Internal theft of items and product by employees is a tricky area for HR (Human Resources) and security managers, writes David Kearns, Managing Director of Expert Investigations.
The security manager and HR of any size of organisation has a vast array of roles regarding the protection of asset and employees. That risk will occur within and external to the organisation and the nature of the business within that organisation will have a direct effect on the types of crime that it may be subjected to.
For the purpose of this essay the author will disregard the issues of external crimes such as burglary, cash in transit, robberies, auto crimes, violence in the workplace and the multitude of other offences including cyber-crimes and discuss the title question with a view to thefts and frauds committed internally by employees.
When referring to theft, this will be seen as including fraud and will be taken as being in breach of the Theft Act 1968 and the Fraud Act 2006. The essay will critically discuss the problems that the security manager and HR will have to deal with and generally will not offer the resolution to each individual issue. Additionally those thefts will be discussed that occur at the top of the organisational hierarchy to bottom and the essay refers to academic research and to the experience and references of the author who is a commercial investigator in Public Limited Companies.
The essay will refer to a fictitious company and refers to actual case investigations conducted by the author. This fictitious company is a PLC, which employees 1000 people at four sites across the UK. The company has a second company which has a separate Managing Director and Financial Director who work as a separate entity in one of the four locations. The companies manufacture precision ball bearings and gearing systems for the national and international motor, nautical and aero industry. Typical cost of product ranges from £20 to £10,000.
The structure of the company consists of a board (operational), regional managers, operational employees including warehouse, distribution, a field based sales team as well as internal tele-sales and within finance client account handlers. The security officer reports to the Financial Director. The security manager and HR reports to the Board annually and has two security guards at the main depot where the raw materials and products arrive (goods in), where the products are manufactured, stored and then dispatched to Regional Depots. The second company has only office functions and limited staff.
For effective security to be in place at any organisation there is a need for the issue to be driven from the senior individuals. Whilst new legislation under the Companies Act 2006 puts a greater emphasis on risk and security requirements many boards will still see security as an additional cost and comply
“ Association of Certified Fraud Examiners (ACFE) 2006 survey….about those who commit internal fraud is this: 92 per cent have no prior criminal charges or convictions related to fraud”.(Coenen 2008:27)
“Employees steal when the conditions permit them to steal”(Weiner 1997:17)
If the security manager and HR cannot obtain strong support from the senior individuals within the organisation and reasonable operating budgets then the foundations are not strong to begin with. This sentiment transcends all industry sectors.
“Employee theft may well have a greater impact on losses than national and company indicators suggest. This is likely to mean some change in the traditional emphasis of security departments to focus on staff deviance.”(Bamford 1998:138).
If you have senior support then there is a requirement to be a proactive organisation and to create a culture to discourage theft.
“To discourage fraudulent behaviour a company must be clear about rules and expectations, and take action when a fraud is committed. Management must emphasise the importance of internal controls and adherence to policy and procedures.” (Coenen 2008:44)
Therefore it may be problematic to obtain senior support and to have a proactive security policy and not pay ’lip service’ to the requirement. Senior managers and board members will commit thefts individually, in collusion with another individual or collectively as an organisation. As a security manager and HR will usually not be privy to board meetings and board information it is unlikely that the security manager and HR will ever discover such offences. Even in organisations where the security manager and HR is included in all board meetings and decisions he may not have access to such business information that allows the offender to commit the offence.
In our fictitious company the Financial Director has approached the Managing Director and requested to opt out of the company pension scheme and have an increase in salary. This is agreed and the Financial Director arranges this within his post profile role. He purposely fails to actually stop receiving the pension contribution and therefore receives his pension and wage increase. As Financial Director no other individual in the organisation will know or have reference to this.
Also within our organisation the Managing Director and Financial Director of the second company have created their own company in their wives’ names and are purchasing products legitimately through that company and during their working hours are actually running their own company and visiting customers. Those customers are their employer’s customers and they are selling the same product at a reduced rate, as they have limited overheads, including no wages, company vehicle, fuel, no staff etc; and they operate on almost pure profit while decreasing the profitably of their employing company. There would be no or very limited opportunity for the security manager and HR to identify this, as it is at a level where they do not usually operate and also as this theft involves two senior individuals working in collusion makes the discovery of the offence very difficult.. This collusion also allows them to remain undiscovered by the parent company board.
“…as collusion is a lower risk activity than other staff or customer theft, the rational criminal attempting to optimise gains at low risk would be expected to desire a considerable level of involvement in it.” (Bamford.1998:129)
As an organisation there are occasions of frauds which occur and are sanctioned at senior level to increase, maintain or sustain the profitability of that organisation, and the media and literature is strewn with examples. Those very companies may well have proactive security procedures and envious budgets. While these organisational offences may involve bribery, for example via third party agents for contracts and / or foreign corruption this may be seen as a business necessity and at this level there may be no information available to the security manager and HR concerning these practises.
“They learn how to commit certain types of offences and how to rationalise these offences so that, in the offender’s mind, they are seen as acceptable, ordinary and necessary business practise. Thus a white collar criminal permeates the world of business.” (Benson & Simpson 2009:55).
The first occasion the security manager and HR may know about this is when an external investigation is commenced by the Serious Fraud Office or similar. The security manager and HR is more routinely engaged in the more easily recognisable roles of ensuring that product and assets are secure. Whilst this is the majority of the working remit this provides difficulties in the role. In ensuring good security on the whole for an organisation the security manager and HR will introduce all manner of situation crime prevention measures. Some of those will be technical, mechanical, procedural and operational.
“situational prevention comprises opportunity reducing measures that (1) are directed at highly specific forms of crime, (2) involve the management, design or manipulation of the immediate environment…..(3) make crime more difficult and risky, or less rewarding and excusable as judged by a wide range of offenders.” (Pontell & Geis,2010:614).
Whilst these methods will be effective against the majority of external crimes, they may be much less effective against internal thefts. Benson and Madenson, Situational Crime Prevention and White Collar Crime examined the use of situational crime prevention in the white collar crime sector and in concluding established that “the first step is to develop a detailed understanding of the opportunity structure of particular forms of white collar crime, and the second step is to figure out the simplest and most cost effective way of altering opportunity structures”. (Benson & Madenson, 2009:11)
Into white collar crime we will include all employee theft. Within our fictional company the stock is held and transported by the goods inwards team, warehouse operatives and logistics team. Whilst there are issues that will be problematic to the security manager and HR, they are not insurmountable. When the author has investigated theft of stock within companies there is a very high proportion of offenders who work within those stated fields. In simplistic terms they have access to the stock and reasonable opportunity to move it legitimately or not. They also understand the working procedures and see the theft opportunities.
“employees handle cash and goods in order to do their work, they know the weaknesses of a companies’ administrative systems, and they can recognise (and may well be friendly) with supervisors, managers and security staff whose role is to protect the companies’ assets …..” (Bamford 1998:126)
An investigation in Middlesex by the author showed this to be the case with the warehouse manager arranging the thefts in collusion with dispatch divers and warehouse operators. He was also able to manipulate the manifests of stock in, stock held, stock out and scrap.
With large numbers of employees, much stock in transit and storage, it is not possible for the security manager and HR to be monitoring all movements, as this responsibility is delegated to managers who are perceived as being honest and they form part of the security chain. With dishonest individuals in prominent positions,in authority or in the business chain (at a lower level of authority) then the company becomes vulnerable at particular points of weakness. These weak points highlight the problem for the security manager and HR when authority is delegated to the responsibility of others.
“In the dispatch department, it was the same story. ‘The wholesale boys’, one said, ‘are up to all the tricks. ‘They all’, the others agreed, ‘make a bit on the side’.” (Ditton1977)
The values in these cases can be considerable and the Middlesex enquiry revealed eventually that £150,000 stock had been taken and sold via internet sites. This was via auction sites and self-administered and purpose built sites.
Employees make a rational choice (Felson and Clarke,1998) to commit crime. These individuals are not, in their mind, criminals in the usual reference to crime. To them they are law-abiding and a criminal is an individual who steals cars or commits burglaries and the like. They rationalise their behaviour in their mind, they have the opportunity to commit the crime and they have the reason to commit crime, as in the fraud triangle presented by Cressey (1953). Often the reason is purely for financial gain to themselves and this issue will transcend a company from a cleaner on a minimum wage to a CEO on a high salary with share options and benefits.
Despite the efforts of a security manager and HR to target harden, increase the risks, enforce access control, natural surveillance and CCTV, the employee will identify weakness and have an opportunity to steal. The aim for the security manager and HR will be to introduce those situational crime prevention methods that will reduce the willingness for the employee to make the rational choice to steal.
This indicates another problematic area for the security manager and HR and this is the ease for the offender to dispose of their stolen products. Within the last decade there has been a massive increase in the ability for individuals to use the internet. Individuals can sell items on auction sites and set up simple websites with ‘pay options’ and these individuals and employees’ identities are not known via public records. We have created the opportunity for ‘criminal entrepreneurs’, who can steal a product and sell it without general identification to the public anywhere. They are able to run as an efficient business incorporating many business facets to increase their profit margin.
“We found very little evidence to support the hypothesis that employees become involved in theft because of greater economic pressure.” (Hollinger & Clarke 1983:61)
Initially there is the theft of the products: no costs for manufacturing, employees, raw materials or utilities. The website allows ease of customer access, ease of payment and then a simple distribution via post or courier to the customer. The item should arrive within a day or so and it has been a simple and pleasurable customer experience. There are additional benefits for the offenders / employee, as the carriage costs are passed to the customer, increasing profit, and on many sites there is a facility to ‘rate your shopping experience’, therefore affording the offender / employee references promoting their business. As business expands so the employee thefts increase. With our fictitious company this would be a simplistic operation for many departments and the author has had an exact replication of such a theft operation with a machine tooling industry and the stolen products being shipped to the Asian markets.
The security manager and HR have very little opportunity in identifying the business practise and if they do they have the problem in identifying the individuals behind the website or the sellers on the Internet auction sites. Taking society as it is today, this practise can almost be seem as applying to the ‘Anomie Theory’ (Durkheim 1952). This method is becoming accepted as the normal practise in the criminal fraternity, reducing the need for the ’handler’ of the stolen goods, and allowing more bespoke employee thefts, such as theft of precision ball bearings or gearing systems, as per the fictional company and for the benefit of the offender to make financial gain, therefore the employee can be drawn into the ‘crime’, interpreting and rationalising it as some form of entrepreneurship without a victim.
“ ….the pressure to succeed could be so powerful that it impelled people…..to bypass legitimate careers and take to illegitimate careers instead.” (Rock 2007:10)
Within our fictitious company one of the field sales team is running an unrelated printing business within his employer’s time. Whilst his role dictates that he visits existing customers and generates new customers, he will have a degree of autonomy. He will report directly to a first line supervisor and generally if sales are satisfactory or good then his activities may well go unnoticed, leaving him free to run his business in a profitable and legitimate manner.
As with the activities with the Managing Director and Finance Director highlighted earlier there will be reduced operating costs for this sales employee. In addition to the cost to the employer regarding those transferred operating costs there is the daily issues of theft of time by that sales employee who is not devoting his full time to his employed role. If the time were totally devoted then the likelihood is that the employer’s sales will be higher and the profit margin is higher.
As this issue is ‘wrapped up’ in the operations of the organisation the security manager and HR may not be aware of such an issue unless this is brought to their attention directly by the sales employee’s supervisor. Often that line supervisor will not be aware of the practise and if discovered may challenge the employee without having first gathered all of the available evidence to support a discipline action which may result in dismissal. Failing to gather that available evidence, and in the correct manner, may have higher cost implications to the employer through prolonged legal action and / or employment tribunals.
“Fiddling was practised by most, not just a few salesmen.” (Ditton,1977:9). The case would be replicated if the employee were absent on ‘long term sick’ and running a business. The onus would fall on the Human Resources team to deal with the issue and consequences could be the same.
To deal with the many problems the modern security manager and HR may face, they will need specialist outside support from an external resource. Even within the largest internal security teams in the UK, such as some financial and Government institutions they will need external specialist support. Many security managers have significant numbers of staff, usually within audit, uniform guarding, front of house, CCTV monitoring and IT support. Using specialist outside support can also be problematic as this immediately raises two issues. Firstly there is an additional cost of introducing external specialists and secondly some external specialists are not actually very specialist. When introducing external specialists there would need to be evidence of a specific crime because the cost would be prohibitive to use these on ’fishing expeditions’.
Costs can be £1500 per day for a surveillance operation, £500 to £1000 per day for Internet identification research, £2000-£5000 per computer forensic examination, £1500-£2000 per day technical sweeps (de-bugging) (Information of costs supplied by Expert Investigations, Risk Management Detective Investigation Agency.)
Use of external specialists is very useful to help security manager and HRs in areas outside their expertise and resources. This may be use of forensic accountants, surveillance officers (private investigators) or computer forensics services. Whilst the accountants and computer forensics are regulated and authorised, private investigators are not. Private investigators should be regulated under the Securities Industry Act 2001,but as yet are not. Without regulation the security manager has the problem of ensuring that any private investigator is capable of fulfilling their requirement.
“In some media representation they (private investigators) are shown as willing to engage in any kind of deceitful practise. This stereotype is not without some basis of fact. Like policing, security work has a high opportunity factor and strong pressures for misconduct.” (Prenzler.2006:429)
The security manager and HR has had to evolve in the modern world into a multi-faceted individual. It is no longer sufficient to just ‘lock down’ facilities. There is a need to understand crime and criminals whether they be internal or external to an organisation. They have to understand the organisations business, understand the vast opportunities for crime and identify how they may occur. Once identified there may be a requirement for extensive knowledge in preventing the crimes, detecting the crimes and disrupting the crimes. This will be via situational methods(Clarke,1992,1997;), crime prevention through environmental design (Crime prevention Through Environmental Design (CPTED): (Cozens, Saville, Hillier, 2005), external resources, specialist knowledge.
“Employee theft may well have a greater impact on losses than national and company indicators suggest. This is likely to mean some change in the traditional emphasis of security departments to focus more on staff deviance.” (Bamford.1998:138)
In summary the essay seeks to establish that the role of a security manager and HR will be different across various organisations, sizes, industry areas and varied in the roles. The security manager and HR will have to deal with crimes committed by external offenders, who will have a specialism for the crime they effect against a particular organisation, from terrorism to vehicle crime on company car parks. In many respects these are easier to prevent, detect or disrupt with a reasonable budget and managerial support.
Where the issues becomes more problematic for the security manager & HR is the ‘threat from within’ the organisation regarding employee theft, which accepts the definitions by academics but for this essay encompasses all employees under the banner of ‘employee theft’.
The security manager will need strong support from the board and senior managers to drive a security policy forward. This will require budget and resources which will not usually be given readily to ensure that a full security requirement can be fulfilled. The security manager and HR will usually be distance from illegal board level business and individuals at board level criminal activity and the absence of the information and relationship will prevent detection of such criminal offences. Once identified these can be significant in costs but also reputation for the organisation.
By loosely looking at a fictitious company the essay shows only some of the wide ranging offences that can be committed by employees below the board. Whilst specifically not examining cybercrime, identification frauds, long firm frauds, theft of cash and contamination or sabotage various routine thefts were highlighted which have been subject to real investigations by the author. The problems for the security manager occur in several forms and initially there is a requirement that links in the security chain are held with individuals who themselves are the offenders or involved in the offences.
In addition the situation crime prevention techniques are more geared for the external offender as the internal employee thief will identify weaknesses around those methods and also that the offence of theft of product especially is aided by the fact that the offender has a role that allows for movement and transportation of product. The problems increase for the security manager and HR as there is now a ready and simple marketplace for any type of product or service via the internet and they will have very limited capability to identity the offenders. Indeed investigative support from the police in commercial crime is very limited as the police do not have the budget or experience in dealing with internal employee thefts and frauds. There is now a culture of ‘criminal entrepreneurship’ creeping through the commercial sector committed by employees.
Within the organisations the security manager and HRs supervise, issues will arise within certain employment fields that require internal supervision and decisions from other departments. If an employee theft is taking place in a more ‘discreet’ manner via working for yourself within your employers time, or whilst absent from work, then this usually will go undetected as the relevant departments do not envisage the potential for offences or understand the need to treat it as a security and investigative issue.
Conclusion
It has to be accepted that in today’s society the role of the security manager and HR has changed. There are more opportunities for offences to be committed and in many more ways. The manager has to understand all of those areas and although the security manager and HR should be a highly skilled individual it is not possible to hold all of the key skills and specialisms and as a consequence external support will be required. There can be sub-standard external resources being supplied in an unregulated industry, as highlighted with private investigators and the second issue is again a high cost on utilising such external resources, which may make such investigations prohibitive.
“It is always debatable whether the offences and offender whom we detect are the same as the offences and offenders who escape detection.” (Benson & Simpson.2009:27)
Despite highlighting some of the problems facing the security manager with internal employee theft, they are not insurmountable. With strong support, good management, proactive procedures, good staff and colleagues, the right external support and a dedication to duty the security manager and HR can reduce internal theft, detected internal theft and disrupt internal theft. In the absence of a suitable means to measure internal theft and fraud one question will always be problematic to the security manager and HR. “How much theft and fraud is occurring and from where?”
References
Bamford. J (1998) ‘A Breach of Trust: Employee Collusion and Theft from Major Retailers’.Palgrave Macmillan
Benson.M.L. & Simpson S.S.(2009) ‘White Collar Crime. An Opportunity Perspective.’Routledge, Taylor & Francis Group.
Coenen.T.(2008). ‘Essentials of Corporate Fraud’. John Wiley & Sons Inc
Cozens, P., Saville, G., Hillier, D. (2005), “Crime Prevention Through Environmental Design (CPTED): a review and modern bibliography”, Journal of Property Management, Vol. 23 No.5, pp.328-56.
Ditton,J .(1977)’Part Time Crime, An Ethnography of Fiddling & Pilferage:The Macmillan Press Ltd
Hollinger.R.C & Clarke.J.P ‘Theft By Employees’.Lexington Books
Pontell.P.N & Geis.G.’International Handbook of White –Collar and Corporate Crime’. Springer
Prenzler.T.’The handbook of Security.Private Investigators’.PalgraveMacmillan.
Rock.P “The Oxford Handbook of Criminology” .Oxford University Press
Weiner.A (1997). ‘How To Reduce Business Losses From Employee and Customer Fraud.’Almar Press.
