Unfortunately, dishonest associates impact the bottom line of nearly every business. Investigating and terminating an employee stealing from the company costs the business time, effort, and considerable resources. As labor shortages continue to plague retailers and restaurant operators across the country, leaders must ask themselves if there’s a better way to proactively dissuade employees from turning against the business by minimizing opportunities and addressing the leading motivators of fraud.
What is Internal Fraud?
Internal fraud, also known as employee theft, occurs when employees steal from the organization where they’re employed.
According to the Hayes International Annual Retail Theft Survey, nearly one in every 40 employees was apprehended for theft from their employer. In 2020, over 26,400 dishonest employees were apprehended, recovering over $32 million with an average case value of $1,219 per incident, up 3.8% from 2019. Most Loss Prevention professionals spend more time investigating employees than customers because a dishonest employee can often cause more loss to the store than a shoplifter.
Some common forms of internal fraud include “sweethearting”, stealing inventory from the store, gift card scams, skimming cash, and collaborating with customers to steal merchandise. But a 2007 article from the Journal of Psychology on Employee Satisfaction and Theft takes it a step further and asserts that the issue of theft is a social behavior, making employee fraud or theft a deviant behavior that can be categorized two ways:
Property Deviance – This is the behavior pattern most commonly associated with theft in the workplace and includes the unauthorized taking, control, or transfer of money by an employee during or while they are in the scope of employment.
Production Deviance – These are behaviors that commonly sabotage company time, namely through reduced productivity.
Both types of deviance can have a significant impact on the profitability of the business and must be addressed by loss prevention and asset protection teams.
Spotting Internal Theft and Fraud
Monitoring transactions and employee performance with a loss prevention analytics or exception-based reporting solution is one of the best ways for retailers to quickly identify fraudulent transactions, underperforming employees, and high-risk associates. These analytical tools help LP professionals identify dishonest or unproductive associates by automatically flagging potential indicators of internal fraud and theft like reduced productivity, refunds, exchanges, discounts, price adjustments and overrides, line voids, and post voids.
Loss prevention analytics and exception-based reporting platforms can also be used to highlight high-performing employees. These rising stars can be recognized by the company and even used to train and improve others.
Technology helps track employee performance and flag indicators of fraud and theft in near real-time, helping LP professionals to identify issues quickly and minimize the impact on the business. But companies must still understand the motive for internal theft and how to prevent it in the future to truly minimize occurrences.
Why People Steal: The Fraud Triangle
Research shows that people don’t just commit fraud out of the blue. By understanding the Fraud Triangle, retailers can understand what sets the stage for committing fraud, theft, or similar crimes. According to the Association of Certified Fraud Examiners (ACFE), the Fraud Triangle outlines the three elements that must be in place to commit fraud:
- Perceived personal pressure or motive
- Perceived opportunity
- Ability to rationalize that the fraud is not inconsistent with the person’s values
The third part of the triangle has more to do with the individual’s internal moral code than anything the business can control, but the first two can be impacted by loss prevention and asset protection efforts to minimize opportunity and address motives to combat a climate for theft.
According to the study “Employee Satisfaction and Theft: Testing Climate Perceptions as a Mediator,” a climate for theft “includes the opportunity to steal and the perceived and communicated norms of the organization, management, and workgroup. Included in these norms is the attitude toward theft, the perceived extent of coworker and management theft, perceived certainty of sanctions for theft, and perceived severity of sanctions for theft.”
One of the easiest and most obvious answers to the question, “why do employees steal?” is simply that they feel they can. If you have vulnerabilities within your business, you’ll eventually have employees that try to take advantage. Here are 5 tips for minimizing vulnerabilities that may be contributing to a culture of theft:
1. Restrict Access to Assets
Restrict access to inventory, large amounts of cash, and any on-site safe. Limit employee access to your network and important files based on the need to minimize opportunities for digital crime as well.
2. Invest in Surveillance and Security
Often, even the threat of security footage can dissuade someone from committing a crime but if things do start to go missing, you’ll likely have footage that can reveal when and where the theft occurred.
3. Build Awareness for Loss Prevention Efforts
The same way security footage can prevent dishonest associates from committing a crime, making your employees aware of your Loss Prevention or Asset Protection team’s efforts to minimize loss and identify instances of employee theft will likely make employees think twice about trying to game the system.
4. Conduct Risk Assessments and Train Employees
If you don’t know where your business’s vulnerabilities are, it’s impossible to address them. Conduct regular risk assessments and use that information to improve processes and policies to minimize opportunities for loss. Regularly train employees on these improved processes to both build awareness and ensure they know what is expected of them at all times.
5. Use the Buddy System
Tap into the power of the buddy system by letting your associates supervise each other. Setting up an anonymous tip line can also help to make employees feel like they’re contributing to helping the business by reporting suspicious activity.
Dissatisfied Employees are More Inclined to Commit Fraud
We tend to think of motive in terms of selfish greed, desperation, or even thrill-seeking but many studies show that employees who defraud their employer site their motivation as discontent, feeling unappreciated, or simply a lack of engagement or loyalty to the company.
The Journal of Accountancy’s study “Why Employees Commit Fraud” noted that employees who steal are most often influenced by motivation over opportunity – in other words, the more dissatisfied the employee, the more likely they are to engage in criminal behavior. This is an important consideration since we are in a period where nearly 4 million people have resigned each month, with over 4% of all retail workers leaving to look for better opportunities.
Retailers need to understand where they contribute to employee dissatisfaction while attracting new workers in a competitive job market.
Workers are Stressed
In Gallup’s State of the Workplace report for 2021, over half (57%) of US workers admitted to being stressed on the job, with 62% of women and 52% of men feeling stressed or burned out. So, what are employers doing to combat stress, knowing that stressed employees may have increased motivation for fraudulent behavior?
Employers are being asked to attend to their employees’ career, social, mental, emotional, and physical health to help deal with the lasting effects of the global pandemic. Keeping employees engaged means that associates must be heard and appreciated, putting managers in the new position of having heartfelt conversations with their associates for greater engagement. Overall, happy and engaged employees perform better at work.
Combatting Disconnection, Dissatisfaction, and Malcontent
In her book “The Human Team: So, you Created a Team but People Showed Up!” author Jeanet Wade highlights three powerful tools that can be harnessed to keep your employees from even thinking about stealing. She refers to them as “Connection, Consideration, and Contribution.” These make up just three of the 6 facets of human needs but are the most relevant to increasing employee engagement and reducing the risk of employee theft and fraud.
Building Multiple Levels of Connection
When people feel disconnected, excluded, or alienated they are far more likely to develop a “me versus them” attitude that can easily lead to seeing the company as the enemy and justifying stealing. However, when employees feel connected, not only to their co-workers but to the company itself, they are far more likely to view themselves as part of something bigger than themselves and identify the success of the company with their own level of success. In order to build this level of connection, employees must feel invested in what the business stands for – the mission, values, and culture that hold teams together.
Empower and Reward Contributions
If we want to build healthy, engaged, loyal teams, we have to empower everyone to contribute at the highest level of their capabilities. Team members who feel insignificant or undervalued will either disengage, leading to a lack of connection and resentment, or their desire to be significant and a part of the project or objective will disrupt those who are engaged and contributing. Either outcome leads to business loss and an increased risk of internal theft and fraud.
Consider the Individual
Everybody wants to feel valued. To meet this need for consideration, build a culture where people are seen as unique and valuable human beings before they’re categorized for their skills and capabilities. Make sure leaders and managers are getting to know the people whose success they’re responsible for. Even small gestures can go a long way in making someone feel as though their work has been seen and appreciated. Showing genuine consideration for the people on your teams has been shown to be more motivating and to build greater loyalty than even monetary incentive programs.
The Bottom Line
There will always be a certain percentage of employees who will try to steal from the business. Some believe in the rule of 20/20/60 – 20% of employees will absolutely never steal regardless of circumstances; 20% will always steal from the company regardless of circumstances; 60% can be persuaded one way or the other depending on circumstances.
The percentages will fluctuate from business to business but the concept stands - there will always be a larger percentage of “persuadables” than employees committed to stealing, so minimizing opportunity and addressing potential motives will go a long way towards dissuading employee theft, fraud, and underperformance.
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