By Freddie Wehbe
A few years ago, one of my pizza drivers embezzled thousands of dollars from my company. Over a long period of time, he systematically did this by manipulating receipts. He was clever and crafty and I never saw it coming. I was blindsided.
We had worked together for several years and we all trusted him. I felt betrayed and exploited. It was a low point in my professional career. Worst of all, I felt shame for having been so easily deceived.
Even though it was several years ago, it is still difficult to talk about—and even more difficult to write about. I had always considered myself a serious and competent businessman. Yet here I was, duped. I was so humiliated that I didn’t want to tell anybody. I wanted to quietly fire the thief and sweep the whole incident under the rug, to take my lumps and quietly move on.
After the anger I felt toward the driver subsided, I felt pity for him. I was not sure I wanted to call the authorities and ruin his life. We had been colleagues and I wouldn’t wish a harsh prison sentence on my worst enemy.
But, like I said, that was a few years ago and I’ve come a long way in both my understanding of employee theft and how, as an owner, I deal with the constant threat.
What follows in this article is what eventually happened to the driver, what I learned along the way, and how local law enforcement and the Federal Bureau of Investigation forever changed the way I think about, and protect myself from, corporate theft.
The Rising Trend
According to the FBI, corporate theft or “shrinkage,” as it is commonly referred to in the business community, is the fastest growing crime in the United States. It’s bigger than identity theft, cyber fraud, credit card theft and internet scams. And what makes it a most pernicious crime is it’s difficultly to uncover. Nearly 75 percent of employees do it, and the vast majority of discovered theft goes unprosecuted, according to FBI statistics.
Incredibly, honest employees often know theft is happening but hesitate to inform management of the problem. Most times there are warning signs— declining profits, unexplained inventory shortages, discrepancies in accounting or unusual employee behavior. Yet most management teams do not know how to deal with the problem until they are faced with crippling losses.
The FBI suggests that business owners should remind employees that reporting suspicious theft concerns is vital to protecting their company’s intellectual property, its reputation, its financial wellbeing and its future. They are protecting their own jobs. Remind them that if they see something, to say something.
Employee theft is often much less obvious that an employee’s hand in the till. It’s a bookkeeper forging checks or submitting phony invoices; it’s a payroll clerk padding hourly wages or inflating expenses to employees; it’s an employee walking out the back door with a prime cut of beef or a case of wine; it’s a purchasing agent buying personal items with the company checkbook; it’s a bank teller stealing a night drop deposit; it’s a medical office manager stealing the busy doctor’s hard earned monies. These are just a few of the endless ways employees steal from companies every day.
Employee theft is a much more serious problem than you might imagine. Research and assessments by the Association of Certified Fraud Examiners estimates 7 percent of a business’ gross revenue is lost to internal theft and/or shrinkage.
In my chosen field, the $600-billion restaurant industry, experts estimate that more than $40 billion are lost each year to internal theft. That’s billion with a ‘B.’ And, it is not only the restaurant industry that is affected. Employee theft affects every sector of every industry— be it retail, accounting, legal, manufacturing or medicine.
What’s more, the U.S. Chamber of Commerce estimates 30 percent of business failures are directly related to employee theft. These are truly staggering numbers.
So how do you stop employee theft?
There are proven ways to detect and prevent theft-related losses within your business. You just have to know what to look for. You need a plan.
The easiest and most obvious way is to put systems in place to monitor inventory, cash flow and receivables. The good news is, there are many software programs that take the mystery out of theft management.
At Domino’s Pizza, all our transactions run through a national Point of Sale (POS) system connected to our home office. This huge computer runs 24/7 and finds statistical anomalies among the millions of transactions it scans in real time, then flags and notifies the individual franchise to areas of possible theft.
Our POS terminal is part of a comprehensive system that, not only protects our franchise community, but also protects our pizza customers by helping to make sure they get what they pay for.
In addition, I now run background checks on all potential employees during the interviewing process, and periodically during their time with me. I also randomly drug test my employees, as drug abuse is often a motivation for stealing.
I have auditors who review orders weekly – sometimes daily – to make sure our books match our bank statements. Another thing I do is consult crime prevention experts at the Gainesville Police Department and Alachua County Sheriff’s Office. They are great resources and provide free theft-prevention services.
“Businesses should implement and enforce policies on internal theft for all their employees,” said Alachua County Sheriff Sadie Darnell. “National estimates are that 75 to 80 percent of business theft is from employees. Safeguarding your business starts with strong policies and active oversight.”
She added, “Internal theft can happen anywhere human beings have access to money. It happened here at the Alachua County Sheriff’s Office, even with significant oversight procedures in place. Our employee was terminated and had criminal charges filed. It is important that business owners and managers hold the offender accountable and send a message to other employees that theft will not be tolerated.”
Lt. Steve Maynard shared in a recent article something that really stuck with me:
“It may seem small, but it not only affects your business’ bottom line, it affects the community through lower charitable giving and it affects consumers through higher prices.”
His point is well taken. Employee theft is more than a corporate problem, it’s a community problem.
“Employee dishonesty is a challenge for companies of all sizes,” said Chief Tony Jones of the Gainesville Police Department. “But, small businesses are especially vulnerable because they lack large financial staffs and sophisticated controls employed by larger companies to protect against employee theft of equipment, data and even money. Business owners should recognize that employee theft occurs on a frequent basis, and they should be proactive in having systems in place to minimize employee theft.”
Chief Jones added that “the Gainesville Police Department is committed to serve as an advocate for the rights of all victims and to promote the safety and wellbeing of business owners. If you need any assistance, please don’t hesitate to call the Gainesville Police Department at (352) 393-7750. Our Crime Prevention Staff will be happy to meet with you and discuss prevention protocol.”
Regardless of the type of shrinkage and losses you might encounter, the No. 1 rule is to accept the fact that employee theft is probably happening to you. You must be proactive. You must not bury your head in the sand. You must act.
Here are some of the things you can do to help prevent loss:
- Establish a code of ethics for all of your employees. Make it clear that your company will not tolerate illegal or unethical behavior. Be prepared to set an example. As the owner, you set the tone for what is, and what is not, acceptable behavior in the workplace.
- Create strict hiring procedures. Run background checks on key employees. I use Infomart, which costs less than $10 per employee. Believe me, this is money well spent.
- Create a workplace that provides a level of meaning and purpose—a place where employees feel they are making a difference in the lives of your customers/clients.
- Lead by example and be a positive role model. Maintain a good positive attitude and do your best to discourage negative behavior, as this can undermine moral.
- Keep track of the cash drawer by making unscheduled spot checks during the course of business. Make sure employees see you doing it.
- Install video cameras that cover 100 percent of your physical space, especially over cash registers.
- Conduct regular audits and review management reports often. Look for changes or discrepancies, anything that stands out. If your sales are up and your profits are down, somebody is probably stealing.
- Hire a mystery customer who offers to pay cash but does not ask for a receipt, then make sure the transaction receipt is in the day’s tally. Train your mystery customer to look for your company’s individual “triggers.”
- Randomly call customers back to make sure the amount of money they paid for your goods and services match the receipt. I often do this when I routinely call customers back to find out how they enjoyed their pizza.
- Train employees in fraud prevention. Be candid about your concerns, and create anonymous ways for employees to report suspicious activities. Remember, if 75 percent of your employees would engage in theft, then at least 25 percent find it distasteful.
- Consult your business insurance professional and consider adding theft coverage. “Crime” coverage can be easily added to your policy. It is also very affordable and a must in today’s business world.
- Call in an expert when you suspect fraud. Do your homework, and then call law enforcement.
Finally the big question: What to do when you find evidence of theft. In other words, should I prosecute?
During the summer of 2009, I had a very difficult decision to make. I could confront the driver who was embezzling and either fire him, or let him make restitution by working off the monies he stole (believe it or not, this is what most often happens when large thefts are discovered in the workplace), or I could contact the police, present them with my findings and let them conduct an official investigation.
I contacted the fraud unit of the Alachua County Sheriff’s Office and told them I suspected one of my drivers was stealing money from my company and shared with them the POS audit information. It was a difficult but necessary decision. I knew this employee’s life would be unalterably changed and it deeply troubled me.
On a sunny afternoon in November 2009, after a time-consuming and thorough investigation, detectives from the Alachua County Sheriff’s Office walked through the front door of one of my stores and arrested a very shocked and frightened pizza driver.
They read him his Miranda rights, handcuffed him and placed him in the back of the deputy car. They took him off to jail. Real jail.
Even though I knew it was going to happen I was still shaken, as were the other employees in the store that day. It was one of the saddest, most disturbing days of my professional life.
Today I work hard to prevent employee theft for many more reasons than just financial. I take every step possible to prevent that scene from ever happening again in one of my stores.
Freddie Wehbe is the local owner of Gator Dominos; a 10-store franchise serving the greater Gainesville area. Freddie is married to Daurine and has two children, Ronnie and Dany. To learn more, contact Freddie at firstname.lastname@example.org.