It Was An Inside Job

Jim Blasingame

Most weeks, the subject of my Feature Article arises from some source that inspires me, like a topic that one of my guests and I have recently discussed on my show. Typically, by Friday, I may not have the entire article written, but I will have at least decided what I want to write about.

This week was no different - until Saturday morning. I was actually working on the article when the manager of one of my businesses called to say that someone had “broken into” that business.

I use quotes because entry was made by someone with a key and the security code. No, I don’t yet know whom, but money was stolen at the same time an entry was recorded by my security company. The thief/employee unsuccessfully tried to make it look like a break-in.

You Know Me - Always Teaching
After things settled down, I couldn’t get my mind off of the many aspects of this crime.

Since my thoughts were so full of the moment, I decided to tell you about what happened, and talk about what we can learn from my experience. When something unfortunate happens, I think one of the most important questions anyone, especially a small business owner, can ask themselves and those around them is, “What have we learned?”

There Are Many Inside Jobs
According to our Brain Trust’s human resource expert, William S. Hubbartt, author of The New Battle Over Workplace Privacy, most retail theft is actually perpetrated by employees. And according to a report by the Chubb Insurance Company, estimates of loss from white-collar crime start at $40 billion per annum.

Typically, white-collar crime is associated with embezzlement, but my definition includes any theft by anyone trusted with access to the property when the owner is not there.

Employee Theft Takes A Toll
Discovery of theft by an employee, whether by pilferage, embezzlement, or a feigned break-in, is a very sad day in any business, but especially for a small business. And the emotional toll is doubles when the perpetrator has unfettered access to the property, which means a trusted employee.

The loss of assets and time, plus the emotional distraction, can really derail an owner/manager’s ability to focus on moving the business forward. Plus there is also the possibility of adverse publicity, disruption of operations, and time spent with police, bonding companies, and lawyers, all of which come with direct and indirect expenses.

Worst of all, theft and fraud can steal your competitive edge by increasing your cost of goods and services. In extreme cases, even bankruptcy can result from employee theft. Bill Hubbartt reports that the U.S. Small Business Administration estimates that employee theft may be the prime cause of up to 60 percent of small business failures.

Practice or Preach?
I am not going to go into all of the things a business should do to prevent employee theft. Books have been written by experts about the many opportunities for theft and the many prevention policies and practices. I am only going to cover the things that happened to me, and how it could have been prevented, or at least deterred. I am also going to identify what I did right and wrong.

1. Install a security system.
They’re not that expensive anymore, and the security and peace of mind they provide is worth the money. We often go into our businesses during non-business hours. A properly operated system delivers an alarm warning tone when you open the door, which means that no unauthorized person has been in your building since you left, and no one is lying-in-wait to ambush you.

Practice or Preach? I have a security system on every building I own.

2. Always set the alarm when the door is locked.
You’re probably saying, “Duh!” But incredibly, some people who have alarm systems don’t use them. When properly designed and operated, the alarm noise resulting from a physical break-in will deter a thief, or at least hasten their departure.

Practice or Preach? Operation of my security system policy is strictly implemented.

3. Make sure your system is monitored.
When a monitored system is breached, the monitoring company calls the police (in the case of a fire, the fire department), and the owner. They know when the power goes off, when the back-up battery is low, when a door is opened and closed, and which door.

Practice or Preach? All of my systems are monitored.

4. Make changes when an all-access employee leaves your employ.
Changing the locks is a good idea, but it can also be expensive. But if you change the security system access code every time someone leaves, even if they don’t turn in all keys, their old code won’t disarm the alarm. Telling all employees how this works, and about your code-changing policy, will likely prevent any unauthorized return visits by a past employee.

Practice or Preach? We have changed codes in the past, but alas, had not done so in the case of the last two departing all-access employees. If I had followed the advice I just gave you, the crime against my business this weekend probably wouldn’t have happened.

5. Use multiple access codes.
Most security systems can be set up to accept multiple access codes, and the monitoring company can identify the date, time, and access number for each opening and closing. Set yours up that way and give each person with access his or her own code. Tell each employee about how the individual codes work with the monitoring company, so they know you can find out when each person enters and leaves your building.

Only you and the employee know their personal code. Emphasize that they should not give their code to anyone else, because if that number is used to enter the building at an odd time, and/or when something comes up missing, they will be the suspects.

Practice or Preach? I had not done this. If I had, my day would have been less eventful. By Monday morning, that deficiency will be corrected.

6. Get and check references.
When you hire an employee, even if you don’t know how much of your business you will ultimately trust them with, check references. These days it’s difficult to get some information, but try to find out as much as you can about the past trustworthiness of each new employee. Ask for the time and relationship of each reference. Time gaps in professional references might be a tip of past problems. Ask why a past job listing on the application didn’t produce a reference. Then see if you accept the answer.

Practice or Preach? I always get and check references. But, alas, no policy can ensure perfect results.

The Battle Over Privacy
Proceed with caution when you suspect an employee. As an employer, you have procedural and legal steps you can take, but you MUST know where your rights stop and your employees’ rights start. And this line gets fuzzier every year.

Know what steps you can take and take all of them. Know where your boundaries are and stop there.

Write this on a rock... The best ways to prevent employee theft of any kind is to install and conduct operational controls - electronic, mechanical, and procedural - that let employees know that the company is serious about controlling it’s borders, and its assets.

Jim Blasingame
Small Business Expert and host of The Small Business Advocate Show
©2008 All Rights Reserved

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