The Impact of an Employee’s Dishonesty: When 1 + 1 Does Not = 2

Store 13* had increased its sales each month since opening a year and a half ago. Some increases were as much as 23 percent over previous months. Now, all of a sudden, sales were flat and in some cases, lower than before. Home office personnel inquired with the manager, “Have any new convenience stores opened up in the area? What about new grocery stores?” All inquiries were met with the same response, “No.” So what was going on?

The Vice President of Store Operations began the involved process of reconciling taxable grocery levels and void slips over the time period in question. This is what she found; over a sixty-day period, the number of manual voids from Store 13 grew on a daily basis and in some cases, the amount of the voids exceeded the day’s taxable groceries. She also noticed the voids were almost all completed by the same person and rarely was a customer’s signature noted on the form.

In analyzing the merchandise being returned, the vice president also noticed that 150 scooters at $50 each had been brought back. Inventory records showed the store had only received eight to sell. With information in hand, the vice president confronted the store manager who promptly admitted to running a scheme to get cash to buy lottery tickets. The total loss for the sixty-day period was $17,000!

Fortunately, this convenience store’s Employee Theft insurance policy covered the actual loss of cash. But it didn’t cover the hidden costs of this claim – namely, lost productivity. Consider the cost of the following:

• The hours spent by the Vice President of Store Operations to research the problem.
• Multiple discussions between company employees and authorities to give statements and obtain reports. Other Store 13 employees were interviewed to assess their potential involvement with or knowledge of the crime.
• Dealing with personnel issues. The involved store manager was terminated and needed to be replaced. Store 13 employees had to adjust to and “train” a new manager.
• Status reports given to upper management by the Vice President of Store Operations.

Quantifying lost productivity is hard, but in any case, is very expensive. Avoiding this type of problem can be difficult, but uncovering it quickly is key to mitigating the potential loss. Several strategies and procedures may help you avoid and reduce the potential for your stores to suffer an employee theft claim. These strategies include, but are not limited to, the following:

• Void slips should be collected and periodically reviewed by appropriate home office personnel.
• The return of a singular item whose value exceeds $20 should be signed off by the sales associate and store manager, or the store manager and his/her boss.
• If, based on the store’s expected sales levels, there appears to be an excessive number, and value, of void slips being processed, home office personnel should review and discuss the issue immediately with the store manager and sales associates.
• The consistent absence of customer signatures on void slips should be a red flag to managers and home office personnel. Investigate this immediately.
• Sudden changes in sales levels (especially decreases) should be closely monitored. If they continue, an investigation is warranted. Also, seemingly insignificant sales drops, which occur over several months, should also be analyzed.

These are just a few basic strategies that, if followed, may make the difference between suffering an employee theft loss and not having the headaches that accompany this type of loss. For more information about preventing employee theft claims, contact Joy Gänder at [email protected] or by phone at (608) 286-0286.

*The claim scenario is based on actual circumstances suffered by a convenience store. However, certain details have been changed to protect the store’s identity.

By Joy M. Gänder, CPCU, ARM

Copyright © 2015 Gänder Consulting Group, LLC

Phone: (608) 286-0286 │Fax: (608) 442-6811

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