Chapter 19
Internal Threats to an Organization
Abstract
In this chapter, students will discover how to uncover internal theft. This is accomplished by noticing the indicators of theft, which include inventory shortages, evidence secured during investigations, and information received from other sources. Three elements of theft are emphasized, along with recognizing the characteristics of a dishonest employee.
Keywords
Embezzlement; Inventory; Need/Desire; Opportunity; RationalizationMany would argue that security officers can do little to prevent or deter threats to an organization by its employees. However, an observant and properly trained security officer can assist in uncovering intentional theft.
Most security professionals would agree that losses from employee’s dishonesty (theft) are far greater than nonemployee loss. Employees who are trusted completely are in excellent positions to steal from a company without being caught. Companies that develop a policy that clearly states that dishonesty will not be tolerated have taken the first step in coping with the increasing problem of employee theft. Security experts say that as many as 30% of the average company’s employees do steal, and another 60% will steal if given a motive and opportunity. Some estimates indicate that more than $50 billion is stolen annually, or roughly $4500 per employee. According to the U.S. Department of Commerce, about a third of all business failures each year trace back to employee theft and other employee crime.
Many companies are uncomfortable dealing with and addressing this serious problem for several reasons:
1. Executives do not believe the problem exists.
2. If they believe it exists, they are unsure of what to do about the problem.
3. Executives simply believe there is nothing that can be done (cost-effectively) to solve the problem, so they consider theft a cost of doing business.
4. Executives believe that more serious problems occur when a theft investigation is conducted, such as problems with the union, employee morale, fear of a “witch hunt”, and too many people losing their jobs. They think the business “just can’t afford that”.
5. Executives are concerned that the investigation could involve key people: “People who live in glass houses should not throw stones!”
Theft indicators
Security professionals generally agree that indications of theft almost always come about in one or more of the following three ways:
1. Inventory shortages
2. Evidence of other indications discovered during facility inspections (e.g., holes in fencing)
3. Information received (anonymous letters, calls)
Inventory shortages are normally revealed at the end of the year when an annual inventory is taken. Some companies conduct inventories on a more frequent basis. In fact, some companies maintain a perpetual inventory. This means that on any day, information should be available that would inform a person that the inventory or amount of product not yet sold is the same as what the paperwork indicates. Provided the inventory is the same as the paperwork, shortages would not be revealed. If there is less inventory than what the paperwork reports then a shortage exists. This would be called a negative variance for the inventory. If there is more inventory than what the paperwork shows, a positive variance exists. Just because an inventory shortage exists on paper does not mean there is in fact a shortage. It also does not mean theft is occurring. Normally, financial auditors will attempt to determine the reason why the paperwork does not match the inventory. Sometimes, explanations are found, which indicate that theft does not exist. However, explanations are not always right. Therefore, many times, investigations are begun by a security manager or investigator. Many times, a security officer will not even know the results of the inventory.
Evidence or other indications discovered during facility inspections may imply theft is occurring. An observant security officer may notice evidence of theft during routine patrols. A security officer may see that the fence has been cut or that outbound truck shipments of goods are occurring at unusual times. A security officer who changes the pattern of his or her foot patrols may stumble into a theft because they surprised the thieves. A security officer can be of great help in the detection and prevention of theft by learning their job completely. This includes knowing exactly what he or she is supposed to do regarding the use of all logs, such as:
• Incoming/outgoing vehicle reports
• Visitor and outside contractors’ reports
• Property passes
• Incident reports
Another important way to uncover evidence that may indicate theft is occurring is to conduct package/lunchbox inspections, as well as vehicle inspections as employees and visitors exit the facility. In Chapter 20, you will learn what legal requirements (if any) must first be considered before conducting inspections. However, if you are expected to conduct package inspections, they should be conducted in a thorough manner. Large thefts have been uncovered because a security officer noticed an employee or visitor trying to carry property out of the building without proper authorization. Package inspections are only effective if they are conducted on a regular basis and only if a clear policy exists that explains to all employees and visitors the reasons for the inspections, how they will be conducted, and penalties for persons who violate the policy. Violations of the policy include attempted theft and refusal to submit a package to inspection by a security officer. If a clear policy does not exist, package inspections are virtually useless.
The third indication that theft may be occurring is information received. Sometimes, a security officer may receive information from an employee that theft is occurring. The job of a security officer is to report the information to his or her superiors. A security officer is not to try to verify for himself or herself if the information is true or not. A security officer can gain respect and esteem from superiors by reporting this information in a timely fashion without opinion or conjecture on the part of the officer. As Sgt. Joe Friday used to say in the television show Dragnet, “Just the facts, ma’am”. Sometimes the information is accurate, sometimes it is not. It is not the job of a security officer to determine this. Report the facts and give an opinion only when asked.
Symptoms of dishonest employees
There can be many indicators that an employee is stealing from their employer. Some of these indicators or symptoms may be evident to a security officer. Remember, these are just indications a person may be stealing. Unless you know for certain that an employee is engaged in theft, do not assume that they are stealing.
Employee appears to live beyond their means
A person may appears to have a lifestyle that may indicate they are receiving money from another source, separate from their job. A person who drives an expensive car, takes luxurious vacations, or who just spends money recklessly may be involved in theft. However, the person may earn a lot more money than you think. Also, the person may have a spouse that earns a lot of money, have a wealthy family, have inherited money, or have won the state lottery. Whatever the reason, the security officer would be very wise not to guess. If you observe lifestyle patterns that appear strange, your observations should be reported discreetly to your supervisor. Your observations and/or opinions should not be discussed with anyone else. A person could be charged with ruining a person’s reputation by careless comments. Be observant though! You may see a behavior that indicates a serious problem exists.
Dislike for policies and procedures
Some persons who steal never like to follow policies and procedures and always do things their way. Once again, this is only an indication of possible theft. Never assume a person who dislikes following procedures is a possible thief.
Bitterness toward the organization
Persons who decide to steal sometimes tell themselves that they deserve more from the company. Perhaps they feel they should have been promoted or they should receive more money for their work. May be they are jealous that someone else has a better job. Regardless of the reason, many employees who steal are bitter at the company for one reason or another. Stealing is their way of “setting things straight”.
Gambling habits
In almost every organization, some limited form of gambling is always present. Gambling may take the form of football pools or could be more serious, such as “numbers” games or illegal horse race betting. Some people play cards every week for enjoyment and win or lose very little. However, much like alcohol addiction, some people become hooked on gambling. When this occurs, a person will eventually suffer losses. They may not be able to cover their losses, so they begin to steal from their place of employment. Again, this is not to say that people who gamble are thieves. This does mean that people who gamble and lose a lot are more likely to steal than persons who do not gamble and lose money. If you ever learn of or receive information that a person has a serious gambling habit, discreetly report this information to your supervisor.
Alcohol/drug abuse
Persons who have an alcohol or drug addiction may steal from an organization because of their habit. As in the previous examples, if you receive information, report it to your supervisor.
Elements of theft
In almost every employee theft situation, the following elements are evident with the person:
• Need or desire
• Rationalization
• Opportunity
Need or desire
Need or desire refers to the fact that people steal for a reason. People may steal because they have a problem (e.g., alcohol/drug dependency, gambling habit) that they do not share with anyone else. They may have a psychological need to steal—perhaps the person is a kleptomaniac or has some other form of mental illness. Finally, they may just have a blatant criminal tendency or habit whereby they steal for no apparent reason other than for personal gain.
Rationalization
The human mind can rationalize or explain the reason for any type of behavior. Theft is not different. People who steal tell themselves that they are good people. They rationalize their stealing in several ways:
• “I only took what was being thrown out.”
• “I was only borrowing it.”
• “It’s ok, I’m underpaid.”
• “Management gets their bonus. This is mine.”
• “It’s all right. I see the boss do it.”
Naturally, none of these rationalizations or excuses makes it all right to steal. People make up these excuses because they do not like to think of themselves as bad or evil people. They tell themselves they are not thieves because the reasons for their actions are right. These people are not facing the facts. Theft is theft. No amount of rationalization will make the thefts acceptable.
Opportunity
Opportunity is the final element of theft to be reviewed. The opportunity for theft is an element that an observant security officer can help reduce. You have probably heard someone be called an “opportunist”.
This person takes advantage of an opportunity. Perhaps this person is a shrewd consumer and only buys things when they are on sale or after they have been on display for a long time. A thief who is opportunistic takes advantage of the situation. A thief who steals a car that had the keys left in the ignition may be called opportunistic.
An employee thief who carries a computer out an unlocked door after business hours may also be called opportunistic. As a security officer, you will see conditions that if not corrected can make it very easy for a theft to occur unnoticed. Learn your job well! Learn what is routine and what is not. Learn what doors and offices are to be locked. When you find them unlocked during the time they should be locked, examine the situation more closely. If you cannot find someone with authority who can explain the reason the doors/offices are unlocked, lock them! Write down incidents or people who seem to be out of place. People will usually steal only when they believe they can do so without being observed. An alert and effective security officer may prevent theft simply because they are diligent. This means they follow their procedures consistently at all times. They enforce the rules and regulations with everyone with whom they come into contact. This type of security officer is on top of their job. This security officer earns their pay!
Types of internal theft
Although a security officer may be limited in discovering internal theft, it is valuable to know the types of theft.
Money and financial items
Areas that are prone to theft include cash offices, accounts receivables, petty cash, and cash disbursement departments. A security officer should be familiar with the physical location of these areas. If an officer is expected to routinely patrol through these areas, they need to know which offices and cabinets are to be locked. Whenever found to be open, the areas should be locked and a report submitted. Items such as cash, airline tickets, and payroll checks could be stolen. Thorough patrols and effective package inspections are two areas where the security officer can aid in loss prevention of financial items.
Merchandise or material
A security officer may discover merchandise or material thefts during routine patrols. Officers who work in wholesale and retail establishments that sell goods to the public are more likely to be better trained to spot possible theft because goods are normally stacked on shelves. Goods which are prone to theft include computers and related accessories, smartphones, and automotive parts and accessories. However, the list can go on and on. In brief, anything that is popular and that is purchased by many people is likely to be stolen.
Material thefts may include anything that is used in the manufacturing of a product. Metals such as copper, aluminum, silver, gold, and titanium are prone to theft. Tools of all types, along with maintenance supplies (gloves, light bulbs, extension cords, etc.), are also likely to be stolen.
To deter and prevent material and merchandise thefts, organizations implement internal controls that are often directed from the finance or accounting department. Even with controls, theft occurs and is often covered up by inflating the actual quantity of product during inventory. In addition, damaged items are often stolen and are either repaired or sold as new. As stated often in is manual, a security officer can greatly assist his or her organization by being alert. A security officer should check trash and scrap bins on a regular basis. Thieves will often hide their goods in trash or scrap bins with intentions of returning later to recover the items.
Embezzlement
Embezzlement is a criminal offense. It occurs when an employee who has been given authority to use company property as part of their job decides to take control of the property and use it for their own benefit. Usually, money is thought of when the term embezzlement is used. A payroll clerk who issues payroll checks but then begins to steal checks would be guilty of embezzlement. Many other internal theft incidents may be considered embezzlement.
Theft of time
The theft of time by employees is a serious problem that affects American business. Employees reporting off from work for sickness who are not actually ill is an example of time theft. However, it is not a security officer’s responsibility to investigate. A security officer’s responsibility in reporting theft of time occurs when an employee deliberately bypasses control procedures, such as signing in/out of the facility. If a security officer is aware of an incident of this type, it should be reported to the security supervisor. An employee may either refuse to follow recognized time reporting procedures or falsely input their time. Provided the security officer reports the incidents to their supervisor, there is nothing more to do.
Theft of information (industrial espionage)
Theft of information is a major problem, especially for companies in highly technical industries. As one company develops a new product, a competitor may be trying to steal it. As discussed in the section on theft of money, a security officer cannot do much to prevent information theft. The officer can be certain that doors and office areas are locked during required hours. The officer can be certain to challenge persons in highly sensitive areas during nonbusiness hours. The officer can be certain to obtain proper identification from all employees and visitors entering the facility. Finally, the officer can be certain to make appropriate package inspections of all articles that leave the facility. This assumes that the organization has a package inspection policy and the officer has been properly trained to enforce the policy.
Internal theft can also be committed by computer fraud or within the purchasing department. Security officers will not normally be involved with computer security. Theft problems in purchasing could occur as a result of supplier companies receiving contracts because they are bribing or supplying “kickbacks” to purchasing employees. A kickback is when a supplier gives money or gifts to the person who awards the contract. Kickbacks are illegal but still occur. Security officers can offer no real assistance in preventing this form of internal theft other than reporting any suspicious activity or information.
Theft deterrent strategies
Hopefully, the organization where you work as a security officer has a strict policy regarding employee theft. In addition, a policy should exist that tells employees how to conduct business with suppliers. Many companies have a code of business conduct. The code addresses proper and improper behavior. It also explains under what conditions, if any, an employee can accept gifts or entertainment from a supplier. Often, suppliers try to influence purchasing department employees by giving them expensive gifts, offering free use of vacation homes and a number of other illegal inducements.
Other theft deterrent programs include the screening of all applicants for employment. This screening may include the applicant’s completion of a paper-and-pencil honesty test or some other psychological exam. Reference checks and background investigations could also be completed on applicants. These checks may uncover that the applicant is not suited for work because of past dishonesty.
Package, vehicle, and locker inspections
Nearly every private security officer in most states has a legal right to conduct inspections of material that any employee or visitor is carrying into or out of a facility. However, to be effective, a written inspection policy addressing what is subject to inspection should be communicated to all employees and visitors.
Some businesses may have entered into agreements with their employees, or unions that represent employees, that inspections will be restricted or conducted only when there are reasons to believe a theft or loss has occurred. Other organizations may reserve the right to conduct inspections randomly, without any notice or reason provided.
As previously discussed, the Exclusionary Rule, which authorizes lawful searches by law enforcement officers and some commissioned private security officers, does not apply to most private security officers.
“Plain view” searches are not really considered searches because articles or suspected stolen property are in plain sight. This may be the case when a security officer stops a vehicle exiting a facility and can see tools that are in his or her plain view. The security officer has the right to have the person stop and provide proof or evidence that they either own the tools or possess the proper authorization to remove them.
A commissioned private security officer has the same authority as a public police officer. With regard to searches, courts have ruled that private security officers who have been commissioned have the same powers as regular police officers.
Searches by noncommissioned private security officers must be considered reasonable and the following questions answered affirmatively:
1. Was the search justified prior to its initiation?
2. Was the search, as it was actually conducted, reasonably related in scope to the circumstances which justified the search?
3. Was a person’s “expectation of privacy” not violated?
Inspection policies and procedures
Security officers should not assume that because there are usually no legal restrictions on their ability to conduct vehicle or package inspections, they can simply perform them without prior approval or notice. It is not uncommon for many organizations to decide not to have security personnel conduct inspections because they believe theft is not a serious problem or they may feel that inspections violate an unwritten right of privacy expected by many employees.
Usually, vehicle and package inspections are implemented after a series of thefts where the employer has lost property or other valuable assets. The following is recommended when instituting an inspection policy:
1. Define the reasons for wanting to implement the program.
2. What are the objectives for conducting inspections?
3. Will inspections be conducted:
a. for all persons who exit the facility (employees, vendors, and contractors)?
b. of packages, vehicles, and briefcases of persons when entering the facility?
c. every day on every shift or randomly, several times per week or month?
d. of every person who is carrying a package or driving a vehicle, or will every third, fourth, etc., person be subject to inspection?
e. of briefcases?
f. of purses?
g. of executives as well as hourly employees?
4. Post a written notice to all employees detailing the reasons for the inspection policy, the date inspections will begin, and the conduct that is expected to be displayed by all employees.
5. Define the discipline procedure that will be followed when an employee refuses to comply with an inspection. Will the employee receive an oral or written reprimand, be suspended, or terminated?
6. Determine how many security officers will be needed to conduct effective inspections. Will all exits covered? Who will act as a witness if an employee is suspected of theft or if a disturbance occurs?
7. Give clear written instructions to all security officers as to what is to be done if an employee refuses an inspection request. Security officers should never open a lunchbox or package of an employee or visitor if it is handed to them. All persons should be instructed to open the package or container themselves.
8. Security officers should make written reports of all incidents that occurred during an inspection.
9. Management personnel should immediately be notified when suspicions arise that a person has attempted a theft.
10. Security officers should be given clear written instructions as to what they should and should not say when conducting inspections and when they suspect a person may be attempting to commit a theft.
When conducting an inspection, a security officer should calmly approach a person and politely ask to see what the person is carrying or transporting out of the facility. If the person asks why, the security officer should inform the person that the company has a policy to inspect all material carried into or out of the facility. After the person complies with the request, the security officer should thank them for their cooperation.
If the security officer is conducting an inspection of a vehicle or personal locker, the employee or owner should be asked to open the locker or vehicle and to remove any material. If a question arises as to the ownership of the material, the security officer should ask the person what they are doing with the material and how did it find its way into their locker or vehicle. As soon as the security officer suspects a possible theft, another security officer or member of management should be notified immediately in order to act as a witness. In some situations, a union official will need to be present to witness a search, such as in the case of a locker or toolbox search.
Any material that is suspected to have been stolen should be held by the security officer or human resources representative and properly safeguarded under lock and key. Photographs should also be taken and a complete written report submitted by security personnel.
Summary
• An observant and properly trained security officer can assist in uncovering internal theft. The U.S. Chamber of Commerce estimates that $50 billion dollars is stolen each year from American businesses. Many U.S. businesses are uncomfortable in dealing with this serious problem for a number of reasons. Among those mentioned are the beliefs that a problem does not exist, that nothing can be done about it, fear of a “witch hunt”, or that an investigation could involve “key” people.
• There are a number of indicators of theft, including inventory shortages, evidence secured during investigations, and information received from other sources. An observant security officer may notice evidence of theft during routine patrols. A fence may be cut or a truck with goods on board may leave the facility at an unusual time. This might be a tip off of potential thefts. A diligent security officer can deter theft by knowing his or her job completely. Knowing one’s job includes noting incoming and outgoing vehicles in a daily log, logging visitors and contractors or service personnel, checking property passes, and carefully writing coherent incident reports.
• Another way to uncover evidence is through package or lunchbox checks. Package inspections are only effective if they are conducted on a regular basis and only if a clear policy exists that explains to all employees and visitors the reasons for the inspections, how they will be conducted, and all the rights and penalties involved.
• An alert security officer may also recognize characteristics of a dishonest employee. Does an employee live within his or her means? Does he or she show a dislike for policies and procedures and do things his or her own way? Does an employee openly harbor bitterness toward the organization and is he or she convinced that the company owes them something? Finally, does the employee show evidence of a gambling habit or alcohol/drug abuse? It is the duty of the security officer to report those symptoms or evidence to his or her supervisor.
• In almost every theft situation, there are three elements of theft: the need and desire to steal, rationalizations or excuses to steal, and the opportunity to steal. It is in reducing the opportunity to steal that the security officer can be most helpful. Learn your job well. Learn what is routine and what is not. An alert and effective security officer may prevent theft simply by being diligent.
• A security officer is limited in discovering internal theft but can notice cash or petty cash available in an office, goods such as computers that are accessible, and employees who steal time from a company by not signing in or signing out. Any irregularities should be reported and noted in daily logs.
• Many organizations are now using codes of business conduct. They are also screening applicants for employment by conducting paper-and-pencil honesty tests or some other psychological testing programs. But after all is said and done, it is the alert, well-trained, and diligent security officer that can help with the problem of internal theft.
Exercises
1. During a routine exterior patrol of the facility you notice valuable finished product has been placed in an isolated area near the employee parking lot. What do you do?
2. You receive information from an employee who wants to remain anonymous that five engineers recently attended an out-of-town football game with tickets and entertainment provided by a vendor. The informant states that the costs far exceed the company’s limit on accepting gifts or entertainment from a vendor. What do you do?
3. While working late one night you receive a phone call from a person who identifies himself as a businessman with an operation near your facility. He states that he is preparing to discard several years of paperwork and files and asks for the name of the document destruction or waste removal company used by your facility. He also asks for the time of day they arrive for pickup. Do you provide the caller with the requested information? If not, why not?
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