Theft in the workplace is a bigger problem than ever with new ways to steal on the rise. By LUCINDA SCHMIDT.
By Lucinda Schmidt
The Australian Retailers Association estimates that more than half of stock “shrinkage” is from employee theft. And the Australian Federal Police says 70% of all business fraud losses are from staff or former staff, amounting to at least $1.5 billion a year.
In reality, experts believe the true level of employee theft is higher than the statistics show, because much of it is undetected and, even when it is uncovered, many business owners do not report it. A 2005 report from the Australian Institute of Criminology found that only one in 17 incidents of employee theft were reported to police.
So how do you know if you have a thieving employee?
The key warning sign is gross profit margins, according to Mark Fletcher, founder of Tower Systems, which sells point-of-sale software to more than 2000 small businesses around Australia. If your gross profit figures are below industry averages, yet your business seems to be going quite well, suspect employee theft.
Other things to watch for are strange behaviour, such as only wanting to use one particular cash register, employees who rarely take holidays, lots of cancelled or deleted register sales, an employee who seems to be wealthier than they should be, someone who gambles a lot, an employee who won’t allow segregation of duties or resists changes to their role and an employee who always has excuses why reports aren’t finished. Another warning sign is more cash in the business when a particular employee leaves or goes on holidays.
There’s also an element of luck in sniffing out dishonesty. Fletcher, who owns several newsagencies and gift shops, discovered that one of his staff was stealing cash from the register when the man was sick and missed his regular Sunday shift. Fletcher stood in for him, and the shop took $1300 for the day, instead of its usual $800.
The next Sunday, Fletcher made some excuse as to why the man was not required, and, again, the shop took $1300. The employee – a retired newsagent – admitted to stealing $5000 by not ringing up sales. He had been a customer of Fletcher’s software business for 11 years, and was so well regarded by Fletcher that he ran the shop alone on Sundays.
That’s a typical scenario, according to Mick Featherstone, the chief investigator at Phoenix Global. He gets a couple of calls a day from businesses that suspect employee theft, and the first person he looks at is the dedicated employee who does the bookkeeping, collects the mail, does the banking and knows how to manipulate the system. “It normally is the person of trust,” Featherstone says.
The good news is that there are plenty of ways to protect yourself. Before you even hire a new staff member, do as much checking as possible either yourself or through a pre-employment screening firm. The 2006 KPMG Fraud Survey showed that 14% of employees engaging in fraudulent conduct had a history of dishonesty with previous employers. The survey also found that false invoicing and theft of cash or inventory were the most common frauds.
Another finding from the KPMG survey was that manipulation of computer data was increasing. Wayne Gladman, the founder of Fraud Risk Solutions, says controlling access of staff to computers, and their ability to alter data, is a key aspect. At the very least, passwords should be used to restrict access to some information and to identify who has done which transaction.
He also warns against allowing one person to have complete control over an entire process, such as signing and issuing cheques. (Of course this is easier said than done in a small business with few administrative staff). “A lot of organisations get into trouble when there’s one person doing too many roles,” Gladman says. Rotating staff through different jobs, and making sure they take regular holidays, can also help.
Gladman says it is processes and accountability – rather than surveillance technology such as closed-circuit television – that give the best protection. Many retail businesses have a CCTV camera above the register, which helps as a deterrent and for potential proof of stealing, but Gladman says that staff know that the business owner is far too busy to watch all the footage, and they also know how to walk out of range of the camera.
Featherstone also favours good systems rather than surveillance. He says every business should have clear policies on theft, employee purchases, refunds and staff discounts. He says the four danger areas are cash, stock, plant & equipment and intellectual property, and businesses should have strict reporting procedures around the areas where they are most vulnerable.
Another type of protection is insurance. Most insurers offer an “employee dishonesty” or “fidelity” option as part of their SME business insurance package. The cost is $100–200 a year (with a $75–125 excess), according to Jonathan Poole, chief general manager, retail distribution for Allianz. Yet less than 10% of small businesses take up the option.
“Especially for small businesses, it’s a tradeoff between how much they can afford and what they perceive as a major risk,” Poole says.
Of course the best protection is to be vigilant – and open to the reality that it could happen to you. This, says Fletcher, is a big problem, especially when the thief is a trusted member of a small team.
Fletcher says he was once rung by a newsagent who complained that the point-of-sale software was not recording sales properly. Fletcher analysed the data then reported that the software was fine, but that it revealed that an employee, who worked on set days each week, was stealing from him. The only person who matched those days was the second in charge, and the newsagent did not believe Fletcher.
Six months later, the police arrested the employee on another matter, and the newsagent found that Fletcher’s analysis was correct. The extra six months cost him another $50,000. “That’s the tragedy of this – small business owners do not believe it will happen to them,” Fletcher says.
Source: Mark Fletcher, Tower Systems
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