Shrinking Margins? Internal Controls Can Help

September 18, 2014 by Leave a Comment

shoplifting4Occupational fraud is a problem for most businesses, both large and small. Fraud is committed when an employee, through a deliberate and usually illegal process, misuses or misappropriates the resources or assets of a business for their own benefit. It’s willful and deliberate worker misconduct, which causes the business to suffer financially due to theft of time, services, inventory or money.

This type of fraud is such a widespread and injurious problem that approximately 1/3 of small businesses close due to it, mostly because it goes undetected. This is a regrettable situation, because it’s largely preventable if properly monitored internal controls are in place. It’s usually uncovered only by accident or through a whistleblower.

Actively managed internal controls can prevent or detect most types of misappropriation of assets and fraudulent financial reporting. They’re processes created to track and achieve goals in specific categories (i.e. operations, time keeping, inventory, financial reporting and compliance with applicable laws and regulations). While most of these processes are universal, specific ones may need to be added to address unusual situations or particular fraud concerns.

These controls should include operations and finances. They’re designed to create a system which protects assets through prevention and timely detection of unauthorized or illegal employee behavior. Some of these processes include: monitoring the flow of paperwork; reading, understanding and acting on financial reports; noticing and acting on the behaviors and attitudes of employees; listening to and acting on employee tips and hints about problems.

To start creating internal control measures a business can review past and current procedures, events and concerns – the company’s strengths and weaknesses, investigate and evaluate employee complaints, acknowledge and list all of the problems/symptoms, etc. This is done in a methodical timely way. It’s important to note that the controls are fluid and will need to be reviewed and changed over time.

Well managed, easy to use and structured internal controls are considered to be one of the most effective deterrents to occupational fraud. However, these controls are only paper work if management doesn’t take action. No program, by itself, will keep employees from stealing. Supervisors must be responsible and take action if it’s to be effective.

Opportunity (lack of controls) and ineffective or no consequences are 2 of the main reasons employees commit fraud. It’s unreasonable and naïve for mangers to expect their workers to be atypical. Yet they do, only to be taken advantage of. Unfortunately, many have learned this lesson the hard way.

Nicole Abbott – writer, educator and psycho-therapist

 

Filed Under: Featured Tagged With: , , , , , , , , , , ,

How Do My Employees Steal From Me?

September 5, 2014 by Leave a Comment

theft (13)A better way to look at this may be to talk about what they steal and break it down from there. Employees can steal four types of things: cash, merchandise/product, supplies (& tools, equipment…) and time.

Cash in a retail environment is king. But we tend to put the youngest, most in-mature and least trained person in charge of it. Cashiers tend to fit that description. That is a fact of retail life. But we can manage through that. We have to put procedures in place to deter theft. It has to start at the time of hire. A clear message both verbally and in writing needs to be established. After that follow up is key. Many times we let multiple employees ring up transactions on one drawer so there is no accountability. One way to counter this is through random cash drawer audits. These unannounced audits will show if a shortage has occurred. Action can then be taken. Many times employees stealing cash will accumulate it in the cash drawer before removing it. If your cash audit reveals an overage that maybe what you are dealing with.

Merchandise or Product regardless of what it is, is worth something to someone; that is why you are in business. So if an employee can steal it, they could take it for their own personal use or for resale. Again we have to set up an environment where it is known that this will not be tolerated. Many times when employees are caught stealing, the business owner keeps them employed and has them pay it back. OMG, thinking about this, pay you back with what? They were stealing in the first place. Most likely they will do so again to “pay you back”. Remember, this person has proved that they are the worst of the worst. Oh yes, there may be a sob story. But they stole your assets, the reason does not matter.

Supplies, your equipment or tools are often over looked. I once conducted an investigation for a major resort that had a problem with a few thefts from guests only. It turned out that hundreds of thousands of dollars were stolen in cleaning supplies, furniture, toilet paper, fuel, etc.

We tend to overlook this area because we think it could not add up to much. You have to get your head around that. A roll of toilet paper and a can of cleaning solution every few days add up. Multiply this by a number of people and the situation is quickly a serious loss. Audit your supplies. Investigate when tools or equipment come up missing. Hold people accountable. You should assign or make certain employees accountable for these items. They can and should control them.

Both merchandise and supplies can be removed from your business on the employee’s person, discarded in the trash to be recovered later, out with a friend that is visiting or in collusion with a vendor.

Time is often never thought of in employee theft situations but can be one of the largest losses. Employees steal time by simply falsifying time cards or sheets. For example, a co-worker friend clocks them in but they are not there yet. Even 10 minutes, two or three times a week adds up to big dollars. From personal experience in the over 2300 employee theft investigations I have conducted, it has never just been 10 minutes here and there. This type of theft becomes addictive quickly and will grow to large amounts unless checked.

Time can also be stolen by managers who have control of payroll. I once had a manager set up a fake employee with a bank account. He submitted payroll information and deposited the checks. He embezzled around $20,000 before we investigated him.

All of these types of theft can be prevented. Policy and procedure that is followed and enforced is your very first line of defense but there are other techniques. You can learn more about them in our live- in- person or webinar training sessions. Contact us if you would like more information at 770-426-7593.

Filed Under: Featured Tagged With: , , , , , , , ,

The Curb Rule

September 5, 2014 by Leave a Comment

theft (12)If you talk to anyone who works in retail security, they are probably familiar with something called the Curb Rule. It is a limitation made by many large retailers as to how far employees literally can go when they are making a shoplifting apprehension.

The Curb Rule usually states that when making a shoplifting apprehension, if the shoplifter attempts to flee, employees can pursue the subject as far as the edge of the curb of the store’s location. Generally, most stores have a sidewalk in front of them, and the employees should not go past the edge of the sidewalk in pursuit.

The ultimate goal of the rule is to keep everyone involved safe. The further away from the store employees go, the more likely it is that someone will get hurt. It’s not just about an altercation with a shoplifter either, even though a chased subject can be more pressured into trying to fight their way out of the situation.

In one particular incident, I stopped a shoplifter with a cart full of merchandise. The subject turned around and ran, almost getting hit by a car in the process. Had my witness and I gave chase, we most surely would have been hit ourselves. Remember, even shoplifters can sue a store/ company for personal damages if they are hurt during an apprehension.

One of my mentors used to tell stories of how he got a massive scar on his arm. He had been chasing a shoplifter who had climbed a chain link fence. My mentor, slipped while going over the fence, and the top barbs cut his arm. The shoplifter ended up jumping down an embankment and broke his leg. Needless to say, it was quite an expensive mess to clean up. Did I mention that all the shoplifter took was a twenty-dollar shirt?

The Curb Rule has its place as a safety feature as well as for maintaining profits. Often store and parking lot layouts dictate where the boundaries need to be made. Some stores who do not have a front sidewalk need to clearly inform employees of how and where to handle shoplifters, compared to stores with generous sidewalk areas.

Filed Under: Featured Tagged With: , , , , , , , , ,

When There Are Children Involved

September 5, 2014 by Leave a Comment

theft (10)When we think about shoplifters and creating policies on what how to apprehend them, and what to do with them during and after the initial confrontation, we are doing so with a general image in mind. We are acting on an image of an adult shoplifter, who may or may not become physically aggressive. What many owners and managers frequently overlook is what to do when there are children involved during the shoplifting incident.

There is a sad reality that many shoplifting situations do involve children. Sometimes it is actually the children (or minors under the age of 18) that are the ones stealing. Sometimes it is adults- parents, caregivers, relatives- that bring children along while the adult is stealing. In some very unfortunate examples, the adults might actually be teaching and encouraging the children to steal for them.

As a result, policies and procedures should be in place to account for these situations. If you are trying to figure out what to do while the incident is already underway, you can end up in serious trouble if you make the wrong judgment call. So here is a quick overview of how to handle some of these situations.

What to do if a shoplifter is a child/ minor under 18 years of age? Start by determining if there is a responsible party somewhere in the store. This needs to be someone over the age of 18 that can oversee custody of the child. It should be a parent or guardian of some sort. A minor babysitter, older sibling, or friend is not who you want.

Next step is to use your best judgment for the shoplifter’s intent. A four year old taking a candy bar has less criminal intent than a seventeen year old stealing a pair of jeans. Determine from there if you are calling the police to prosecute. Ideally any juvenile in your custody should be released to either a parent or guardian, or the police within thirty minutes or less. Always have a witness present when you have a child in your custody. Never release a child out on their own, as you can be held liable if they are hurt, etc after leaving your store.

If the shoplifter is an adult, and they have children present, decide if you are calling the police or not. If you are prosecuting the adult, make sure the local law enforcement are aware that there are children present. They will need to make special arrangements for those children. While the adult shoplifter is in your custody, under no circumstances should the children be separated from that adult.

Filed Under: Featured Tagged With: , , , , , , , , ,

Revenue Versus Profits

September 5, 2014 by Leave a Comment

theft (2)During my last consultation, I had an interesting discussion with a business owner over the difference between high revenue and actual profit. He was under the impression that just because his business had consistently outstanding sales revenue that his business should be extremely profitable. He couldn’t understand why he was having trouble paying his bills and payroll for his employees.

I had to convince him that his sales weren’t where there was a problem. It was everything that was going on in the middle that was taking away from his profits. Somewhere he had operational breakdowns that were eating away at his incoming funds, preventing him from comfortably paying his operating expenses, and then leaving very little left over in the form of true profits.

The fact that he did have exemplary sales and revenue was probably the only reason why he was able to keep his doors open for business. Good sales are vital to a business’s longevity. Unfortunately, if the day-to-day operations are not efficient, all of the work put into generating sales revenue is easily rendered null and void.

Since we knew that he wasn’t having an issue with his sales, we started looking at some of the other possible causes for his profits to be eaten up. We started with his inventory. We looked at where he was spending his money and what he thought were the best and the worst selling products.

In one example, a particular vendor had been telling him that this particular brand was one of his best sellers. As such, the owner was putting in huge orders for the product. After taking a look at the actual sales and the actual on hand inventory, we realized that the sales did not justify the product he had on hand. In fact, based off of actual sales, there was 15 years worth of inventory. The vendor saw this business as an uninformed target and took advantage of it.

By eliminating this unnecessary inventory cost, the business owner was able to save several tens of thousands of dollars a year in lost profits.

Filed Under: Featured Tagged With: , , , , , ,

Employee Fraud – Trust, But Verify

August 13, 2014 by Leave a Comment

theft (10) During the Cold War arms control treaty negotiations with Mikhail Gorbachev President Ronald Regan became famous for a saying based on an old Russian proverb, “Trust, but verify”. He used the adage to describe the need for transparency in political relationships. But, today it has a broader meaning and can be used as a guideline for establishing trust between an employer and employee.

Many business owners, executives and managers don’t like to face the fact that some of their employees have, are or will be committing fraud – that product, materials and/or money has, is and will be walking out the door. For a variety of reasons they choose denial as their policy for employee theft and don’t address it. Unfortunately, employees take advantage of this and their employer’s trust.

One of the main reasons employee theft can be difficult for owners and managers is that they feel it’s a personal affront. They feel betrayed and believe it’s a personal issue, not a business or legal issue. It’s important for them to understand that it’s an operational and legal issue, not a personal attack.

The “Trust, but verify” concept can be used to develop a strategy. Managers can trust their employees, as a whole, while establishing transparency and accountability in daily business operations. The Association of Certified Fraud Examiners 2012 Report to the Nations on Occupational Fraud and Abuse (ACFE 2012 Report) makes several recommendations on how to minimize fraud.

* Anti-fraud training – Organizations who have training programs for employees, managers and executives have less costly losses and shorter durations of fraud.

* Means to report – Providing people with ways to report suspicious activity is a critical part of prevention. Fraud is almost 3 times more likely to be detected through employee tips than any other method of detection.

* Controls – Companies should establish, monitor and maintain 3 areas of controls – general internal, physical and computer/technology based.

* Screening new employees – This is an area where employers can be lazy. Many times hiring is done by the “I like him, he’s hired.” method. This is an important area to do the due diligence.

* Division of responsibilities and oversight – Don’t give too much responsibility to one person and establish checks and balances in everyone’s job. Fraud is committed by a person who the employer trusts, that’s how they’re able to get away with it. In small      businesses it’s most commonly perpetrated by a family member or friend.

* Pay attention – 81% of fraud perpetrators display obvious red flags: living beyond their means, financial difficulties, unusually close ties with vendors or customers and unnecessary controlling/secret behavior (ACFE 2012 Report).

Employees will steal from their employers, it’s not a matter of “if or maybe”, it’s a matter of “when and how”. A responsible company manager will accept their personal and fiduciary responsibility to protect the company, its profits and the honest employees by establishing and following firm guidelines which don’t enable fraud.

Nicole Abbott – writer, educator and psycho-therapist

 

Filed Under: Featured Tagged With: , , , , , , ,

If They Steal $1,000 That’s All I Lost….. Right?

July 30, 2014 by Leave a Comment

theft (13)Whether it involves employee theft, shoplifting or some other real loss, you actually lost a lot more than $1,000. And I mean real money. One of the advantages I have as the former Senior Loss Prevention Executive for several major companies, is that I bring a larger scope of experience to you, the small and medium business owner or manager.

Okay, so the thief got away with $1,000 of your merchandise but that ​​is ​​not all you lost. That merchandise had to be purchased, paid for, shipped, handled by your staff and made available for sale to your legitimate customers. In many cases we do not factor these tasks and the ever tighter profit margins we work with into the loss equation.

As an example, let’s say that your profit margin after taxes, labor and other expenses like rent, electricity, gas…. is 1.5%. Actually this is an average for most US retailers. Some have a higher profit margin others like grocery stores average less than 0.5%.

So take your loss, in this case $1,000 and divide by your margin, again in ​​this case 1.5% (.015). The result is $66,666.67. That is your actual loss. You are going to have to sell another $ 66,666.67 simply to BREAK EVEN on a $1,000 loss! How many more merchandise items will ​​you have to purchase and sell to do this? And remember that is only to break even on the $1000 loss NOT to make a profit.

Oh wait a minute – you have insurance. Few policies cover this kind of loss. If they do, try putting in for several of these cl​aims. You will probably find yourself looking for a new insurance carrier after they drop you or raise your rates through the roof.

There is only one way to do this and be profitable: prevention. You must stop losses before they occur. In addition your loss prevention efforts cannot consume all of your time or resources. Otherwise you lose focus on your sales. But the LP effort has to be a part of your standard operating environment, not on and off. You would not turn off the power to your sign every other day to save money. Why would you do that with loss prevention?

The really great news is that a solid loss prevention program is neither expensive nor difficult for the small to medium retailer. You should loo​k at loss prevention in three areas that are all working together at the same time.

First is Training & Awareness – have you set the standard right from the very beginning with your employees? Do they know what is expected of them and their performance including their responsibilities to protect your assets? Do ​​they understand you do not tolerate any theft by them or their friends regardless of size?

Second – do you have an operational audit or review of your operations? Do people actually know and believe that you look in depth into your operations and losses. Are you ACTUALLY holding them responsible for their performance?

Last is investigation. You must look into and understand why a loss has occurred. Then take action to keep it from occurring that way again. Thinking that it will go away or even worse fix it by itself is ridiculous. IT WILL ONLY GET WORSE.

All of then feeds back into Training and Awareness. Once you start this cycle if will feed on itself. You will ​​even find that your core employees will pick it up and go with it. I have other techniques to this process that you may find helpful. Give ​​ me a call at 770.426.7593 x101 if you would like to discuss this or any other loss prevention issues. Again, remember shoplifting and employee theft losses can be controlled!

Filed Under: Featured Tagged With: , , , , , , , , ,

Loose the Battle, Win the War

July 30, 2014 by Leave a Comment

theft (1)I read a horrifying news article about a man, who had been convicted of shoplifting, winning a lawsuit to the tune of $500,000. That’s right- half a million dollars paid out to a man who was convicted of shoplifting from a store. The report was horrifying for two reasons.

The first, because he was a shoplifter who might never have to work a day in his life again, basically was paid out to steal. Two, because the reason he won his suit was because he was injured during the course of the apprehension as a result of his shoplifting.

It raises a very important question of where do we, as retailers and business owners, draw the line? Where do we say we will allow this particular loss to happen to avoid an even worse loss? In essence, how do we loose the battle to win the war?

As the news report goes on, this particular man seems to have made a habit of bringing up (and winning) lawsuits stemming from his alleged shoplifting incidents. When the businesses could not win their cases against this man to convict him of shoplifting, he turned around and sued for slander, liable, and wrongful apprehensions.

While this particular situation is probably one of the more extreme examples of how a shoplifting stop can go horrifically wrong, this is not an unrealistic topic for businesses to be aware of.

Any time a shoplifter is stopped, or even approached, we have a responsibility to be right- 100% right. We also have to be able to prove it in a court of law. The days of acting on gut feelings or suspicions are long gone.

We have a right to protect our stores and to make shoplifting stops. We need to do so in a way that is also fair and legal to the suspected shoplifter- lest we also incur a half million dollar settlement at our expense.

Filed Under: Featured Tagged With: , , , , , , , , ,

Start Before It Becomes An Issue

July 30, 2014 by Leave a Comment

theft (2)Employee theft can and will happen to every small business at some point in time. The question of how you handle it, and what you can do about it relies on the protections you have in place before an incident occurs. Without these protections in place setting precedence, you might find your hands are tied in regards to the specific incident currently in front of you

The best place to start is in having anti theft verbiage in your employee handbook. That of course, means you need to have an employee handbook in place to standardize all of your business policies. If you do not have a handbook, you need to develop and implement one as soon as possible.

Within your handbook you need to be clear and broad all at the same time. A sentence stating that employee theft of any kind will under no circumstances be tolerated. Theft is defined as possessing or removing any company asset or another employee’s possessions without prior authorization from management.

You can further elaborate on the different types of company assets, or you can leave it open to all assets from pens and paper to merchandise and cash. Next you may want to include that the company will prosecute all cases of employee theft.

After having a written record of the company’s intentions, the policy should be verbally covered in employee on boarding and training. This way there is no confusion as to what the expectation is. Some businesses even have the employees sign a paper (to be retained in their employee file) that they are aware of this policy.

By clarifying up front, most employees will take heed to this warning. For those that do not, it is much easier to prosecute the employees for their theft, or misappropriation of company assets, when there is proof that the employee was aware of the consequences ahead of time.

Filed Under: Featured Tagged With: , , , , , , ,

Internal Audit

July 30, 2014 by Leave a Comment

theft (11)An important, but often overlooked part of running a successful (read: profitable) business is conducting internal audits. An internal audit helps give you a base line of how your business is operating, and whether operational procedures are being followed.

Even if you are making your sales numbers and gals, you might still be missing out on maximizing your profits if operational processes are not followed- costing more than what you may realize. One of the potential areas you might not be loosing is in inventory and merchandise costs.

If you are loosing sales because you do not have the right inventory in place, you are missing a huge opportunity for profit. When those lost sales are because you have employees or shoplifters stealing your merchandise, you are hit three times financially- once for the lost sale, and twice in your cost of goods, since you have to buy the item twice to sell it to a customer once.

Internal audits are a control mechanism within your store. When employees are more cognizant that their execution of tasks and processes will be tested at any point in time, they will be more apt to comply with the correct way of doing these tasks. When they are called out for failing their part of an internal audit, the employees understands that their lack of suitable job performance can lead to counseling and up to termination for repeat offenses. As employees are more willing to execute to your standards, the openings for employee theft and shoplifting are reduced.

We have found repeat evidence that almost all crimes committed against a business are because of a procedural breakdown. Had the store employees been more aware of not only what they were doing, but how they were going about doing it, the procedural breakdowns would not have happened, and the crimes would have been harder to commit.

Filed Under: Featured Tagged With: , , , , , ,
« Previous Page
Next Page »