Employee dishonesty is the number one cause of inventory shrinkage (loss) in the average retail setting. It is a startling fact that according to Statistic Brain Research Institute, nearly $50 billion dollars is lost to employee theft every year. In fact they go on to say that 37.5% of employees will steal at least twice from a business. How can you protect your business from Employee Dishonesty?
How Extensive Is Employee Dishonesty?
As the manager in a major retailer’s loss prevention department, I participated in the apprehension of hundreds of shoplifters. While the total of the merchandise recovered was substantial, it was easily dwarfed by the amount of recovery from employees who were caught on tape and subsequently admitted to internal theft.
According to a report by the national retail hardware association, 36% of all retail losses can be attributed to shoplifting, but the larger percentage of loss is employee theft (43%).
At my location the impact of internal theft was easy to see. While we caught thieves at the rate of 50 external to 1 internal, the total dollars recovered was higher from the internal cases.
With employees that engage in theft, the severity of loss goes up with the number of times a loss occurs. In most cases the boldness of the theft increases long with the employee’s confidence in their ability to avoid detection. Employees who believe that theft is tolerated will continue to steal, becoming bolder with each occurrence. Over time they will recruit other employees to participate in the schemes and the losses will grow exponentially. It is important to identify sources of shrinkage in your company and deal with them quickly. In that way you send a strong message to any employee that might be tempted to begin stealing.
What Insurance Is Needed?
As a business owner or manager, there are steps you can take to protect your property from loss due to employee dishonesty. The first step is to make sure your business is insured for commercial crime coverage. Basic commercial crime policies include coverages employee theft; theft of money and securities by someone other than an employee; Theft of property inside the premises, by someone other than an employee; Theft of property inside or outside the property by someone other than an employee; Computer fraud; Theft of a client’s money, security or property by one of your employees; Counterfeit Paper; Extortion (loss of money due to threat of bodily harm).
What Steps Can Be Taken to Mitigate or Prevent Loss?
Once you have commercial crime coverage in place there are five steps you can take to reduce the likelihood of internal theft.
The first step is the professional installation of alarms and video systems designed to protect your property. Most employee theft begins with small items that are not protected and grows from that first instance. Eliminate opportunities for theft by proactive deterrence.
Secondly, of all the causes that might trigger employee theft morale might be the most effective one for you to impact. It may sound too simple, but employees at business who have high morale and have higher productivity are far less likely to create loss due. According to the International Foundation for Protection Officers, low morale at the workplace, caused by the feeling that the employee has been “wronged” or the employee are underpaid or worse – undervalued can lead to an increase in employee theft.
Third, pay attention to petty cash and items that are easily stolen. Remember most employee theft begins with low value items and grows with experience.
Fourth, loss prevention begins with good employees. Make sure that during the hiring process all recommendations are verified and background checks are completed.
Fifth, Once you have an employee culture that feels valued and appreciated, make sure they are aware that theft is not tolerated and that losses hurts everyone through lower wages and bonuses. It is important that they are aware that they can make a difference and there are ways to turn in a “bad apple” that is “upsetting the cart.” It is appropriate to offer rewards or bonuses for tips that lead to detection of loss.
Employee dishonesty is a huge problem, but it is one that can be managed through proactive steps. Remember most theft begins with opportunity; elimination of the “easy pickings” should be everyone’s first step to reducing the problem.
Clarence Holm served in loss prevention and assets protection for a large retail operation and has received training in investigative and interrogation technics from nationally recognized instructors. He also has experience in retail management, the service industry, and the insurance industry. In those capabilities, he has given numerous presentations regarding loss prevention to law enforcement students at college campuses and has addressed service and professional organizations throughout the area on tips to reduce business loss.
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