Private investigators offer tips on thwarting employee theft | Employee theft can cripple a business. Here's what you can do to protect yourself.
Photo/David A. Rodgers
Private investigator Mark Cayer of Lewiston advocates zero tolerance toward employee theft. The FBI says employee theft causes about one-third of U.S. business bankruptcies
At first glance, it didn’t seem like a case of employee theft.
But the employee had apparently visited unauthorized websites. A lot of websites. The investigation finally showed that the employee had spent literally hundreds of hours in front of the computer not working.
The private investigator working on the case, Mark Cayer, says it’s probably typical of the loss of productivity and income employers suffer every year from the disappearance of merchandise, damaged equipment, time spent on non-company business, fraudulent benefit claims and, yes, taking cash from the till.
By every indication, employee theft is a major problem for Maine businesses large and small, and it’s expected to grow as the recession deepens. “Every time the economy turns down, theft goes up,” Cayer said. “Employees are under a lot of financial pressure. Sometimes they make bad choices.”
Cayer and his fellow PI, Kevin Surette, have lots of advice for businesses concerned about losses from employee theft, and they’ve done numerous investigations for various companies over the years. Like many Maine private investigators, they are essentially one-man shops — Cayer based in Lewiston, Surette in Litchfield — but often network with each other, and with other PIs to take advantage of individual skills.
Cayer, for instance, served in the Rumford Police Department for two decades, and is particularly good at interviewing and spotting who’s using deception. Those skills proved useful in cracking the web-surfing case, where he interviewed more than a dozen employees to get at the facts. The reason the problem went undetected, he said, was that other employees were covering for the offender, and sometimes engaging in the same conduct themselves. While Cayer’s work is done, the employer, which operates in the public sector, is still considering disciplinary consequences.
The two investigators have plenty of alarming statistics about employee theft. The U.S. Chamber of Commerce estimates that, given enough opportunity, up to 75 percent of employees will steal. If that sounds harsh — and debatable — it’s a cold, hard fact, based on FBI files, that a third of all business bankruptcies can be traced to employee theft.
“For a small company, it can be just devastating,” said Surette. Smaller businesses typically have fewer reserves or lines of credit, and a significant theft can spell the end for them.
Early preparation key to avoiding theft
So what’s a business owner to do? The PIs say the first step is to acknowledge the potential dimension of the problem. “No one is saying not to trust your employees,” Surette said. “You can’t run your business that way. What we are saying is to put systems in place that discourage fraud, that prevent theft, up front.”
The best time to start is before an employee is hired. Surette said background checks are essential before anyone is hired, particularly for a position that involves handling money.
Basic checks are pretty easy to do. Driving records are public and available from the Secretary of State’s office. They will quickly show where someone’s had problems behind the wheel. “Do you really want someone in a company car who’s been convicted of a major offense?” Surette asked.
Checking criminal records and the civil docket — whether a potential employee has been sued over past employment — is a little more involved, but basic background checks can be conducted for $100-$300. Surette says that’s a small price to pay considering the thousands of dollars that can be quickly stolen by a dishonest employee.
Surette also said that even small companies should use job applications rather than just resumes when making hiring decisions. A properly designed application form will show gaps in employment that could indicate legal problems with a previous employer. And an application is useful if problems do develop, and it turns out that an applicant made false statements.
If it’s a resume, it may not be actionable, but a false statement on an application is a criminal offense, he said.
Establish internal controls, including yourself
Employers can deter theft by setting a good example themselves, Cayer said. In a small retail business where cash turns over quickly, it can seem a small matter to take a few dollars out of the register, or for a sandwich shop owner to make his own lunch and not pay for it.
“People pattern themselves on what they see around them,” Cayer said. “If an employee sees the owner taking a twenty from the cash register, they’re more likely to do it themselves.”
There’s more protection against the more obvious ways businesses suffer losses. “Shrinkage,” as missing inventory is euphemistically called, continues to be a major problem for retailers. But what many business owners would prefer not to acknowledge, Surette said, is that more items are stolen by employees than by customers, who are the more frequent targets of security screening and cameras.
“There are all sorts of gimmicks,” Cayer said. He recommends store owners check the trash regularly to make sure it doesn’t contain merchandise employees intend to pick up at the end of the shift. “That’s one of the oldest, but least detected, ways to steal,” he said.
Store aisles should be designed to avoid the “dark, out of the way corners” that thieves find hospitable, said Surette. “You look in the back of the store, out of sight, and that’s where all the empty packages are, where stuff was taken.”
Other techniques are important, too. The greeters one finds at Wal-Mart and other big box stores aren’t there just to be friendly, Cayer points out. “If people are recognized, if someone makes eye contact with them, they’re more likely to feel identified, and less likely to think they can just walk out of the store with something.”
Both say surveillance cameras and other equipment can be useful. In the past, image quality was a big problem. “There have even been bank robberies where the tape quality was so poor you couldn’t make an ID,” Surette said.
That’s changed with the rise of digital technology. Now, low-cost cameras can provide effective coverage. It’s worth hiring a security firm if a sophisticated surveillance system — including dummy and disguised cameras — is needed. The latter are useful against theft by employees who may not realize they’re being monitored.
“You have to be realistic,” Surette said. “One camera in a huge parking lot is really not going to accomplish anything.” Yet even a limited number of cameras may help some businesses. “You can probably find something at Home Depot that’s a lot better than doing nothing,” he added.
Gotcha! Now what?
If a theft is detected, an employer then has some big decisions to make. Cayer advocates bringing law enforcement in right away. “All thefts should be reported,” he said. While it’s true that a low rate of arrests results from theft reports, doing so provides an important legal record for employers. “If it happens again, then you can go back and show a pattern,” which is important if a case ends up in court.
As for employees, Cayer advocates “zero tolerance” for any form of theft. He admits that not all employers are comfortable with this idea. “Someone taking paper clips, or a few pens, you might say, ‘What’s the big deal,’” he said. “But where’s the line? If it’s OK to take pens, what about a laptop that’s not being used?” Back when laptops were new, and expensive, they were “flying out of the storerooms,” he said. “You take one home for the weekend, and nobody notices, and it seems like it’s OK.”
Cayer emphasizes that not all theft is premeditated. He gives the example of a single parent who’s behind on the rent, and facing possible eviction if another payment is late. “Taking $100 on the job can seem reasonable to that person,” he said. “They intend to pay it back, but next month it’s tight again, and soon it’s too late.” A lot of major fraud cases involving employees start just that way — small amounts, undetected, soon lead to bolder, larger thefts.
If “zero tolerance” isn’t the standard, “You really have to decide what the rules are, spell it out in your written policies, and go over it with employees at least one a year,” Cayer said.
He concedes that small thefts raise other business questions — will it be worth spending the time in court? — but it’s still important to be clear, in advance, what the response will be.
Surette has some sobering news on this subject. “You might think your problem is the discontented employee, the one who’s always complaining and you think is slacking off.” In fact, he said, “the really dedicated employee, the one who never takes a vacation or a sick day” may be the problem — they never miss a day because that’s the way they might get caught.
The answer, both PIs said, is not to suspect everyone but to use systems of checks and balances. “The person who makes up the bank deposit should not be the same person entering the checks,” Surette said. It may be of some help to require two signatures on larger checks, but the more important point is to have at least two sets of eyes scrutinizing every financial transaction.
Another step in the process is the audit, which Cayer said is the way most inside thefts are discovered. “It’s absolutely necessary to have an independent audit. You may have had the same bookkeeper for 10 years, and that may be the problem.”
While all auditors are trained to discover discrepancies, it may be necessary to go further and conduct a forensic audit. The auditor, in these cases, is someone specifically familiar with criminal conduct, and who can spot the most likely ways employees are covering their tracks.
Cayer has worked with forensic auditors in the past and, yes, it can get complicated, and usually takes a long time to sort out — which, he says, is why it’s such a good idea to create good accounting methods and financial systems as soon as a business opens.
While larger businesses may have trained security professionals and more elaborate accounting systems, they are far from immune to employee theft, Cayer said. Their very size makes it easier for employees to rationalize theft or fraud, since they may have little or no contact with the owner, and less of a sense that insider theft could be hurting the business.
Business owners should be rational about the problem, and be aware that it probably isn’t possible to eliminate all theft despite even the most elaborate security and crosschecks. But minimizing losses from theft is just as important as smart purchasing or initiating production efficiencies, he said.
“If you look at it objectively, just as a cost factor,” Cayer said, “there’s probably no faster way to go out of business.”
Douglas Rooks, a writer in West Gardiner, can be reached at editorial@mainebiz.biz.
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