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VAS

Taming employee theft

BUSINESS UNUSUAL
By | April 12th 2012

By John Kariuki

Abraham Njoroge is a retailer and wholesaler for consumer goods in Nakuru. According to him, the 80s was a good decade and businesses flourished. But when he did his accounting, Njoroge realised that his returns always fell short of his expectations. He installed human sentries at strategic corners of his premise to discourage shoplifters and ordered a mandatory check on all staff at the end of the day. But his sums never added up.

Njoroge invested a fortune in a then novel closed circuit television circuit (CCTV) surveillance system. The system was installed over a public holiday and nobody knew of its existence. The monitor was installed in his office which he always locked while away. This business owner would periodically glance at the monitor of the CCTV and catch his employees at their antics.

"It was unbelievable to spot even my managers hiding things away so that they could walk out with them later," says Njoroge.

He says that the favourite trick was for his employees to hide small items in their overalls and head straight to the parking lot where they would hand these over to their waiting accomplices. So Njoroge decided to walk out to anyone who had pocketed an item, and conversationally ask him or her to surrender it.

"Everybody would be shocked when I would describe the stolen item and pull it from whenever it had been hidden. I gained notoriety amongst my staffers as dabbling in magic," says Njoroge.

With Njoroge’s newfound mystic status, the pilfering stopped immediately and his figures began adding up. But before anybody could demystify his source of magic, Njoroge moved fast.

"I used the lull to vet my staffers and change their attitude, both of which are the surest ways of taming theft than electronic gizmos," says Njoroge.

There are as many tricks that a business can use to tame employee fraud. This is because the cumulative effect of employee theft on small to medium firms can be devastating on a firm’s bottomline. With the twin challenges of competition and financial constraints, no business can ill afford to ignore the problem of employee theft.

Ingorant

Unfortunately, many Kenyan entrepreneurs are ignorant about threat posed by employee theft and regard it as part of the cost of doing business

But James Kioko, a financial analyst with one accounting firm, says that while all forms of theft cannot be eradicated, most can be minimised with a little effort.

"Most small to medium businesses have poor management and monitoring systems, presenting an easy opportunity for theft to occur," says Kioko.

He points out that the worst culprits are usually the loyal staffers, because business owners refuse to imagine that such people could conspire to defraud them.

"Frequently, many employees may be in financial distress and they resort to stealing or embezzlement to make ends meet," says Kioko.

He warns business owners to review their employees’ salaries and terms of work frequently, and foster the right ethics in them since lack of foresight may breed fraud.

"Some employees may be greedy and rationalise that since a business is making a lot money and the boss pays them so little, they have a right to stealing to make for the shortfall in their expectations," says Kioko.

Kioko says that often some business owners unwittingly set themselves up for theft by their careless utterances and their little acts of opulence. He remembers a client whose enterprise suddenly nosedived when all market indicators favoured an unprecedented growth on account of employees’ theft.

Forgetting workers

"The problem was that the business owner lived in the happy times alone, forgetting his trusted employees at the crest of his success," says Kioko.

The man took up new and expensive habits like drinking, extra martial affairs and gambling, all of which were done in plain sight of his staffers.

"He changed from a dilapidated car to a top-of-the-range sports utility vehicle and moved house to a larger one in a salubrious estate while extolling the virtue of perseverance to his staffers whose salaries remained at rock bottom," says Kioko.

According to Kioko, the final straw came when his client was boasting of the neat balance that he had in the bank. This loose talk pushed his staff into defrauding him of huge amounts of cash.

Kioko says business owners should implement appropriate internal controls to reduce employee theft.

"These controls include structured information flow so that people know only what they need to, proper accounting records and swipe cards and thumb prints to open office doors and to unlock computers," he says. Other safeguards are encrypted flash discs and so on.

"To be effective, these controls must reflect an understanding of who is likely to steal from the business and how he or she might do it," he says.

Additionally, he says, internal control procedures must be used in a consistent manner, and there should be no exceptions in their application. The system must also be able to cope with the ever changing areas of threat and employees’ ingenuity.

There are numerous examples of businesses that managed to curb employee fraud. For example, some hoteliers design uniforms without pockets for their staffers to discourage soliciting for tips and irritating guests. Others have perfected fool proof "quality control checks" by sampling food to ascertain its consistency and deciding whether if the ingredients have been stolen. Some matatu owners demand a set amount of money and a full tank of fuel daily come rain or shine.

Supervision

Meanwhile, some business owners demand bank statements regularly and cross check these against all deposits made by their accounts clerks, clients and business associates. And to disconnect any possible web of conniving partners that may conspire against a business, most businesses send a person upfront to take orders, send someone else to deliver the goods, and then use a third employee to collect payment later.

Cosmas Mageto, a Nakuru pub owner, says that he has discouraged staff theft by sticking to an old tradition.

"I do the stock taking the old fashioned way where we count every bottle of beverage and stick of cigarette when my staffers are changing shifts," he says.

To remove any risk that his staff might substitute his official stock with theirs, Mageto signs bottles of spirits, a fast moving product, on the display counters, and demands to see the empty bottle while stock taking.

Further, Mageto gives his waitresses some refundable ‘float money’ at the start of business with which to buy beverages from the counter as customers order them.

"This way, the waitresses are fully in charge of their orders and everybody takes responsibility for his or her shortfalls," says Mageto.

Ms Hannah Wanjiru, a beauty therapist in Nyahururu, says that the best way to stem employee theft is by creating a climate that supports and reinforces values like honesty and integrity.

"I communicate clearly and often with my girls so that everyone understands my definition of theft and the consequences of it to them and to my business image," she says.

"Whenever a customer forgets an item like a mobile phone, purse or an umbrella at my premise, I make a point of rewarding the girl who sees it and keeps it safe," says Wanjiru.

Wanjiru advises business owners to practice the values that they preach to their employees.

"If a business owner deviates from such values even slightly, the employees will see that these values are merely for window dressing and get back to their old selves," she says.

Careless and half hearted internal controls may provide an attractive inducement to would-be thieves. This calls for business owners to constantly review and upgrade their systems. However, great care should be taken, lest one becomes a control freak and loses sight of his or her business objectives.

Finding the appropriate level of internal control, therefore, is a critical management responsibility requiring one to use his or her employees’ prevailing culture and customs and plain, good judgment. This task may be especially difficult for a small business due to two reasons: not enough staff and too little money. This is where creativity comes in.

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