Industry Focus
The Rise and Rise of Internal Theft
Cost-of-Living Crisis Brings Colleague Dishonesty Out of the Shadows
For most businesses it has always been the ultimate taboo. Previously hidden in plain sight, employee theft or fraud was an open or at least badly kept secret that no-one dared even whisper, let alone whistleblow about for fear that the long and dark shadow of suspicion was cast in their direction, and they became collateral damage in a game of blame and shame.
Now, economic circumstances have coaxed it out of those shadows with double-digit inflation and rising prices almost legitimising dishonesty as a cost of doing business in a cost-of-living crisis where recruitment and retention have been replaced with crash and churn.
They say that a little knowledge can go a long way and with growing incidents of internal theft where the “little and often” or “under the radar” dishonesty that falls short of red flagging on data mining dashboards, it can prove to be a very long and expensive journey.
In an economy where loyalty is in as short supply as staff, the breaches of trust could have been going on for weeks, months or even years depending upon the service length and risk rating of the perpetrator and where they sit in terms of access to intimate insider knowledge. And still very little is known about its true extent because of the stigma scar tissue. Whereas it is easy to rationalise the criminal intent of a shoplifter because there is no personal relationship at stake, with internal dishonesty this is a person who was given the key to the knowledge—the processes, procedures and protocols that were put in place to prevent criminality.
And, because they have abused their position, they are often “let go” quietly or resign ahead of an investigation so no criminal proceedings follow and they become someone else’s problem in someone else’s store, a familiar pattern across retail. Because they are not reported, there are often only anecdotal figures of the true extent of the problem. Many retailers, who have not carried out the necessary checks or vetting because of high churn rates and recruitment and retention challenges, may claim their internal theft challenge is in single digits, whereas some have calculated it to be as high as 50 per cent of their unknown loss.
The Statistics
In the US, 2023 figures for internal theft suggest the problem could be costing the economy 50 billion dollars every year and that as many as 75 per cent of all employees have stolen from their employer at least once. The FBI’s own survey found that 60 per cent of all employees would steal if they thought they could get away with it and, according to a survey from the business software specialists the Service Management Group (SMG), more than 30 per cent of bankruptcies are due to employee theft. Furthermore, 40 per cent of employees who steal from their work have previously experienced HR red flags.
In terms of demographics, while 72 per cent of all occupational fraud is committed by men, 34 per cent of millennials justify stealing from their employer, according to the SMG data, while insurance brokers Hiscox said the median age of perpetrators is forty-eight.
In the UK, what was previously a circumspect crime, has also been smoked out by Freedom of Information data where research from insurer Zurich in February 2023 showed that employee theft has jumped up by a fifth in 12 months as cost-of-living pressures mount, which was risking small business cash flow at the worst possible time.
According to the figures, employee theft has increased by 19 per cent in just one year, as the rising costs triggered a wave of workplace crime. The figures revealed that almost six thousand workers were caught stealing from their employer in 2022, up from five thousand the year before, amounting to nearly 500 incidents every month.
The insurance provider released a region-by-region breakdown of the areas seeing the highest rise in employee theft, with results showing that employees in the North and Midlands are most likely to steal from their employer due to the cost-of-living crisis, which may suggest evidence of disappointing progress so far by the Government’s “levelling-up” aspirations.
This is supported by last year’s research from the Centre for Progressive Policy which predicted the economic inequalities between the North and South of England would widen as a result of the cost-of-living crisis. It found that of the thirty-one areas across the country most vulnerable to soaring fuel, food and energy prices, 61 per cent are in the north and another 25 per cent in the Midlands.
Zurich’s data, based on information from forty-three police forces across England and Wales, showed that in 2022, while London’s Metropolitan police saw the highest number of employee theft reports with 874 incidents—the City of London saw the fewest, at eighteen. The biggest increase in thefts occurred in Lincolnshire, up from forty to 71 incidents—a rise of 44 per cent and, of the top five areas with the biggest increase in employee theft (excluding London), none are located in the south of England.
This suggests the cost-of-living crisis is having a greater impact on worker financial well-being in these areas.
By population size, the highest rate of employee theft was recorded in Northamptonshire, with forty-three incidents per 100,000 people. The Centre for Cities cost-of-living tracker put Northampton inflation at 0.3 per cent higher than the national average of 10.1 per cent in January 2023. According to the tracker, workers in the region have £128 less each month, on average, compared to the same period in 2022.
Staff Satisfaction is Part of the Key to Success
Rose Sutton, senior speciality lines claims expert at Zurich, says employee theft can be devastating for companies. “It can result in reduced profits, lower staff morale and in extreme cases, even bankruptcy. Consumers also lose out through higher prices,” she said.
To help employers defend their cash flow from commercial crime, Zurich drew up eight strategies to better protect business from employee theft that included:
More rigorous employee background checks.
Robust approval and verification processes for payments.
Document all transactions using a purchase order, invoices and receipts.
Put in place a random audit schedule and use different internal auditors.
Ensure employees feel valued.
Introduce confidential whistleblowing channels.
Give employees greater flexibility, and
Invest in strong cyber controls and security awareness.
As Zurich’s top tips highlight, keeping staff satisfied is crucial to ensure that employees do not feel they have to resort to such drastic measures as theft.
It is easy to dismiss employee theft as an isolated incident, but it can actually be a symptom of a poor organisational culture that has left employees feeling disgruntled and even wronged by their employer.
Dylan Jones, CEO of the IE (Income and Expenditure) Hub, said: “We’re not surprised, but saddened by the increase in workplace theft as outlined by Zurich as we know from our own research that people of all ages are struggling financially because of the cost-of-living crisis.”
Lee Ashwood, the former employment law director at law firm Freeths, says there needs to be a broader conversation around internal theft and whether managers faced with a recruitment and retention crisis need to be more sympathetic or stricter with staff.
“Employers will probably need to be prepared for the fact that people might cite the cost-of-living crisis as a mitigating circumstance. This won’t naturally change anything from a legal point of view, but it does throw up issues around how an employer will want to be seen by the rest of the workforce—do they want to be seen as uncaring?”
He said HR directors should not worry that taking a softer approach might set a precedent and encourage others to steal.
“If you review things on a case-by-case basis there should not be a concern that others might think they can do the same and get away with it. As with all these issues, it’s about proper procedure. Often the first reaction is that an employee should be sacked, but for a decision to be reasonable managers need to consider all the circumstances, including length of service, disciplinary record, whether they have confessed and shown remorse and whether they can be trusted in the future,” he said.
Such advice may fly in the face of the approach of loss prevention teams whose raison d’tre is to root out bad behaviour through correct procedures such as the widespread use of Wickander-Zulawski non-confrontational interview techniques or Bond Solon investigations.
A More Nuanced Approach
But there is already evidence that many businesses facing recruitment and retention challenges in the current climate are taking a more nuanced approach in light of the fact that they are experiencing industrial levels of dishonesty, much of which is classed as blatant “cry for help”, easily traceable till theft.
Retailers have seen increased incidents of opportunist colleagues taking advantage of the fact that there is additional cash on the premises because of poor or less regular CIT (cash-in-transit) collections which, in turn, may be to do with the CIT company’s own recruitment challenges.
Many retailers have also reported “old-school” cash and high-value product theft as prevalent modus operandi since the beginning of the year, with some seeing double-digit increases.
Retail and hospitality businesses are also witnessing more audacious internal crime including one theft case where a former employee who had been dismissed for dishonesty was able to re-enter their former premises, obtain keys and steal cash from the safe.
Businesses have also reported colleagues bringing their own payment devices into the workplace and connecting them to the till system in order to steal.
From incidents of “tiding-over until pay day” cash theft, to the large-scale stealing of stock from a store or DC (distribution centre) to re-sell on social media sites, friends and family fuel and loyalty card abuse and even collusion between fraudsters and contact centre staff, there are increasingly imaginative examples of colleagues taking advantage of their positions and the fewer checks which have resulted from staff shortages or loss prevention restructures providing less boots on the ground.
The speed by which churn is occurring has also resulted in many colleagues not receiving basic training and many businesses have gone back-to-basics by re-emphasising their internal awareness programmes through digital staff communications with a special focus on profit protection and reminding colleagues that dishonesty won’t be tolerated and that full investigations will involve the police as a form of deterrent message.
Tolerance
However, other businesses are dropping their zero-tolerance approaches. Returning to the point raised earlier about the consequences of internal theft, there is tangible evidence of management wishing to be more lenient with colleagues, despite their criminal transgressions and the long-term “it’s ok to steal” messages that this would send to other colleagues.
Indeed, the shortage of colleagues in both the retail and hospitality space, a legacy of the pandemic and increased levels of violence and aggression, has meant that businesses are looking to retain as many people as possible.
This has resulted in the emergence of a difference of opinion between loss prevention teams keen to dismiss dishonest colleagues while other parts of the business are taking a more tolerant “cost of doing business” approach in light of the high levels of churn.
One business experiencing double-digit increases in internal theft had challenged dismissals where the evidence suggested it was not for personal gain. This approach resulted in the LP team having to justify its actions by categorising the type of fraud risk into three distinct offenders:
those with a lot of management influence,
those who were “robbing Peter to pay Paul”, and
those whose transgressions amount to pure theft.
Internal Theft Detection Technologies
Data mining, the tool through which businesses can trawl epos data for exceptions and anomalies that flag internal dishonesty, has come into its own in recent years. Many businesses are signing up to the major providers whose solutions also integrate CCTV footage with their till data, while other retailers have developed their own bespoke data mining capability, particular to their store model.
All are supported by the new model armies of data analysts looking for everything from gift card discrepancies to high levels of staff absenteeism and how cash anomalies overlap with times, dates and individual sickness patterns and attendance behaviours.
Irregular till drawer openings for small amounts is a common pattern picked up by data mining systems. In one real life incident an analyst picked up on an employee who had performed this process on 260 occasions over a ninety-day period.
In another example, one business saw an increase in abuse of its staff discount card, with 1300 cardholders sharing their details with more than six other individuals. The tool had married up the data with all the different bank card details linked to the discount cards under the spotlight.
The Supply Chain
Whereas technologies can map dishonest behaviours in large and small format stores, it is more challenging in what is the first and last frontier of the supply chain, the distribution centres and warehouses that feed stock to stores and fulfil the burgeoning demand for online sales.
It is no exaggeration to suggest that DCs have been weaponised as the front line of organised criminality with largely unvetted, high-churn agency staff, many of whom may form part of organised criminal gangs who once employed use that inside knowledge to access high-value items, many of which are destined for overseas black markets.
Some contract workers have been ingenious in their approach. In one instance two short-term contract workers at a large warehouse were removing high-value watches from their boxes and placing them inside a sandwich inside a Tupperware box to avoid detection. These were then shipped to Poland so there were no flags on UK social media or auction sites that were being tracked by the retailer in question.
Many larger retailers have employed technologies such as Thruvison which highlights concealed items on a person as they exit a shift with some businesses escalating this to allow wholesale screening to prevent exit delays or shift disruption. However, not all theft is going through the employee exits.
In another example, two employees on sixteen-hour contracts created their own shipping labels and used the business’s own parcel bags to conceal items and post them home. Over a six-month period, they stole over £150,000 worth of stock.
The Commitment Card
Many retailers are now looking at preventative approaches to stop the employment of high-risk individuals in the first instance and, if possible, prevent them from working in the sector altogether as they often leave one DC and begin work at another within days, such is the shortage of operatives to fulfil supply chain demand. Some have even been re-employed by the same business through exploiting gaps in existing employment screening protocols.
One method used in the charity sector in recent years is the Commitment Card, an employment database which formed part of a voluntary vetting programme. It works by directing staff and volunteers to register for a card by entering their personal details, including employment history and National Insurance number.
The idea is that the staff or volunteers carry the card from job-to-job, but if they are dismissed, the card is electronically withdrawn, meaning they would have to re-apply for a new card to work, at which point the issue is flagged on the secure and accredited database.
The card, which is applied for online, had been approved by the Information Commissioner’s Office (ICO) to ensure it complies with GDPR.
“It is simply a way of checking that they are who they say they are and an independent reference. Many people we come across airbrush their CVs to remove dismissals or use references from work colleagues who they have colluded with at previous employers,” said Owain Dale-Jones, a director of SecondEye, the developer of the technology which works extensively in the charity sector.
The business did discuss the idea with businesses in the logistics sector to see if it could be applied at DCs or to delivery drivers, but it was felt that it was all or nothing and that all retail businesses would have to be on board with the Commitment Card for it to gain real traction. So, the door is still very much open for workable solutions to industrial levels of criminality occurring in the “big grey boxes” that pepper shot the landscape across the UK.
Closing that door and indeed the gaps in processes and procedures that are being exploited by a growing number of internal thieves whose motivation ranges from need to greed, is a discussion that drives a division in opinion between the zero tolerance stalwarts and the “second-chancers.” These views are in turn motivated by the increasing need to fulfil customer requirements through credible recruitment and retention incentives that may also provide the sense of loyalty and inclusivity that would prevent the need to steal in the first place.
