It is far more pleasant, I know, to talk and write about increasing sales and lowering costs of goods sold than it is to dwell on unnecessary expenses. The effect of all on the bottom line, though, is just as pronounced. What, for example, is the annual cost to the average retailer of employee theft?
As far as I am aware, there is no trade-wide survey that addresses that question. If there were, I wouldn’t believe the answers anyway because so much thievery goes undetected that any number can only represent the tip of the iceberg. Besides, in this instance, national survey figures are not nearly as important as how much that theft is costing you and what you can do to stop it.
First, you must understand that stealing, cheating, or whatever you call it results from a combination of two factors: inclination and opportunity.
According to a Justice Department study, 10% of all employees are so inclined and will try to steal no matter what a retailer does to try and stop them. My own experience tells me the number is substantially higher, so to avoid being victimized, merchants must concentrate on denying their people the opportunity.
In all the security checks I have made at dealerships, I’ve never failed to uncover instances of stealing by employees.
The most common felony has been inventory theft. In the majority of cases, this stems from shoddy controls in the warehouse area enabling unscrupulous delivery people to load more pieces than called for by the customers’ orders. The excess merchandise is then sold at bargain prices to friends or relatives, who also benefit by not paying sales tax.
At the point of sale, theft can occur in a number of different ways — all involving manipulation of the sales ticket and/or computerized inventory file. It doesn’t take a rocket scientist to figure out how to steal if sales tickets are not numbered and their sequence checked periodically, or if the person who makes the sale also relieves the inventory.
This, by the way, applies as much to repair parts and technicians’ time as it does to major sales items.
Good inventory controls, with access to those files limited to just one or two trusted employees would seem to be the answer to the aforementioned problems of inside theft. However, the most restricted system will fail to protect the business against loss unless management periodically makes a physical check of that inventory.
This job should not be left in the hands of floor plan checkers. If it is too big for management to handle at least twice a year, spot checks of different SKUs should be conducted throughout the year with no advance notice given to employees.
The last major area for internal theft lies in the bookkeeping department — specifically where supplier invoices are paid without receiving documents attached or all credits granted accounts receivable are not carefully screened.
The Dallas-based F.R.E.E. (Financial Recovery Of Extra Expense) will check payments to accounts payable of any firm at no charge. All they want is half of what they recover in payments that should not have been made. In the several years that I’ve followed this unique business, I’ve never seen F.R.E.E. walk away from a client with nothing recovered.
If you are not exercising such controls over your company, you had better ask yourself, who are you working for?
To avoid being victimized, merchants must concentrate on denying their people the opportunity [to steal].