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Preventing Embezzlement Precautions

While it might not seem like it's worth keeping track of, theft of small items can add up. For example, printer cartridges are extremely expensive. Your product inventory should also be tracked and counted inventoried. In particular, keep closer track of high-value items and document disposal of all obsolete, damaged, or low-selling merchandise. The duties you should be most concerned about are those of the people who do your bookkeeping and who handle merchandise.

Establish two-step processes and then divide the steps between two people. For example, the person who does your bank reconciliation should not be the person paying the bills. Or, the person who takes in merchandise for sale should not be the person who decides if an item should be scrapped, or who enters the sale of an item. It's not enough to put these actions in place. You and your top executives must take time every so often to review.

Check to see that all the items on your list of concerns have been addressed. Set key measures to make sure "slippage" is within a reasonable range. For example, look at your inventory turnover rate this year as compared to the last few years to detect greater-than-average turnover. Yes, all of these safeguards are time-consuming and they may be costly. But they take far less time and cost less than losing money to employee theft and embezzlement. The Balance Small Business uses cookies to provide you with a great user experience.

By using The Balance Small Business, you accept our. The psychological pattern that emerged was high tension during the theft, followed by euphoria Canton Canton postulates that amateur shoplifters become habituated to the high they get from successful thefts and that, by breaking the pattern and eliminating the euphoria, apprehension deters those who are caught from offending again.

He also suggests that a non-apprehension policy may produce more theft in a store by lowering the morale of employees and stimulating some of them to theft. Finally, he says that the decision whether to apprehend shoplifters must be weighed in the context of the store and its environment--size, location, volume of business, personnel, and most importantly, the percentage of shortage attributed to shoplifting.

5 Most Common Ways Employee Theft Occurs

It may well be more cost effective for a small businessperson to ask shoplifters to leave than try to apprehend them. A warning system for shoplifters was tried out in New South Wales and is now in operation in Victoria. All subsequent offenders would be charged, regardless of the value of the goods stolen. The objectives of the scheme were to reduce time spent by police processing first offenders for shopstealing; reduce the involvement of retail security staff following the detection of a first offender for shopstealing; increase the reporting rate of offenders detected to increase early identification of persistent offenders; ease the trauma of apprehension for some first offenders; and ward off criticism of police for introducing certain offenders to the criminal justice system.

According to a spokesman for the New South Wales Retail Traders' Association, only 7 per cent of people issued with the on-the-spot warning were caught re-offending. Because of the practice of displaying goods openly to attract consumers, department and specialty stores suffer a high incidence of theft, not only from customers, but from staff - some retailers put employee theft as high as 70 per cent of the total Sydney Morning Herald 16 August Theft prevention strategies range from electronic surveillance mechanisms, closed circuit television CCTV , access control barriers, use of computers, staff training, increased management attention to the problem, changes in layout of the store, use of security consultants and 'honesty' shoppers to detect thieves, identification of much-stolen items with special stickers and signs, and better internal operations review and audit procedures.

Electronic article surveillance EAS systems rely on a variety of electronic technologies. Several systems are available, most notably electromagnetic, low frequency and high frequency and all follow the same basic principles of operation. An EAS system based on dual high-frequency signals provides the sharpest, state-of-the-art performance for the retailer - broad, precise coverage, low false alarms, flexible installation and an aesthetically pleasing tag.

Electronic article surveillance is now common practice world-wide for clothing. Design of appropriate tags has been a problem for EAS systems. At present, tags must be manually affixed and removed from garments or items. Ultimately, manual merchandise tagging will be eliminated, possibly by some type of 'gun' that will quickly and neatly affix tags to garments and other items. It is also possible that laser scanners will be used to deactivate tags while simultaneously totalling a shopper's purchases Fancher In the absence of EAS, chaining goods will cut down on theft.

To combat theft of costly movies and compact disks, Wherehouse Entertainment used computer software, EAS and CCTV and redesigned their stores to facilitate surveillance by staff. As well, they set up a private investigative team to catch professional thieves and established Wherehouse University, a loss prevention training school. Company policy was to make loss prevention as important as making sales. Listed are some of its loss prevention techniques. As well, the 83 top managers make a loss prevention checklist every Friday and visit 97 per cent of the company's stores.

Those who perform appropriately are rewarded with an overseas trip. Acting as ordinary shoppers, trained integrity or honesty shoppers can provide valuable information about sales procedures and customer service and can give retail security managers an abundance of useful information at a reasonable price. The most effective integrity shopping programs are those designed specifically to elicit the information a company needs to make corporate decisions, and where those who receive that information know how to use it properly Cowden Because an honesty shopper can only concentrate on one or two concerns per visit, store managers must first decide what their priorities are - employee theft, adherence to store procedures, customer service, the look of the store, or physical security?

Then the integrity shopper should be given a list of details to observe. Finally, the shopper should submit a written narrative-style report or fill out a form. Using this report, the security manager can identify the store's strengths and weaknesses and implement corrective measures. Information from the reports may be passed on to departments, but the identities of integrity shoppers should be kept secret.

A well-conceived integrity shopping program will act both as a deterrent against employee theft and as positive reinforcement for conscientious work practices. The merger of Hudson's department stores in Detroit and the Dayton Hudson Corporation in Minneapolis was followed by a major inventory shortage or shrinkage. As well, the number of apprehensions of dishonest employees by the company had dropped from in to in Hudson's responded by forming a task force which identified all possible causes of the shrinkage, and distributed a survey listing these factors to executives, sales managers and employees asking for comment: 43 per cent named inadequate theft-control programs as the primary cause of the rise in shrinkage.

As most retail theft originates at the point of sale, store management used this point to identify dishonest employees. A computerised charge credit analysis of three- and month periods determined the number of transactions for employee charge accounts, and identified individual purchases, the credits and what the rate of return was for employees with accounts. This helped store management isolate rings of employees with high credits. Another computer report analysing third-party credits by account or terminal number showed incidents of employees ringing up credits to their own or family members' charge accounts.

Another tool was a terminal control report coupled with a terminal detail report.


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The company also instituted daily and weekly void and no-sale reports to identify repeated unusual transactions by particular clerks. To catch more internal thieves, the company improved investigations, interviewing, and interrogation training for loss prevention investigators. After training improvements had been implemented and computerised detection methods instituted, the apprehension rate for employees rose to in and again to in Hudson's management believes its employee theft program worked because the shortage task force tapped into the knowledge of the company's executives, managers and sales staff and responded to their most pressing concerns.

The Selfridges study below shows that global anti-theft measures should not be adopted, but that each department, boutique or shop should be treated as a separate case for the purpose of analysis and design of prevention measures. Selfridges is one of the largest department stores in the world, with retailing on seven floors and different shops within the one store. Several of these shops have some degree of autonomy, being staffed or stocked by independent concessionaires.

The security department has responsibility for all security arrangements within the store, providing a general cover in the form of electronic surveillance, a team of store detectives and a small number of uniformed security staff. As well as theft by shoppers, their responsibilities cover dishonest staff, terrorist threats, general protection of staff, policing of delivery and storage areas and even lost property. Selfridges' CCTV system is the largest of its kind in the UK, with about 90 cameras, eight of which monitor external areas and operate as a general theft deterrent.

Electronic tagging of merchandise was rejected because of the expense, the large number of entrances and the sheer size of the crowds. Instead of introducing heavier levels of security to the whole store, Selfridges adopted a more flexible, local approach, monitoring individual departments for losses and introducing appropriate security measures. One approach was to adopt more traditional methods of sale, for example selling shoes in the old-fashioned manner with personal fittings. Clothing chains were introduced, with chains long enough to allow customers to remove a garment and inspect it, but not try it on without assistance.

Special lightweight chains were devised for delicate garments. One chaining system was abandoned as, unless deactivated by staff, it would set off the alarm - upsetting innocent customers and threatening sales - when garments were removed. Effectiveness: In Poyner and Webb evaluated the effectiveness of some of these local security measures using known losses from , and They found that increased management concern for security in the swimwear department - in a new buyer arrived and introduced a more rigorous regime of stock counting produced a drop in losses from almost 7 per cent to between 1 and 2 per cent.

As costumes were displayed on racks with no security devices, the security department concluded that the improvement was mainly due to better staff supervision of stock. In Reldan, a specialty store, layout was changed and staff numbers increased to improve supervision of stock. The original layout had made it difficult for one sales representative to supervise stock, as well as the fitting rooms and cash point which were some distance away in an adjacent department.

As well, a new buyer introduced better staffing arrangements and supervision of staff in , and losses fell for six months. But when the department was moved and stock increased, losses began to increase again. In December the department was enlarged and moved into a more central position with staff increased and better supervised. Losses fell again, even though the department was carrying much larger quantities of merchandise.

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After a rise in losses coinciding with the opening of Escada, an up-market fashion range normally displayed against one wall of the fashion floor, clothes were chained on free-standing racks and fitting room procedures were tightened. Losses were almost eliminated for three years. Lighter security chains were eventually introduced to prevent marking of delicate fabrics.

Chains do not appear to discourage customers from examining clothes: in fact, with more up-market items, security devices appear to enhance the perceived value of the goods. Experience in the dress department of Selfridges also suggests that chains protect stock even when they are not properly locked. The Selfridges study demonstrates that conventional security measures such as closed circuit television surveillance and store detectives are not sufficient to prevent shoplifting, but that local security devices, staff supervision, management concern and the physical layout of the store can contribute to a reduction in theft.

It also shows how the combination of these security measures can lead to a satisfactory compromise between open merchandising and theft reduction. In the following study, shoplifting was reduced by the use of specific signs and stars identifying frequently-shoplifted goods. The object of this study Carter et al. Except for an exit guarded by a uniformed guard, shoppers had to pass one of 25 cash registers in the front of the store to get out.

Retail Security and Loss Prevention

At the start of the five-week study the store employed 60 full-time cashiers. During the study 15 part-timers were employed, and by the end of the study the store employed a total of people. The initial choices for identification as frequently-stolen items were flavoured lip gloss, Elvis Presley records, leather coats and small, adjustable wrenches, which were subsequently dropped from the study and replaced by halogen lights. Identification marks: Before the study, each of the items was marked with a small red adhesive dot circa 1 cm in diameter. It was placed on the screw-off cap of the lip gloss and on the price tag of the other items.

Cashiers were shown samples of the marked items and instructed to tick a measurement sheet whenever somebody bought one of the marked items. These sheets were returned to the supervisor at the close of the day and a new one issued next morning. To determine the number of missing items, an observer made inventory checks in the store each morning before opening. All marked merchandise was counted and recorded.

Using the cashiers' forms, the number of missing items was calculated. The number of items on the shelf became the starting point for the new day. On 30 per cent of the days a second recorder made independent counts, and on half the days three observers counted the shelf items. An observer also 'bought' coded lip gloss to see if the cashiers were marking the forms. Warning signs: Following one week of baseline measurement, three signs The signs read:. Three red circles approx. Prior to observation day 15, two signs and four circles were placed on clothing racks containing leather coats, and three signs and three circles near the Elvis Presley records.

From observation day 15 to day 21, baseline data were recorded for halogen bulbs, and prior to opening on day 22, three signs and two circles were placed near them. The signs were up for 27 days for lip gloss, 20 for records and leather coats, and 13 for bulbs. Effectiveness: The number of missing items in all target categories was reduced when the merchandise was specified as being frequently taken by shoplifters, while sales showed moderate to marked increases.

The number of missing lip glosses fell from 18 per cent to 9 per cent; missing Elvis Presley records fell from 9 per cent to 3 per cent; disappearances of leather coats fell from 18 per cent to zero, and the loss of halogen bulbs was reduced from 31 per cent to 10 per cent. This reduction occurred in conjunction with the intervention and remained below baseline levels for the duration of the study. Some stores have found it profitable to bring in outside security experts to solve their shrinkage problems. To deal with internal shrinkage, Bermans, a specialty retail chain with stores in 30 states, reduced stock shrinkage in two ways: consultants were hired to raise awareness of staff from selected stores about loss prevention; and investigators were sent in to apprehend staff suspected of stealing.

Experienced in investigations, the consultants collected evidence on staff suspected of stealing so they could be prosecuted. As well, undercover investigators were infiltrated into two high-shrinkage stores. The saving from the highest high-shrinkage store was 33 per cent. While some CPTED strategies will work in most cases, the key to successful programs is a careful analysis of the specific circumstances and the development of site-specific programs. Between and , Jeffery, Hunter and Griswold tested the influence of internal and external environmental factors on the rate of robberies in 34 convenience stores in Tallahassee.

Basing their analysis on the 'opportunity' theory of crime prevention-which maintains that the physical characteristics of a location either present an opportunity to potential criminals or deter them-they analysed individual crime sites and recommended physical changes. Jeffery and his colleagues found that you cannot judge where crimes will occur just by general location: it does not follow that a particular store will suffer a high rate of robbery simply because it is in a high-crime area. Individual crime site data and analysis are needed to determine how secure a particular store will be.

Location of cashier: Stores with the cashier located in the centre were robbed less often than were stores with the cashier on the side. Number of clerks: Stores with more than one clerk were less likely to be robbed than were stores with a solitary clerk.

Preventing Embezzlement Precautions in Your Business

Visibility outside. Stores with unobstructed windows and shelving that permit clear viewing of the interior of the store were less likely to be robbed. Land use. Stores located next to commercial property were less likely to be robbed than were stores near residential property, and these in turn were less likely to be robbed than were stores near vacant lots or wooded areas. Evening commercial activity. Stores near areas with evening commercial activity were less likely to be robbed.

Petrol pumps. Stores with gasoline pumps in front were less likely to be robbed than those without. Cash handling. Stores with good cash handling procedures - and with signs letting shoppers know this - and safes clearly visible were less likely to be robbed. The authors found that ' These findings were used to justify an ordinance restricting convenience store operations in Gainesville, Florida, and served as a partial basis for a later state-wide analysis of convenience store robbery Hunter Hunter re-examined the Tallahassee stores four and a half years later to determine what changes might have occurred.

He found a general decline in robberies of 24 per cent from June through December , with some store robberies decreasing by as much as 86 per cent, while other stores increased by up to 50 per cent. Both the and data demonstrated that crime prevention through environmental design CPTED works, but that the influence of environmental factors varies over time.

In Hunter and Jeffery undertook a Florida-wide survey of convenience store robberies to test the application of CPTED principles from a local area to a state-wide area.


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  7. In its survey of business crime prevention initiatives, the UK Home Office Burrows found that increased shrinkage losses and recessionary pressures had caused a reassessment of operating cultures, with managerial accountability displacing the entrepreneurial sales orientation of the recent past. Some cash may be available at the time, presenting him with the opportunity to steal. If the employee cannot find other possible sources of money, such as a loan, then he may eventually give in to the temptation to steal from the company.

    The money or merchandise typically becomes available due to oversight by higher management or weaknesses in internal controls.

    Stop Employee and Cashier Theft with Technology and Owner Involvement

    This is why managers are by far the largest perpetrators of employee theft; they are usually the ones with the greatest opportunity. Finally, the employee rationalizes his behavior because he needs to reconcile it with his conscience. Employees will look for many different ways to make stealing seem acceptable. If they stole to help out with some family emergency, they will tell themselves they did it for some greater good.

    As an organization, most of your control lies in preventing the opportunity to steal. You cannot control the financial situation of your employees; neither can you influence their rationalizations. However, you can do your best to reduce opportunities for employee fraud in the company. This is theft committed by an employee who already has legal access to the assets or property they are stealing. An example would be a cashier stealing from the cash register. Larceny is when an employee takes and lays claim to the assets or property of the company with no intention of returning it.

    A store clerk who steals from the cash register is committing larceny. Quite often, larceny and embezzlement are confused. They are quite similar, with the main difference lying in the legal access the perpetrator has to the stolen asset. A store clerk stealing from the cash register is committing larceny because she does not have legal access to it. A cashier who steals from the cash register, on the other hand, has legal access and is, therefore, committing embezzlement. These are crimes committed "off the books. She can pocket it before it gets recorded in the accounts during timed intervals.

    She basically intercepts the cash before it reaches the company, so it is much harder to detect this type of employee theft than others. This is a much more serious type of employee theft than the others, because it is typically committed by an employee who has an intimate understanding of the systems in place in the company. He could tamper with company checks to pay himself in a fraudulent manner, forge signatures, set up fake accounts as a vendor and so on. It is a more elaborate type of employee theft, generally carried out by managers.

    This is the theft of intangible assets from the company, usually information and ideas that are of high value. An example is when an employee resigns a current position and transfers to a competitor, immediately providing the new company with important information on the previous employer. Alternatively, the employee may remain at the company while selling confidential data and information to competitors.

    We often think of bank robbery as coming from outside, but it often happens from the inside as well. Because of the rise of ATMs, electronic banking and direct deposits, tellers are paid less now. However, they still have access to much of the private information of bank clients, so they have the opportunity, and the incentive, to steal from them.

    A particular type of client — elderly and rich — is at greater risk than other customers. When retail branch employees such as tellers decide to tap into wire funds without authorization, make withdrawals from ATMs and forge debit cards, they generally target accounts with large balances and those with Social Security payments and other direct deposits from the government. There have been numerous cases in the U. The problem is that these are just a fraction of the total cases out there, and it is difficult to bring charges against the perpetrators due to gaps in regulation and poor internal security controls by banks.

    The crimes are also fairly easy to commit, despite the large sums of money involved. Perform background checks, drug tests and extensive interviews before you hire anyone. Strengthen the organization structure: One employee should never have too much power. There should always be a system of checks and balances that ensures authorization is a collaborative effort, rather than an individual one.

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    No position within the company should encompass making every decision on its own, and every position should be accountable.