personnel<br />Knowledge of penalty and consequences if apprehended after committing the dishonest act.<br />
  21. 21. Employee Stealing Cont.<br />The presence of fair and consistent management practices and the application of company loss prevention and operating policies will make it difficult for an individual to justify a dishonest act.<br />Even if the individual feels they deserve the cash/merchandise they want to steal, the obvious use of controls may serve to prevent the theft from taking place.<br />
  22. 22.  Factor 3: Opportunity of Easy Access to Money and Property<br />Though the corporate programs on loss prevention, training, and employee relations all serve to reduce the motives for stealing, some individuals will progress through the justification stage. They only need an opportunity to steal. <br />The controls and procedures discussed here and in company operating standards are intended to reduce the opportunity for theft and to detect theft if it has occurred. Management, District Management, Regional Managers must apply the controls efficiently and consistently.<br />
  23. 23. Honesty<br />We can reasonably expect successful applicants and existing employees to be able to distinquishbetween right and wrong, however, honesty and dishonesty are interpreted differently by many people.<br />An act, which may be dishonest to one person, may be an honest and acceptable act to another person. There are many factors, which enter into a person’s attitude toward honesty. But on the other end of the spectrum taking a pair of shoes to replace a pair of damaged on the job may not necessarily be considered a dishonest act by every employee.<br />
  24. 24. Honesty Cont.<br />Regardless of personal beliefs, everyone recognizes the taking of money from an employer’s company for ones own use as theft-a dishonest act.<br />Management must accept the fact that people enter the employ of the company with different attitudes towards honesty, even though each, in their own estimate, may believe themselves to be an honest person.<br />Clearly, management must establish the standard for honesty, which is based on the premise that all monies and every item, machine, tool and fixture at the location belongs to the company. One must not take or convert any money or item for ones own use regardless of the value of the money or item.<br />
  25. 25. Honesty Cont.<br />____________________________ expects every employee at every level to be totally honest in their actions while at work. It is the policy of our company to deal honestly and consistently with our employees, customers and suppliers. In turn, the company expects the highest degree of honesty and integrity from those you employ.<br />When all employees know the standards we establish and expect to maintain for honesty, employees choosing to disregard the standard will do so knowing they committing a dishonest act.<br />Management is responsible for relating company policy on honesty to their employees; and for assuring the policy is administrated consistently and universally.<br />
  26. 26. Honesty Cont.<br />Management must set the tone! Do not let complacency set in! <br />
  27. 27. Screening the Job Applicant<br />Your employees are the backbone of your business; therefore, it is the duty of management to do a thorough screening of job applicants. Naturally, everyone who screens personnel wants to do a good job, but occasionally time limitations force us to put the applicant’s integrity at the bottom of our list of priorities. <br />If we fail to place character and integrity among the first requirements for any position in your company, we are making a basic mistake which can be costly to your company and all the employees who work there.<br />
  28. 28. Job Applicate Cont.<br />Far too many people rely on instinct to evaluate the honesty of an individual, and believe that if a person looks presentable and speaks well, they are undoubtedly honest. <br />however, we must bear in mind that every dishonest person who is discovered working for us was selected and hired by a representative of your company. Did they become dishonest after joining your company, or was there a weakness in the applicant’s character, which went undetected during the interview process?<br />
  29. 29. Job Applicant Cont.<br />It is an accepted act that people do not usually change. If a person has manifested certain characteristics in the past, the same traits will be demonstrated in their new environment. <br />
  30. 30. The Cost of Employee Dishonesty<br />When thinking about costs of dishonesty, we might keep in mind that internal theft is costly in more ways than one.<br />Notwithstanding the value of the stolen product and loss of products, there are additional costs involved, some of which are hidden and more difficult to measure accurately. For example:<br />
  31. 31. The Cost of Employee Dishonesty Cont.<br />How dishonest employees impact customer service<br />The cost involved in training new hires<br />The possible contamination of other employees, leading to additional losses<br />The cost and time employed with conducting the investigations<br />
  32. 32. Shaping Attitude<br />The most effective way to prevent internal losses is to create a Healthy and Positive loss prevention attitude in your company!<br />Remember: Loss Prevention is the first a state of mind, then a state of action<br />
  33. 33. Shaping Attitude Cont.<br />All employees must be thoroughly trained in the company loss prevention rules and should understand the reasons for regulations. Utilize every resource available to you for this purpose, such as:<br />Loss Prevention handouts<br />Recognition of employees efforts and contributions<br />Total affirmation and support to company’s shrink reductions programs<br />Management setting examples in following standard operating procedures<br />
  34. 34. Shaping Attitude Cont.<br />When a new employee comes on the job, management should sit down with the employee and explain the “why’s” and “how’s” of the company’s loss prevention program before they have had a chance to learn any bad habits. These should be inclusive of, but not limited to the:<br />Orientation Handbook<br />Alert line<br />Employee Purchase Procedures<br />
  35. 35. Shaping Attitude Cont.<br />Once the new employee is on board, their attitude towards the company and its rules will be shaped very quickly. To make sure employees develop positive attitudes,<br />they must be corrected on little things during the first days of employment. They will quickly realize that the company is serious about its rules, and intends to have them obeyed.<br />
  36. 36. Do you receive everything for which your WAREHOUSE is charged?<br />Collusion between receivers and drivers is not unheard of in this business. Truck drivers often try to get receivers to accept some form of gratuity.<br />Once they do, no matter how insignificant the favor may be, the receiver becomes obligated to the potential thief who can do major damage to the profits of your store.<br />
  37. 37. Things to look for in the shipping-receiving department:<br />Monitor the shipping/receiving manifest to make sure dishonest employees are not shipping product to their home or a friend’s house. A constant auditing and signing off for all shipments/and or receiving merchandise by management should help control losses in this area<br />Placing camera’s in strategic areas in the stockrooms will help you monitor receiving performance issues and potential acts of dishonesty. <br />Make sure all merchandise that is received is double checked by management and all discrepancies are researched.<br />Insure all transfers, damages, are properly documented and signed off by management.<br />Insure all high priced merchandise is counted at least two times a day to close the time frame during an internal investigation. <br />Insure all garbage bags are checked for concealed merchandise by management prior to throwing out the trash.<br />Insure all dumpsters are locked when not in use<br />Insure employees are not changing clothes in the receiving area <br />
  38. 38. ACCOUNTING AND FINANCE FRAUD<br />Statement Fraud<br />Payroll Fraud<br />Expense Fraud<br />Travel Fraud<br />Purchasing Department Fraud<br />Computer Fraud<br />Information Fraud<br />Kickbacks<br />
  39. 39. Shrink Statistics<br />Areas where management should pay close attention too.<br />Pricing 4%<br />Accounting 3%<br />Damages 5%<br />Receiving 11%<br /> Shipping<br />Accounts Payable<br />Purchasing<br />Hiring Process<br />
  40. 40. Why should your company conduct employee background screenings?<br />33% of job applicants falsify employment applications<br />30% of business failures are caused by employee theft<br />$15 billion dollars are lost to employee theft per year<br />Average employee embezzlement is over $125,000<br />Workplace violence cost $4.2 billion in lost work and legal fees<br />
  41. 41. Physical Controls<br />Here are some basic physical security controls to help you reduce theft/risk exposures.<br />Data Mining Software<br />Electronic Article Surveillance (EAS)<br />Automatic Cashier Monitoring Systems<br />Automatic DSD Receiving<br />Quarterly Inventories<br />CCTV/Remote Management<br />Burglar and Fire Systems<br />Safes with time locks (safe should be fire proof and burglar proof<br />A well trained loss prevention department if applicable<br /> Well trained management and staff<br />Increase the level of detection and apprehension<br />Proper pre-employment screening <br />Documented policies and procedures<br />Counseling of unprofessional behavior<br />Managing operations completely<br />
  42. 42. Physical Controls Cont.<br />Unfortunately these efforts will not be successful without well-trained loss prevention or management leadership<br />
  43. 43.  In Summary<br />Every company has an operating consciousness. It is made up of the collective positive (or negative) mental attitudes of its leaders, and hence, its total employee population. To understand what separates a great loss prevention or management from lesser consciousness from lesser alternatives, <br />let’s look at what separates great athletes. Basketball great Michael Jordan and tennis great Chris Evert might be two of the greatest athletes ever. Jordan, with all his natural talent, practiced and trained harder than his peers and is today the highest scoring player in professional basketball history. He knew the results he wanted to achieve would come from what he did before the game, not after the game.<br />
  44. 44. In Summary Cont.<br />Evert holds 18 grand slams titles and an overall record of 1,309 wins and 146 losses. She stated, the thing that separates good players from great ones is their mental attitude. <br />It might only mean the difference of one or two points, but it’s the difference between winning and losing. If you have a positive mental attitude, you can do almost anything you want. The same theory applies to loss prevention<br />
  45. 45. In Summary Cont.<br />Removing the opportunity for theft is much like defensive driving! You attempt to anticipate areas of probability and then shut the door on them before they occur.<br />While you may never know if you prevented the theft, you certainly will be comfortable by a healthy shrink report<br />
  46. 46. Thanks for attending<br />