Sunday, May 7, 2006

What Can You Do About Retail Theft?

Hello. This week, Nolo presents an excerpt from an audio program entitled, "The Book Sellers Little Legal Companion." Although the episode is targeted at bookstore owners, you'll see that the rules we discuss regarding employee theft, shoplifting, armed robbery, and counterfeit currency, apply to the owners of any store or retail establishment.


Although studies of shoplifting show that it is most often a spontaneous decision, some bookstore shoplifting is organized and premeditated. A fictional example of this occurs in "The Adventures of Augie March," by Saul Bellow, in which the main character steals books to sell to students.

But organized shoplifting also happens in real life.
In the late 1990s, the owner of a second-hand bookstore in Northern California ran a shoplifting ring, and gave his associates "pick-lists" -- lists of books that the ringleader could resell at high prices. According to William Patrick Shelly, owner of Book Passages in Corta Madera, California, this guy's pick-list was better than the New York Times' best-seller list. The ring unraveled after one of the members was caught, and agreed to wear a wire, resulting in the bust of the ringleader at his storage facility.

There are an estimated twenty-three million shoplifters, or one in eleven people in the United States. More than ten million people have been caught shoplifting in the last five years. Here are ten things to keep in mind about shoplifting:

1. Never assume that someone making a purchase isn't also stealing. Many shoplifters buy and steal in the same visit.

2. WalMart discovered that having greeters, those friendly employees who meet you at the entrance, reduced shoplifting by as much as 35%. So not only is greeting and making eye contact with people who come in good business, it also deters shoplifting.

3. The typical bookstore shoplifter follows a predictable pattern, commonly wandering from section to section, watching mirrors and the sales staff, stacking books along the way. The most sought-after items by bookstore shoplifters are expensive art and coffee table books.

4. To cut down on shoplifting, keep open sight lines within your store, especially in the areas of expensive or popular books.

5. Don't detain anyone unless a store employee personally observed the theft. That means the employee saw the suspect take the books, conceal them, and then try to leave without paying for them.

6. Laws vary as to the extent of reasonable force you can use to detain a shoplifter, but as a general common sense rule, avoid physical contact, unless required to defend yourself. Physical contact, especially if instigated by bookstore employees, may lead to lawsuits against the bookstore.

7. Avoid detaining a shoplifter by yourself. Always try to do it in pairs, and, if possible, preferably with one bookstore employee who is the same gender as the shoplifter, to avoid an accusation of sexual misconduct.

8. If it's your policy to prosecute shoplifters, be consistent, and post your policy where shoppers can see it. Prosecuting some thieves and letting others go, no matter what your reasons, could get you sued.

9. In many states or counties, a juvenile suspect may be entitled to have a parent or guardian present when being questioned by store personnel. Check with your attorney, local merchants, or the police, to find out the rules in your area.

10. It's not uncommon for thieves to steal from one bookstore and sell to another. If you notice that certain books have disappeared from your store, you may want to alert other bookstores to be on the lookout, and to ask used bookstores if those items have been coming in. It may be a good idea to create a group e-mailing of local bookstores, to keep them informed of disappearing inventory.

Counterfeit Money and Armed Robbery

What about other types of theft? As for counterfeit currency, you can learn how to identify counterfeit bills at the website for advanced counterfeit deterrence, a division of the U.S. Department of the Treasury.

Two tips about counterfeit currency: Keep a magnifying glass by the cash register to better examine bills, and don't play hot potato -- it's a felony to knowingly pass counterfeit currency.
As for the most frightening of all bookstore thefts, armed robbery, most experts agree that the best way to keep yourself and your employees out of harms way is preparation. According to "The Retail Managers Guide to Crime and Loss Prevention," by Liz Martinez (Loose Leaf Law Publishing), the best advice for employees dealing with an armed robbery is to: give the thief what is demanded, don't volunteer any information, and, to the extent that it's possible, try to memorize any distinguishing characteristics of the robber, and note anything the robber touches. Avoid making sudden movements, and if possible, announce any movements before making them. Lock the doors after the thief leaves the store, call the police, and before discussing the robbery with other employees, write down any details of what happened.

Employee Theft

In 2003, the University of Utah bookstore performed a routine internal audit, and determined that $142,000 had disappeared. It had been embezzled by an accounting supervisor at the bookstore, who changed daily receipts, and took the cash. The employee had been stealing from the bookstore for over a year before she was caught, which isn't that unusual. According to the American Society of Employers, typically it takes about eighteen months to catch on to a fraud scheme.

Since over 40% of workers admit to stealing from their employers, we wondered what could be done to prevent and deal with employee theft. We asked Attorney Lisa Guerin, an expert on employment law, and author of "Work Place Investigations," from Nolo. Before becoming an attorney, Lisa worked at book stores in the bay area and New York City.

LISA GUERIN: The best way to deal with book store theft is to prevent it from happening in the first place, of course, and the best place to start is in hiring employees. One mistake a lot of employers make is that they don't check the references that applicants for a job give them.
Beyond hiring, there are also some steps you can take in the way you deal with your books to prevent employee theft, and the most important thing to do is something that financial experts call segregating. And what that means essentially, is not giving any one person too much control over the money or over the books or receipts of your store.
So, for example, a lot of bookstores have one person count out the drawer, they have a second person count the drawer, or they have maybe the manager count the money again and make a deposit, and they have the receipts checked perhaps by a third person.
Another thing you can do to prevent theft is to require authorizations. And, this is essentially just adding more paperwork to the things you require from your employees. So, for example, if you have a petty cash account, you should never let employees just take money out of that account and tell you what they spent it on; you should always require a receipt for money taken out of their. In the same way, if you allow your cashiers to void sales, or to give refunds, some bookstores require a customer signature on those, or they require a manager signature, to make sure that the employee isn't just doing a false void or a false refund and pocketing the money.

Your first step, if you think you have an employee theft problem depends on whether you know who's causing the problem. A lot of times you'll notice just that the deposits have been short, drawers have been short, inventory's disappearing at a faster rate than usual, but you're not sure why. In that situation, your first step is to isolate the problem, and it's very basic process of elimination. You have to determine who has access to the money or to the things that are disappearing, and again, segregation is a great way to figure this out. If you can tell exactly who worked on a particular cash register drawer that was short, or who made the deposit that turned out to be much less than it was supposed to be, then you know who you need to go to first to talk about that problem.

If you already have a sense of who the problem is, then your job is easier. In that case what you want to do is try and get your evidence together. For example, if you're dealing with cash register theft, you'll probably have records. So one thing you can do is compare the sales for that day that were rung up on the register to the money in that drawer, and see if there's a discrepancy there. You should also look at whether your receipts match out to the type of sales that were made. In other words, do you have as much cash as you were supposed to take in in cash, do you have as much in credit card receipts as was logged on the register as a credit card sale. You'll also want to look at any invoices, any paperwork that you require, any authorizations to see if you can find anything there that looks fishy.

When it comes time to actually confront the employee that you believe has been stealing, there's a few things you can do ahead of time. One of them is, experts suggest that if you're dealing with a theft situation, you talk to other employees, and you talk to other people who might have an idea what's going on. In other words, you interview witnesses. You talk to the person who works the cash register next to the person that you think might be stealing. And this will help you sort of gather the information you need to confront this person most effectively, and have the best chance of convincing them to come clean with you.

When it comes to what you say when you're actually sitting across the table from this person, it's a very interpersonal, individual thing. You just sort of have to play it like Colombo and decide what's going to work with this person; is a tougher approaching going to work, is a softer approaching going to work? One thing you definitely want to avoid doing, however, is coming flat out and saying, "You're stealing from my store; I want you out on the street." You don't want to make a flat accusation; certainly not to begin with. But certainly there are a lot of ways to say that between the lines. For example, "Your cash register drawer has been short," "I've noticed that since you've been responsible for making the night deposits, we've had a lot of discrepancies. What can you tell me about that?"

During the interview, you might want to bring out any evidence that you have, or anything that other witnesses told you, like, "Such and such a person said that you don't make the bank deposits some nights, what's up with that?" And if the person feels that you've got them dead to right, then they certainly may confess just to end the discomfort of the situation, you know, if they know that they're already caught.

If the person that you believe has committed theft actually confesses to it during the interview, then your job is pretty simple. Well, your job as an employer is pretty simple; you certainly want to get that person out of your company. You also probably want to get your money back, and that's something that can be a little trickier.

If the person doesn't confess, but you're comfortable that you have the right suspect and this person is in fact the person that's stealing from your company, what you do next will depend a little bit on what your employment policies are. Most employers are at-will employers, which means that they can fire employees at will. They can fire them anytime, without notice; they don't have to have good cause to do it... the only restraints on their ability to fire is that they can't do it for an illegal reason. For example, they can't do it for a discriminatory reason, or they can't do it because the employee has exercised a legal right that's protected. So, if you're an at-will employer, you can certainly just let that employee go, fire them, and that can be the end of it.

If you're not an at-will employer, and the employee has a contract with you, it's a little trickier. You may need to prove, if the employee files a lawsuit claiming wrongful termination, that you had good cause to fire that employee. Most courts, to consider the issue, have held that a reasonable good faith belief that an employee is committing serious misconduct, is good cause to fire, even if it turns out that you later were wrong. As long as you can show that you investigated, you looked into it with good faith, and that you had what appeared to be enough evidence on your side, ultimately you should win that battle in court. Of course, you don't want to end up in court.

When you're actually interviewing the person that you think is stealing from your company, you may want to have another person in the room with you. A good choice if you're the owner of the book store might be your bookkeeper or accountant, who can lay out the objective evidence that you have that point to this person as being the thief. It also might be a good idea to have another person there just to act as a witness, so that you'll have another person who can say what happened, who said what... your extra person can also watch the reactions of the person that you're interviewing, to see how he or she is responding to your questions.

One thing you should do before you start looking into an employee theft problem is, look at your insurance policy, your business insurance policy. Some insurance policies protect against employee theft; in fact some give you the right to be repaid for the amounts that you lose to employee theft. However, these policies also give the insurance company the right to subrogation, and what that means is that the insurance company has the right to go after the person who stole from you, in order to get their money back. If your policy covers theft and it has a right of subrogation clause, you should definitely talk to a lawyer before you investigate, and certainly before you accuse the employee or fire the employee. The reason for that is, if you do anything that gets in the way of the insurance company's right to go after that person, the insurance company might not make good on the policy.

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