Tuesday, December 23, 2008

A sign of the times?

A small business owner and new client sat with his head in his hands in disbelief. His inventory was disappearing and he was at a loss to explain how or why. If the losses continued at the current rate he speculated that he would be out of business by year end. “Who would steal this junk”, he asked. Normally he wouldn’t call his inventory “junk” but he was upset, more than a little mad, and for the moment speaking literally about his product. You see, this client was in the scrap metal business. He bought junk metal, broke it down, sorted it out and sold it to smelters for processing. His yard was fenced, his building secure, his employees tenured, and his scales calibrated. Business was tough enough he lamented but something was very wrong.

And wrong it was. After a series of employee interviews we were able to determine that the yard supervisor, a long term and trusted employee had been making side deals with existing customers; giving them much more product than they actually paid for and accepting “gratuities” for his kindness. The losses approached 100K and had they continued, the client would certainly have lost his business.

According to Jack Hayes, a noted retail loss prevention consultant, employee theft apprehensions have risen steadily since 2003. 2007 saw a 17% increase over the previous year. PricewaterhouseCoopers, which conducts biannual surveys of around 5,400 employers worldwide, estimates companies lost an average of $2.4 million to fraud in 2007 – up from $1.7 million in 2005; the majority of it by employees.

“This is not a pleasant topic for the holiday season says Bill Dolphin”, Vice President of Asset Control. “But we may be in for some dicey times ahead. The bulk of statistics that show a steady increase are for previous years. They don’t include our current economic downturn. But as economic and emotional pressures on employees mount I wouldn’t be surprised if we see a corresponding increase in employee theft.”

In fact, according to a November 2008 survey conducted by the Institute for Corporate Productivity, almost a quarter of all companies that responded feel that today’s economic situation has led to an increase in employee theft. Almost 31% of companies with 10,000 or more workers say they have noticed an increase in theft of company-owned items such as office supplies, products they produce, electronic equipment and food items since the economic downturn.

Retailers may experience the highest level of losses overall as they are vulnerable to both internal theft and shoplifting. “Some of your favorite retailers may disappear in the next year or so”, says Dolphin. “Slow sales are forcing retailers to cut back on staff, causing customer service to suffer and leaving merchandise unprotected. In some cases the security staff is first to undergo cuts. Many retailers relax return policies and other controls during the holidays. This will come back to bite them more in the months to come than in the past.”

Smaller companies may be in a better position to deal with this issue than larger ones says Russ Rosenberg, president of Asset Control. “They tend to be closer to their business and have a better handle on their internal controls. But during hard times employers tend to become focused on external threats and on sustaining their business. What employers must recognize is that business threats can originate from within as well and that an increase in employee dishonesty is likely during times like these."

Companies can do a lot to mitigate internal risk when times are tough says Bill Dolphin. “Increase audits and enhance controls rather than decrease them. Employee Assistance Programs and Ethics “tip” lines can foster communication and help focus attention on the issue. Employee background checks go a long way toward maintaining a climate of honesty in the workplace.”

One of the hottest items this year with thieves – Christmas Trees! Police departments and tree vendors across the country report that trees are walking off the lots in record numbers this holiday season. “We’d normally lose a tree or two every year," said one tree vendor. "But this year is ridiculous. I’ve had to hire a security guard. So far I’ve lost over 30.” “I used to say if someone has to steal a tree for their family God bless them. Now, with a six foot tree costing $200. I have other words for them.”

This holiday season our best advice for Santa is to leave the reindeer at home and take the train. With things as tight as they are we suspect there may be a premium on venison.


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