Employee theft a common problem for retailers

PHOTOGRAPHER: Ameerah Cetawayo

Jim Carbone says his 24-year-old business, Johnstown-based Video World, is having the life choked out of it by employees who steal.

“It’s killing my company. We’re walking dead now,” Carbone said.

Video World had 14 locations by 1998 but now only has locations in Ravena, Palatine Bridge, Gloversville and Johnstown.

Carbone has survived a bankruptcy in 2001 and the steady decline of the video rental industry. But he says going after the thieves that contribute to his inventory shrinkage problems has proved to be the most challenging cost of doing business.

Whether it was time, candy, soda or movies, Carbone said 85 percent of his employees stole, even as he implemented stricter internal controls.

“It was every store and it was all the time,” Carbone said. “I had one store where an employee had 60 movies at his house. I had him arrested. Another employee — about 40 movies at her house.”

Carbone would allow for managers to check out movies at the end of the night under the condition they bring them back the next day. But the small perks Carbone tried to offer were often abused, he said.

“They would zero out their extra day fees” from the store’s computers, Carbone said. “The movies were for my customers, not my employees.”

In June, Carbone’s long-fought battle cost him in a different way — he was fined $4,300 from the state Department of Labor for making illegal deductions from employees’ checks. Carbone said he was attempting to reclaim his losses from the people responsible.

He said he didn’t want to arrest the young people who managed his stores and he tried to give them an opportunity to pay the money back.

He said he doesn’t believe what he did was wrong, but he had to do something because he couldn’t afford to absorb the loss.

Persistent issue

Carbone isn’t alone when it comes to dealing with loss prevention. It’s a common annoyance for retailers, according to Sgt. Eric Clifford, spokesman for the Schenectady Police Department.

“It is difficult to identify exactly how many [local] thefts are employee-related,” Clifford said in an e-mail. “I would have to say that the stores that have security like Price Chopper, Home Depot and Rite Aid catch employee theft more often. Small businesses should concentrate on accurate record-keeping (sales, inventory, etc.) and also consider hidden cameras if they cannot afford security. Of course, thorough background checks of employees also helps.”

Price Chopper spokeswoman Mona Golub said the grocery supermarket chain has surveillance systems and a dedicated team of loss prevention specialists who study trends, finding more efficient ways to prevent loss.

Overall, they’ve noticed more incidents of theft and more dollars worth of product being taken by shoplifters since the recession began.

“We’ve seen a rise in theft. Much of it more petty in nature, meaning people are taking things to feed their families as opposed to for other reasons,” Golub said.

According to the University of Florida’s latest National Retail Security Survey, there is no other form of larceny that annually costs Americans more money than employee theft, as retailers inevitably raise prices to cope with losses.

Consistent with the last 17-year history of the survey, loss prevention executives said they believe employee theft to be the single most significant source of inventory shrinkage, with retailers sourcing 44 percent of their inventory shrinkage to employee theft. With a total shrinkage dollar amount of approximately $34.8 billion in lost profits, this translates into an annual employee theft price tag of $15.2 billion — more than shoplifting, which accounted for $11.8 billion.

The U.S. Small Business Administration recommends several tips for dealing with employee theft, including acquiring the appropriate hardware — locks, lighting, monitors, fences and alarm systems; acting on the people-related aspects, like hiring policies, money handling and data processing rules; and having a written security policy that includes a daily checklist and regular training sessions.

Tips for merchants

— Screen Applicants. In hiring, apply strict screening standards and, no matter how urgently you may need additional personnel, do not compromise those standards. Screen applicants through reference checks, credit checks, psychological tests, polygraph lie-detector tests and personal character examinations. Be sure to adhere to the law in performing these checks.

— Observe New Employees. Watch daily receipts and scrutinize new employees until you are satisfied that you can trust them.

— Establish a Positive Atmosphere. Set a tone or atmosphere that encourages honesty by expecting excellence from employees, having a clean workplace and providing fresh uniforms.

— Secure the Premises. A motion detector, electric eye or central station alarm will deter thieves. You can also discourage breakouts with locks that need keys on both sides, provided that local or state fire regulations do not prohibit such locks. When goods, materials or money are missing and there is no evidence of forced entry, look for the inside thief.

— Implement Audit Control Methods, then test the system. Withhold an invoice and see if your bookkeeper notices. Unannounced inspections are another excellent method of checking your preventive procedures.

— Keep Crooks off Balance. By tightening controls and adding a number of surprise elements to the loss-prevention maintenance system, inventory loss can be drastically reduced.

— Don’t Play Detective. Owner-managers who suspect theft should not attempt to solve the crimes themselves. Even the best business owner may botch a criminal investigation because he or she is an amateur. When you suspect a theft, bring the police or a reliable firm of professional security consultants into the picture without delay. Where dishonest employees are bonded by insurance companies, ironclad evidence of theft must be uncovered before you can file a claim to recover your losses.