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How to Stop Customers and Employees From Robbing You Blind

Retailers cringe every time they see headlines about an employee caught embezzling or stealing. They know it could be them, and in too many cases, it has been them. A Montana woman was just arrested for embezzling $46,000 from two companies after previously being charged with stealing thousands of dollars from an Ace Hardware store. Bad habits are hard to break.

A Colorado woman was arrested last December and charged with felony theft for allegedly stealing $258,000 from Offen Ace Hardware (now Hykes Ace) in Greeley over a four-year period. Not only were the owners grooming her to take over the business one day, they had helped pay for her degree in accounting, according to a report in the Craig Press.

After discovering his former bookkeeper embezzled about $66,000 from him over an 18-month period between 2004 and 2006, Marc Gillson now handles the bookkeeping himself. “We had procedures in place, but we didn’t follow them,” says the third-generation owner of Mount Pleasant True Value Hardware in Providence, R.I.

Some early warning signs were overlooked: checks that did not appear in bank statements and cash sums listed on bank deposit slips that did not match amounts deposited. “When you have an employee that goes beyond what you normally expect and always volunteers to stay late, then you should be guarded—maybe they are disguising something else,” says Gillson, whose grandfather started the business in 1923.

Gillson noticed that when she handled payments for U-Haul truck rentals that the cash didn’t seem sufficient for the transaction. “It should have sent off warning signs, but we did change some procedures. It just made her change the way she stole from us, so the next round was different,” he adds.

As Gillson explains, “We went back through all the paperwork and discovered her patterns of deceit, then took it to the police. They said we had to do our own investigation, so we took it to our accountant. Again, we didn’t want to believe it to be true. Did she really do this to us?”

Luckily, Gillson was not overextended in the business, but he had struggled to figure out why their numbers were worse off those years. “For the first time we weren’t able to hand out Christmas bonuses to the staff. Then we saw that in the second week of February she stole $2,800 from us, so we knew we had a thief working for us.”

The former bookkeeper was sentenced to six months in jail and given six months home confinement, followed by 14 years of probation. She was ordered to pay back nearly $66,000 in restitution to the Gillsons.

“It’s very disturbing to think that you can’t really trust anyone. If you can’t pay bills, you can’t get inventory and without inventory you can’t make sales, so it starts a vicious death spiral for your business if you don’t stop it,” Gillson says.

Gary Calvin, owner of Cedarville Ace in Cedarville, Mich., had an employee who was charged with stealing between $20,000 and $50,000 in 2010 and 2011 via phony returns and pocketing cash, although Calvin says the actual amount was about $65,000.

“I kept wondering why we didn’t have as much sales and income in 2011. In talking with other retailers, we felt we should have been up but we weren’t,” he explains.

Calvin recalls one night when this employee was left in the store by himself. “The next day I asked him how things went and he said it was real slow. I looked at our POS and discovered the last hour there was a deficit—there were more returns than sales,” he says.

What was even more unusual was the fact that someone had returned a $250 roll of Romex wire. “We don’t sell a lot of that, so I looked at our sales history and found multiple returns of that item. In fact, there were more returns than sales,” Calvin points out.

Calvin went to the local police and prosecutor and they started investigating. “They didn’t want us to confront this employee yet, but they installed microscopic cameras by the checkout. It took a while to get proof, but we got clear video of him stealing from us,” he says.

This employee started off taking small amounts here and there, and then it started adding up to hundreds of dollars each day. That level of deception can be a death sentence to a small business.

Faced with the video evidence, the employee still denied he had been stealing. Although he pled not guilty with his first lawyer, he later switched lawyers and eventually pled guilty. He was ordered to make restitution over time.

“The whole situation was upsetting, but what can you do? It was mostly by chance that I caught it. You have to be aware of what’s going on in your business and pay attention to your POS software,” Calvin advises.

When Calvin comes across articles about embezzlement it’s an unsettling reminder of what he endured. “The unfortunate thing is that this employee was good with customers and always showed up for work. I guess he was pretty eager to show up and steal from us,” he says.

Is Theft on the Rise?
The average shrink rate of 1.38 percent has remained steady the past few years, according to the National Retail Federation’s 2019 National Retail Security Survey (NRSS). In 2018, 10.9 percent of retailers reported a shrink rate above 3 percent.

Not surprisingly, the rapid growth in online sales has led to a major upswing in online sales fraud. Roughly half of the surveyed retailers said they are paying much more or somewhat more of a priority to return fraud.

The greatest increase in fraud still comes from in-store only sales—42.9 percent—but multichannel sales such as buy online and pick up in store account for 22.2 percent of fraud, according to the NRSS.

“We got burned to the tune of $1,500 with fraudulent phone credit card transaction,” said Tom McKeithen of McKeithen’s True Value in Statesboro, Ga., in a posting on Hardlines Digest. “We no longer take cards over the phone unless it is one of our regulars, but with most of them we have the card on file anyway.”

The average dollar loss per shoplifting incident was $546.67 in 2018, on par with the previous year. Nearly 22 percent of shoplifting incidents were above $500.

The average dollar loss per dishonest employee was $1,264 in 2018, with 22 percent of incidents rising above $2,000. Over half (53.7 percent) of NRSS respondents reported employee-related theft was less than $1,000, which is the national average felony threshold.

Loss prevention specialists point out that the difficult hiring market makes it tougher to screen out potential internal thieves. Roughly 55 percent of retailers say they are implementing POS analytics to combat theft, although these survey numbers skew toward larger, chain retailers.

Advice From an Expert
Nathan Looman, president of Watcher Total Protection, says a sound loss prevention strategy does not have to be costly.

Public display monitors reduce theft by up to 80 percent, according to Looman. “They are primarily used at the entrance door but are now being deployed in high-theft areas. It makes people aware they are being watched. Thieves will case areas. Putting one in is a good strategy on a limited budget,” he said.

EAS (electronic article surveillance) can be a final line of defense for theft. “It’s good if you have clothing and workwear. You have to train staff to call people back in. It’s a proven technology, and tags are inexpensive and effective,” Looman said.

Looman notes that power tools are the third most popular item to shoplift, so he recommends tethering power tools to the display shelf to protect the battery and tool. Light motion alarms can prevent concealment, while anti-sweep hooks can be used to protect high-theft areas.

He said retailers should be aware of cash handling red flags: resistance to new procedures, often repeating counts, sale control, expressed money anxiety, tracking items (pennies, paper clips on register), excessive merchandise returns, staying late or being left alone.

Looman suggests the following cash control recommendations: define protocols and procedures, assign drawers to employee, verify tills before and after every shift, cross train or rotate responsibilities, daily drawer audits during shifts, reduce cash expenses, limit counting time, take deposits to bank at different times during daylight hours, and paper audit trail with signatures.

Counterfeit money is everywhere, according to Looman. “You can buy a $17,000 stack of bills for $75 that looks real. It’s legal to sell for film purposes, but people then try to use. A counterfeit detection scanner will tell you pass or fail and it scans the bill in less than one second,” he said, adding that retailers should establish cash procedures and mandate verification of all $20, $50 and $100 bills before accepting at POS.

Rick Schwartz of Schwartz Ace Hardware in Fall River, Mass., uses an automatic counterfeit detector for all bills $50 and over, and has cashiers put a mark on the bill to confirm it’s been checked.

“If the counterfeit reader does not accept the bill, we do not accept the sale. We do ask for other tender, but I just lost one sale even though the customer claimed the bank gave him the $100 bill. Our bank also uses a reader on all paper money and they are strict,” Schwartz says.

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