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JUNE 2013 issue of
Rental Management

Risk Management: Preventing employee theft
05/31/2013

Remove the opportunity and the temptation

 

Have you ever had a thief steal from you? What happened? Did someone break into your store and steal equipment, give you false ID and disappear with your equipment or hold a gun on you and demand your money? It hurts, doesn’t it? You feel violated and betrayed. You ask, “What is this world coming to?”

Even more painful and 15 times more likely to occur, according to the U.S. Department of Commerce, is to have your own employees steal from you. Often it is your most trusted long-term employee, too, and it can be very expensive. Over 10 or 12 years at $20,000 or $40,000 per year, the losses can really add up.

Did you know that nearly one-third of all bankruptcies are caused by employee theft? To make it worse, the amount of the loss is hard
to prove. Do you have all those records from
10 years ago? Even if you do have the records, what does it take to sort through them and find the full extent of the loss? It is like finding a needle in a haystack.

Employee theft takes many forms: Pocketed cash and shredded rental contract; the buddy that pays little or no rent; stolen equipment sold on eBay; company fuel for personal vehicles; fake invoices with payments to personal checking accounts; coins stolen from the vending machine; and the inside job, where the gate is left unlocked and the alarm just happens to be disabled. This is just the short list.

It is amazing how creative thieves can be and who knows your weaknesses better than your employees?

  • One employee learned that he could improve his standard of living by applying customer discounts to his personal credit card.
  • If a customer hadn’t complained about the lack of a discount he was promised, the employee would still be collecting.
  • A warehouse employee stole a whole pallet of aluminum chargers from storage and sold them for scrap. The honest scrap dealer, another independent businessman, called the party rental store. The employee was seen on surveillance camera loading the pallet on his truck.
  • A bookkeeper simply invented a new vendor and began writing checks to herself.
  • The controller of a rental company lived high by using the company credit card for his personal purchases.
  • A driver loaded an extra piece of equipment on his truck and sold it for cash during his delivery.
  • A bookkeeper reported hours and collected pay for temporary workers that did not exist.
  • Another bookkeeper deposited the sales tax collected into her own account rather than forward it to the state. This theft was uncovered by a state audit three years later.

Prevention is a must. First of all, you have to expect that it will happen and anticipate it. Studies show the opportunity to steal is more important than the need for money. If you remove the opportunity, there is no temptation. You have to implement great controls. This means a system of internal and external checks and balances and a separation of functions. The person that completes the check log should not make the bank deposit. The person who writes the checks should not sign them. The person who checks out the  equipment should not check it back in. Your accountant should be able to help you set up the proper controls.

It is important that you know what your margins are and what they should be. If they aren’t up to par or if they start to slip,
you need to search for a reason. You may not uncover any suspicious activity, but even if you don’t, you will improve your business as you cut waste and improve business practices. Where do you get your benchmarks? That is what the American Rental Association (ARA) offers. You just have to engage. Participate in the Cost of Doing Business Survey or join a Business Analysis Group. Ask your peers what benchmarks they use when you attend The Rental Show or the local chapter meetings.

Technology helps, too. Relatively inexpensive, high quality surveillance cameras are now available. They can be monitored remotely through your home or laptop computer.

Let your employees know that you have zero tolerance and that you will prosecute. Lead by example by separating your business expenses from your personal expenses.

Check your insurance coverage. Make sure that you have employee theft coverage and that it covers the theft of equipment as well
as cash.

Phil Kelling is president and CEO, ARA Insurance, Kansas City, Mo. For more information, call 800-821-6580 or visit ARAinsure.com.
 

 

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