If you ignore the possibility of theft, you may scramble to solve major problems later on. But smart executives are tightening up their systems right now.
Six Ways To Tighten Security
The average employee thief is not as sophisticated as the man who ripped off Philip Crosby Associates Inc. "Very few losses are actually the result of an ingenious plan," says Jurg Mattman, a consultant in loss prevention. "What they see is a weakness that they can exploit."
Here are a few simple steps for closing common security gaps:
* Separate financial duties. Separate bookkeepers should record transactions and prepare bills, and another executive should authorize all checks. "No one person should control a transaction from beginning to end," warns Joseph Wells, a certified public accountant and fraud investigator in Austin.
* Screen applicants. If you're hiring an executive with fiduciary duties, ask references for the names of other references, and send them a photograph to check identification. Talk to neighbors, and make sure to investigate gaps in employment.
* Set an example. As the owner, you may think it's harmless to be taking cash out of the register or lugging home office supplies, but it sends a dangerous message to employees.
* Don't trust anyone completely. Your right-hand man might have his left hand in your pocket. Check up on him as you would anyone else.
* Talk about it. Tell workers that security is a team effort. If the company loses money, so do they. Tell them about safeguards you've put in and stress the punishment that awaits offenders. Remember: co-workers spot about a third of all thefts.
* Analyze plant layout. Physical layout sometimes helps make theft easy. At one manufacturer, employees were supposed to load goods into a truck next to a dumpster. Instead, they dropped them into the dumpster and retrieved them later. The lesson: build trash compactors into the wall or put the receptacle in full view.
Recognizing The Warning Signs
Some of the signs of employee theft are painfully obvious, although managers often fail to take notice.
* Unexplained inconsistencies. Often, executives would rather place blame for theft anywhere but on employees or managers. An electronics distributor, for instance, blamed his computer for inventory discrepancies. He later put six employees behind bars. Don't assume employees are at fault, but don't ignore the possibility, either.
* Lifestyle changes. You would certainly ask questions if your $22,000-a-year bookkeeper began driving a $40,000 Mercedes-Benz to work, wouldn't you? The partners of a small law firm stumbled on the source of their bookkeeper's newfound wealth: she was writing company checks to phony names and endorsing them to her personal account. "There is usually a lifestyle change that could clue you in," says one private investigator.
* Bad morale. Not all disgruntled employees steal, but most thieves are dissatisfied with their jobs. If you know that certain employees are constantly complaining about overwork or underpay, make sure there's a system for airing and confronting those gripes; otherwise, those grumblers may start trying to devise their own compensation systems.
Catching Them Red-handed
Rarely do thieves get away with stealing once, and then quit. If you ignore minor losses, you may be inviting major ones. But to punish the offender, you'll probably need an eyewitness or a video image.
If the problem is in your warehouse or factory, your best bet is to talk to the manager. Ask that person: have you noticed anything unusual? Even if the manager is involved, that may stop him or her cold. You can also turn to other employees for help, by setting up a hot line for anonymous tips. Cost: from $500 to $25,000 a year.
If inside information isn't turning anything up, maybe it's time to call in an outsider. For about $1,000 a day -- and most small companies require just one day -- a security consultant will cast a trained eye on areas in which security gaps often exist. By day's end, that person should be able to pinpoint your company's most vulnerable spots.
But catching the thief may require still more digging. For about $400 a day, you can send a private investigator into your company dressed as, say, an electrician. If a day or two isn't enough, an investigator can infiltrate the company disguised as a new hire. Beware, though: it may take as long as three months before the veterans let the new kid in on the scam. At $50 an hour, you could lose more money to the investigator than you would to the thieves.
The Pros And Cons Of Prosecution
Poor Mary. She's a hardworking executive. Why, aside from stealing, she's been loyal to you all these years. She doesn't belong in jail. "Look," you say, "resign, return the money, and we'll forget it."
That may be compassionate, but think of the signal it sends to the rest of your employees. Under certain conditions, they'll be able to get away with ripping off the company.
Writing out a complaint and testifying in court may be time-consuming, but there are still compelling reasons to do it. "If you let them go, they'll steal from the next employer," says one chief executive, who has prosecuted employees on more than one occasion. "You have a moral obligation to others."
It's not an easy decision. Do you really want the spectacle of having an executive hauled off in handcuffs? If you run a manufacturing company, as opposed to a high-profile service business, you may worry less about the publicity of seeing your employee's mug in the newspaper. Companies that deal directly with the public have to be more image conscious. Certainly, prosecution is not appropriate for every crime -- especially relatively minor ones. If the punishment is too severe, it could create resentment among your other employees.
Logged On, Ripped Off
No more stuffing suitcases with cash and hauling them out the door. No messy paperwork trails for snoopers to follow.
At least, that's not where the real action is these days. The computer has simplified even the thief's job. Employees can now embezzle with one finger, shifting numbers around, quietly fiddling with inventory records or the like. "If somebody is going to fraudulently transfer money, it's much easier to do the job electronically, with wire transfers," says Joseph Wells, a certified public accountant and fraud investigator in Austin.
Take, for instance, the case of one retail operation in which an executive teamed up with a shipper. As the shipper whisked television sets out the door, the executive wiped out numbers on inventory records. Then there was the high-tech placement firm in which an executive was copying lists of its best candidates and selling the disks to a competitor.
Such crimes are adding up. Whatever employee theft is costing companies, most observers agree that the number is heading northward. "It seems like everybody's got a story about theft," says Stephen Nelson, a Seattle accountant.
Why People Steal
Kay is a 48-year-old grandmother who has always been active in her church, often hitting up friends for one charity or another. Lately, she has been thinking about employee theft.
Kay has time for reflection. She is serving a four-to-eight-year sentence for forgery. She admitted to stealing more than $400,000 from a company that had revenues of about $14 million. "Given the right circumstances," says Kay, "anyone is susceptible to doing it."
Kay had been working at the company for nearly eight years, in charge of both accounts payable and receivable. In 1980, she started writing checks to herself. If the company owed, say, $50,000 to a supplier of light bulbs, she would enter a $60,000 payment in the books. Then she would write an extra $10,000 check to herself. Inventory records were so inaccurate that nobody could tell whether the company had $50,000 or $60,000 worth of light bulbs.
It all started, Kay says, when her daughter's marriage failed and her son needed financial help. She put her daughter through nursing school and furnished her son's house. But one day she told her husband what she'd been doing. "I couldn't live with it anymore," she says.
Not so for 22-year-old Maria. In 1985, the former high-school honor student started working at a sandwich shop. The store's owners were never around. At first, she would take $5 from the register to buy beer. Then $25 for partying.
But a new owner took over, one who balanced the books himself. About a month later, he fired Maria. Furious, she went on a daylong drinking binge. The next night she decided to go to the store and make herself some sandwiches. She entered through an unlocked door. Just then, she heard a voice. "I thought you'd be back," boomed the new manager. Four squad cars appeared. Though Maria had stolen $800, some of which was recovered, the owner didn't press charges.
Steve (not his real name) wasn't so lucky. In 1986, he got a sales job at an auto-parts store. It's only for a short time, his bosses told him; we're grooming you to be a management trainee.
Five months later, having heard nothing more about it, Steve decided to take revenge. The store's shoddy inventory records often listed certain parts as not being in stock when they were on the shelf. At night, Steve would search for such parts; then he'd do the paperwork as if a customer had returned them.
Over a few months, he took $5,000.
Then his bosses noticed that the same part had been returned two days in a row. Digging deeper, they also found that Steve had far more returns than others. Now, he is serving a year-long prison sentence. "I was the last person they ever would have suspected," he says.