Chapter 14

Internal Theft Controls

Goal: To acquaint students with the dishonest employee, his impact on the organization, and security's role in dealing with internal theft.

Objectives:  

• Discuss the dishonest employee: identify the danger signs, why and what he steals and the effects of his stealing on the organization.
• Explain the theft triangle.
• Explain specific procedural controls utilized to reduce internal theft.

Lecture:

Chapter 14 asks us: "what is honesty?"  Think about it.  Is each of us honest?  We like to think we are.  But do we ever tell "white lies"?  What about when you are late for work and your boss asks why.  You say, "My kid was sick this AM" but really, you were watching a Three Stooges show and just didn't feel like heading to work.  Or you call in sick and head to the slopes or the lake.  Or you spend two hours of work on E-Bay. I'd guess we are all guilty to some extent.  But some are more guilty than others and some have no scruples at all telling lies or stealing.  And there are things in the workplace that give employees reasons to try to justify stealing.  For example, we all feel underpaid and overworked.  So what's the big deal about taking home some office supplies or a few small tools?  The big deal is that it's wrong.  And it mounts up. 

Various studies show that one in three employees steal from their employer-money, goods, merchandise, literally anything not nailed down. (We recently terminated a employee who was stopped in a random vehicle search.  He had a gallon jug of hand lotion and some glass cleaner, both of which had company labels. total value, maybe $10.00.  He lost a $40,000/year job for that.) The U.S. Department of Commerce estimates that at least 30% of all business failures are due to employee theft and not, as many employers assume, to shoplifting. These figures really relate to the employee who is not in management.  Now, because of Enron, WorldCom, etc., we have very serious concerns about senior management, too.  Employees usually steal that to which they have access: cashiers steal money, shipping clerks steal merchandise, and so on. Employee theft does more harm than do gunmen and burglars. Employers, often caught off guard, fail to realize that not all employees are honest, and fail to provide procedural safeguards: separating responsibilities; internal, unannounced audits; particularly in Accounting and Property Control. Some surveys show that the greatest deterrent to internal theft is the fear of getting caught. Therefore, employers should institute appropriate checks such as gate searches and accountability standards. Also, have policies in place and make sure employees know the consequences of theft.

 Know and understand the Theft Triangle (p. 255 in the text), and always assume a little of the larceny bug might be might be in the best of employees. In short, controls will help keep an honest employee honest. Be aware that contagion can contaminate: otherwise honest employees may enter into collusion (two or more individuals conspiring for fraudulent activity) if all the elements of the Theft Triangle are present. Remember, most employees don't steal because they need the money. (One notable exception is the drug addict who may steal to get money for drugs.) They usually steal because of resentment, lack of status or some other grudge. An employer's best bet is to set procedural safeguards, be aware of the Theft Triangle , and watch for the Danger Signs. And communicate your security program and controls to all employees.

Some points to know or consider:

Theft triangle - Motive ("I'm pissed at management and I want to get even for not getting promoted"); Desire ("That sure is a nice power drill."); Opportunity ("Look, it's out there in the open and no one is around.  It doesn't even have markings that it's company property").  Like the fire triangle and fires, if you eliminate one side of the theft triangle, you might be able to deter theft.. 

Methods of theft - see pages 256-257.  See anything that looks familiar?

Procedural controls - see pages 261-269.  Note on page 268, the discussion on trash control.  I think I told you this case but it's worth repeating: I worked a case once that involved loss of food items from a large grocery operation.  Things like canned hams and frozen turkeys were "disappearing."  There was a butcher operation in the place and the butchers would put the trimmed fat and bones in a container for a fat rendering company to pick up.  That's where the good items were being hidden!  The fat rendering company's employees were in cahoots with thieves in the store.  When they emptied out the drums of fat and bones they would recover the good stuff, clean off the outsides of the cans or bags, and sell the good stuff on the black market.  Note in this case, money is what they wanted. These guys certainly had desire, opportunity, and motive!

Assignment: for yourself, think about question 1, page 272.  No need to send me anything. Nothing to submit!!!  Who says I don't give you a break once in a while?!  Have a good weekend.