Crows in the Corn 

Thankfully, most firms put a stop to employee theft before they're robbed blind. But some firms catch the problem too late; a considerable number of businesses-one estimate is 10 per-cent or more---fail directly or indirectly because of employee pilfering.

Even if firms don't go bankrupt, the cost of employee theft is staggering. The U.S. Chamber of Commerce estimates business losses from employee dishonesty are running about $40 billion annually.

Workplace-crime experts say about 30% of American workers steal, and these work-place crows walk off with everything from pencils to electronic data. It's estimated 2% of retail- business losses are due to employee theft; one survey shows retail employees steal seven times as much as shoplifters.

So why do employees steal--even here in the land of Minnesota Nice?

While hard evidence is scarce, anecdotal explanations suggest numerous reasons: greed and temptation, economic necessity, growing numbers of temporary workers who may bear little loyalty toward companies, ill-defined theft policies and procedures within companies, lack of security controls, mistreatment of employees, and perhaps a general societal breakdown in moral behavior.

All contribute to what Neil Snyder calls an escalating concern about employee theft. Snyder, author of Reducing Employee Theft, (Greenwood Publishing Group, 1991) predicts employee theft will increase 15% annually in the next few years.

More disconcerting for smaller firms is the fact that they may be more likely to experience employee larceny than their larger counterparts, says John Clark, sociology professor at the University of Oregon in Eugene. Clark, who coengineered a massive study on employee theft several years ago, says smaller firms generally don't have the sophisticated security policies and controls that larger firms do and may therefore be more tempting targets.

Ken Jedneak, CEO of the Coon Rapids firm Grocery Hut, has security cameras mounted at his 10 convenience stores in the Twin Cities. Yet he still nabs two or so workers monthly who steal--some of whom gaze directly into the cameras as they practice their light-fingered ways.

Jedneak says not only are the numbers of thefts increasing at his stores, so are the amounts. Several years ago the average theft was under $1,000, compared to several thousand dollars today, he says.

Of course, it's not just ripping off products employers fret about; stealing company time is an even costlier concern. Just ask Fred Wagner, CEO of St. Paul-based Minnesota Wire and Cable, a wire-and-cable-products manufacturer for the medical industry. Wagner has summarily fired several employees for tampering with the company time clock over the years.

Clearly, employee theft is a serious problem. It's serious enough that companies who formerly were embarrassed by such activities and tried to keep them quiet now are contacting law-enforcement authorities. And the problem has become serious enough that more companies are now targeting employee-theft reduction as a critical way to improve their bottom line.

"A lot of firms don't take employee theft seriously enough, figuring that's the cost of doing business. But I don't think it has to be," says Jim McGrath, former chair of the American Society of Industrial Security white-collar crime committee.

Indeed, a host of measures can be taken to thwart worker theft. Applying multiple measures consistently is the best way to stanch the plundering, says Paul Sackett,. University of Minnesota industrial-relations professor.

Following are some tips from security professionals and others that should help curtail employee theft at your firm:

Set the Tone
What is theft? That's not as ridiculous a question as it sounds, says Sid Jerson, former CEO of Astrocom, a Minneapolis data- communications firm. What's out and out theft to an employer- -say, taking paper clips or an extended coffee break--could be considered job perks by an employee, Jerson says.

To avoid that type of fuzzy thinking, make sure your company's personnel manuals clearly spell out what is and isn't theft. Sackett examined one supermarket chain-- where bins of produce and racks of candy pose temptations for the casual nibbler-and found its policy was crystal- clear: Absolutely no theft allowed.

"Is taking 29 cents worth of product OK? How about 50 cents? $l.00? $5.00?" Sackett asks rhetorically. "This firm decided it didn't want employees to have to deal with the question of how much theft is theft."

Then there's the issue of the less-tangible but potentially more-damaging theft. Firms that extend their definition of theft to include revealing trade secrets might want to require employees to sign nondisclosure agreements. Companies also might remind employees of those agreements during exit interviews and even by sending letters to their next employers, says Steve Carlton, president of Security Analysts.

One important point: Policies must be backed up with explicitly outlined penalties and be uniformly enforced. For instance, a zero-theft policy is mere window-dressing if your employees know a certain top manager pads his expense account or that another supervisor uses the company photocopier for personal reasons.

"You are delivering the message to employees that it's perfectly fine to use the company copier for personal business," Sackett says. They may then think that "because that's OK, maybe l can make long-distance phone calls too."

Pre-employment Screens
Once you understand both the scope and potential ramifications of employee theft, you might feel a little overwhelmed and accept the problem much like death and taxes. However, you can take real, concrete steps to avoid or at least minimize the problem.

As in much of business, hiring well is half the battle. Security experts recommend employers resist the urge to gloss over employee-screening measures--even during high- turnover, peak-production periods. Compromise on your employment-qualification standards and you may end up compromising your profit position.

Security experts say that unexplained gaps in employment and claims of self employment should raise red flags for employers, says Paul Porter, who operates the Security Board. Porter also advises checking an applicant's credit record; for executive-level positions, he' suggests checking for bankruptcy and involvement in civil litigation.

As for checking references, Porter says they're best done in person. "If you go to the trouble of meeting somebody and buying them a cup of coffee, you'll learn a lot (about a prospective employee), because you've shown you care," he says.

Clark says his research indicates that single persons under 25 are statistically most likely to steal from an employer. And conventional wisdom might hold that those previously convicted of a crime would also fall into that category. But Fred Wagner of Minnesota Wire and Cable, begs to differ. In fact, Wagner believes in giving people a second chance.

"Over the last 15 years we've probably hired 20 to 25 ex- felons," Wagner says. "I not only don't shy away from hiring them, I'll' go out and seek them. They're like everybody else; some are good and some are bad."

Nonetheless, criminal-background checks are essential--if only to reduce a firm's legal liability. For instance, Porter says, a publicly owned company should think twice before hiring some-one convicted of embezzlement to have sole control over the firm's books. If he or she embezzles again, stockholders could seize on that information in a court case, he says.

With more firms concerned about drugs affecting worker performance, more are also administering preemployment tests for drug use and abuse. But because such testing enters into the delicate area of civil liberties, check with an attorney to ensure such tests don't violate privacy laws.

Honesty Tests
Because the federal Polygraph Protection Act of 1988 barred lie detector tests for most uses, so-called "honesty" tests have become more attractive.

These written tests assess how closely applicants match an employee-thief profile. A would-be thief tends to rate himself or herself lower in honesty and in other related areas of integrity, and he or she believes or suspects most employees steal.

According to Sackett, "there are indications these tests are good indicators" to pinpoint per-sons who might commit thefts. A survey of retailers last year supports that argument: Ninety-one percent said preemployment honesty tests correlated with reductions in employee theft.

Some of the more popular tests can help you find and assess more than what some would call "core integrity." They also attempt to assess the likelihood of absenteeism, drug use, propensity for violence, emotional stability, work values and safety orientation, Porter says.

Porter adds that employee testing has been further popularized by the reluctance of employers to give former employees unsatisfactory references because of legal ramifications.

Employers who consider using these tests should exercise considerable caution in selecting a testing company. To escape legal exposure, exams should meet rigorous professional standards for reliability and be directly job- related and nondiscriminatory, Porter says.

Once employees are on board, they should receive regular training to raise their level of security awareness. Word should be communicated through a variety of media----company- wide and small-group meetings, printed materials and videos are some examples. Interactive work-shops, where workers can vent their own security concerns and ask questions, also ensure greater employee retention and involvement, Porter says.

He also suggests personalizing awareness training. "If you just lecture about policy, they're liable to forget about it," Porter says. "But if you let them know what's in it for them, that their jobs are affected by (employee theft), they'll have a more personal stake (in stopping theft)."

To encourage employee participation, companies should consider establishing security committees. And rewards should be offered when loss-reduction goals are met.

Part of the training should involve instructing employees on how they can quickly--and anonymously--report suspicious activity. A designated security person should be assigned to handle such reports.

Had such a security program been in place at one Midwestern firm recently, perhaps it wouldn't have lost several million dollars to one employee scofflaw, says Barb Andrews, principle of Barbara Andrews and Associates. The employee had made arrangements to receive kickbacks from vendors who overcharged his firm.

"This employee made it appear he was very well connected with the boss," Andrews says. "Even if employees would talk about what he was doing, it appeared the CEO wouldn't do any- thing about it." In that case, she says, the employees should have had a mechanism where they could have voiced 'their concerns without fear or intimidation.

Warning Signs: Are You Harboring a Thief? Frequently, there are tip-offs that an employee might be committing an inside job on a company. One of the more obvious signs is a grander lifestyle than an employee's salary should allow.

Such changes in behavior as becoming withdrawn, anxious, distrustful or disdainful of authority might signal employee, dishonesty. Also watch for employees who exhibit alcohol and drug abuse and gambling problems.

Another sign there may be something amiss is if an employee never takes a vacation. Could he or she be afraid to take time off for fear others will expose unlawful activity? The SBA offers the following clues to determine whether an employee may be embezzling:

• An increase in overall sales returns can be caused by defective merchandise--or it could represent a concealment of accounts-receivable payments.
• Unusual bad-debt write-offs can be due to a number of business reasons--or they could be covering up a fraudulent scheme. A decline in cash or credit sales, or an unusually small increase in cash or credit sales, can mean business has not been good--or it could mean some sales were not recorded. Inventory shortages can be caused by error or mismanagement--or they could indicate fictitious purchases, unrecorded sales or employee pilferage.
• Profit declines and/or increases in expenses can be entirely legitimate--or they could be a sign that cash is being siphoned off illegally.
• Slow collections can be caused by business conditions-- or they could be a device to mask embezzlement.

( Reprinted with permission from the February 1994 Minnesota Ventures)