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February 26, 2015

Employee Theft — Discovering it, Stopping it, Preventing it


By Bill Napier

StealingTheft of your store’s goods (and sometimes its resources and funds) can happen many ways. Sometimes those thefts are sporadic, maybe even happening only once and with something that takes you a while to notice is gone. Other times it’s a string of smaller, harder-to-detect thefts that, in time, sometimes months or even years, add up to a substantial loss for your enterprise. Bottom line, unless your in-house burglar makes an obvious mistake in his cover-up or alibi, employee theft is not always easy to detect.

Protection against resource theft and embezzlement are subjects unto themselves, so what I’d like to focus on here is the theft of hard goods, your physical inventory, by employees. Let’s look at some common theft schemes that have occurred at other retail business. This isn’t meant to be an all-inclusive list of theft indications, nor are these indicators proof of employee theft. Rather, these examples are provided simply to help you build prevention awareness in your business.

Incoming Merchandise and Invoices

The receiving dock is an area where much theft can occur. Most often this happens when deliveries are received but not all the merchandise is entered into your official inventory. Merchandise is brought in but not counted out of or into the inventory; those “extra” goods were simply removed discreetly by the employee before they were inventoried.

Where this is most dangerous to your business is, of course, in the area of firearms. A dishonest employee will simply not enter all the firearms into the A&D log. This can be quickly discovered if you’re doing regular inventories of your firearms and matching them against your A&D log. It’s harder to discover if the theft is occurring on the front end and you don’t match your invoices to A&D entries. In such cases, the theft can go on for a very long time.

Of course, it’s not just guns that fall into this problem area.

Sometimes this loading dock thievery happens when an employee colludes with a regular route delivery driver and sometimes the vendor themselves. Similar to a theft orchestrated solely with the employee, in this case the employee has made an agreement with his normal delivery driver or vendor and checks in a shipment as complete while leaving part of the shipment on the delivery truck. The driver later meets with the dishonest employee to divide up the stolen property. This is a tough one to detect if you don’t conduct routine inventories and have a system that routinely crosschecks invoices against bills of lading and on-hand inventory.

Out With the Trash

Significant losses have occurred when a dishonest employee places store merchandise outside the back door or in the trash and comes back later to retrieve it. The theft often originates at the receiving dock; again, this is a good reason to immediately check bills of lading against goods on hand and invoices. This kind of theft can, of course, happen with firearms, as well as other general merchandise that can be easily covered up by other trash.

But We Returned That!

One last type of employee theft we will look at are those stolen goods that are disguised as a return of merchandise to the vendor. If you have merchandise that is waiting to go back for credit and you have not filed for a return authorization with the vendor, the dishonest employee will take the return item and return it to another store carrying the same merchandise, taking cash or a credit for it while you never receive the credit on your books because the vendor never received the returned merchandise (and wasn’t keeping an eye out for it because he or she never issued a return authorization number to you).

How to Combat Employee Theft in the Receiving Area

Your employee theft-prevention efforts should be part of the company culture. This starts before the first day a new employee joins your team. Do you call the references provided on the job application? Do you retain the services of a qualified company to perform criminal conviction checks? When a new employee does start his or her new job with you, do you provide them with a training manual that has been vetted by your legal counsel? Does that manual provide a full explanation of expectations for following the rules and the consequences when that doesn’t happen? Does a senior leader in your employ go over the manual with the new employee, or do you merely hand it to them and tell them to read it?

Let’s face it, some thieves are very hard to catch, just as some inventory loss due to theft can be very difficult to discover. Is there a level of trust among team members that enables them to share suspicions and tips with you about another team member? Some businesses encourage this by using an outside anonymous tip line for this purpose. Cash incentives for tips have also been used to effect.

Now let’s look at what you do when you do discover a problem of the nature we’ve been discussing. If your policy is to terminate employment and prosecute employee theft, do you follow through? If you don’t, this is a sure way to build resentment and mistrust among the team members who do follow the rules, and it may encourage those who have been tempted to steal from you and haven’t to cross the line.

Of course, you also need eyes on the inventory itself, and in several ways. Surely you conduct at least a yearly inventory, but do you reconcile losses down to the individual SKU level (and can you see why doing spot checks and inventory versus invoice evaluations can catch a problem faster)? Video surveillance can be a smart move for many businesses, especially when cameras are included in the receiving area and inventory storage areas, outside around trash bins, and are thoughtfully arranged to eliminate blind spots where goods can be grabbed or stashed unnoticed by others.

The bottom line is that while you want to trust your employees — and you should, for whatever level of responsibility you’ve entrusted them with — sooner or later it’s likely that one who’s not trustworthy will slip through your processes or a good employee will turn rogue. It’s the processes you put in place to catch them sooner rather than later that can make or break your business.

Did You Know?

NSSF partners with a renowned, U.S.-based company to offer its members discount on employee screening services? This affinity benefits company can verify social security numbers and addresses and perform multi-state criminal background checks, sex-offender registry checks and terrorist search checks, as well as credit checks, drug testing, education and previous employment verifications and other services. To learn more, log-in to the members-only side of nssf.org and visit the complete list of affinity benefit providers. Join or upgrade your membership.

You may also be interested in: Store Security — More Than Set it and Forget it

About the Author
Bill Napier is a member of NSSF’s retail compliance consultant team. He has more than 30 years experience in retail loss prevention, passionately serving others in leadership roles such as site manager, corporate manager and director. Businesses have included small and growing retail chains as well as a Fortune 1000 company. For more than 18 of those 30 years, Napier has been in the retail outdoor arena with responsibility for ATF compliance and firearms-related investigations. He often serves as a guest speaker at NSSF’s SHOT Show, as well as at gatherings of the National Retail Federation (NRF), Retail Industry Leaders Association (RILA), Retail Technology (RETECH), ASIS International and The Loss Prevention Foundation, and he has spent more than 20 years in municipal law enforcement as a uniformed patrol officer, detective and supervisor. Additionally, Napier has been a state-certified law enforcement instructor and he serves as a Hunter Education instructor in Nebraska, on the ASIS Retail Loss Prevention Council, is a member of the Subject Matter Expert Committee and serves on the board of directors for The Loss Prevention Foundation.