Theft under the microscope

According to Jewelers Mutual Insurance Co., cases of betrayal by employees represent a broad spectrum of thievery, from simple pocketing of cash or merchandise to highly sophisticated embezzlement schemes. Tactics include:

• under-ringing tickets and keeping the difference;
• transferring false merchandise returns or layaway plans onto gift cards;
• hacking computers to divert funds;
• capturing funds from payment of fake invoices;
• accepting payoffs from vendors; and
• turning a blind eye while an accomplice makes off with merchandise.

Motivations vary, too. The allure of a fast take is perhaps the most obvious enticement. However, loss-prevention experts caution store owners and managers not to overlook the numerous other factors that can influence employee theft. These include reprisals from disgruntled workers, thrill-seeking, the need for attention, drug abuse, and mental illness.

With numerous possible motivations and so many opportunities for workers who operate unchecked, Jewelers Mutual recommends the following steps to discourage would-be employee thieves:

1. Screen job applicants carefully within the boundaries of anti-discrimination laws. Require each applicant to complete your business’s job application, rather than rely on resumés that offer only what applicants want you to know. And be sure to check all references before you extend an offer. Remember, you can’t count on appearances.
2. Closely observe employees who engage in financial transactions or have access to computer systems or financial records, especially recent hires and those who handle merchandise.
3. Check and affirm your daily receipts. Price merchandise by stamp or machine, rather than by hand. Allow only authorized employees to price merchandise.
4. Keep a record of keys issued and do not allow opportunities for duplicates to be made.
5. Consider using motion detectors, electric eyes, or Underwriters Laboratories of Canada- (ULC-) certified central station alarm systems to deter ‘breakouts’ (i.e. an employee hiding inside the store and leaving after hours with stolen merchandise in tow).
6. For returns and refunds, have at least one other employee corroborate the legitimacy of the transaction in question.
7. Make sure your merchandise isn’t taken out with the trash or the mail. Beware of collusion between employees and trash collectors or delivery workers.
8. Consider conducting a formal audit every six to 12 months. Very often, employee theft goes on for months or even years because of managerial inattention. It is a best practice to have an independent accountant perform an audit to ensure accuracy of all accounts.
9. Determine whether a third-party payroll service might help prevent losses.

In addition to these measures, Jewelers Mutual and other loss-prevention experts strongly advise business owners to establish an atmosphere of professionalism and integrity with thorough employee training, clearly communicated policies and procedures, and appropriately conveyed expectations. Kyle Murray, director of the School of Retailing at the University of Alberta, echoed this point in an RCC newsletter, Retail Loss Prevention: “It depends on your relationship with employees and the systems you have in place,” he said. “Take care of your employees. If you do that, you’re less likely to have theft.”

Avoidance tactics

The RCC’s report reaffirms the importance of store owners adopting specific precautions. “Retailers will need to address the economic and cultural changes that enable and drive internal theft and the potential solutions to reduce its impact. Pre-employment screening, training, and the use of concealed preventative and detective methods will play an important part of the retailer’s loss prevention toolkit,” the report concludes.

Unfortunately, however, many retailers haven’t been heeding the warnings. According to the CGA study, 80 per cent of the surveyed owners of SMEs were unprepared to respond to employee theft, and 74 per cent of respondents said they believed their exposure to occupational theft was low.

Jewelers Mutual urges retail jewellers to remember that the threat of employee theft is real life, not just reality TV. We recommend store owners adopt a ‘professional level of skepticism.’ It is difficult not to trust those who have worked for you for years, but they are indeed the individuals who can do the greatest damage. Those employees know the most about the business, its cash flow, and its merchandise. They know how to ‘beat the system.’ We’ve handled many insurance claims from jewellery businesses victimized by an employee who had been with the company for years.

Jewelers Mutual believes that in all crime-prevention efforts, the best defenses are education, awareness, and preparedness with sound practices and procedures. For this reason, Jewelers Mutual has partnered with Jewellers Vigilance Canada (JVC), providing its insured clients in Canada free membership in JVC’s Crime Prevention Program. This JVC resource includes: alerts on dangerous jewellery crime; crime-prevention bulletins on effective security procedures; access to a database on criminal activity in the jewellery industry; crime-prevention videos; crime-prevention manual on CD; and access to the JVC security library. You may visit Jewelers Mutual’s loss prevention pages at www.jewelersmutual.ca/safetysecurity. JVC’s Crime Prevention Program site is available at www.jewellerycrimecanada.ca.

David J. Sexton, CPCU, is vice-president of loss prevention at Jewelers Mutual Insurance Co., in the United States. A graduate of the University of Wisconsin, Sexton serves on the Underwriters’ Laboratories’ (UL) Security Systems Council, where he is a corporate member of the insurance category. He also sits on the board of directors for Jewellers Vigilance Canada (JVC), and worked on the Central Station Alarm Association’s (CSAA’s) Insurance Liaison Committee that assisted in the development of the UL burglar alarm modular certificate program and revised UL standard. Comments and questions can be sent to lossprevention@jminsure.com.

For training resources regarding safety and security when carrying or working with jewellery, visit JM University at JewelersMutual.com. Jewelers Mutual Insurance Company is the only company specializing exclusively in jewellery insurance in the United States and Canada. It is licensed in all 50 U.S. states and Canada.