Thursday April 24 , 2014

LossBusters Blog

Nuggets of wisdom from Libby
Dec 21

Employee Theft – A Trio Succumbs to the “Triangle”

Posted by: Libby Print PDF

Losses to restaurants can occur from just about anywhere. We talk about cash stolen from registers and from customers by a multitude of internal fraud schemes. Food losses can mount from poor inventory controls and thefts through the POS or out the back door. Crime can generate huge losses from robberies, burglaries and external fraud scams such as credit and gift card fraud. Neglected safety precautions may result in losses from slip and fall accidents or OSHA fines. But how about losses generated from members of the restaurant chain’s executive team to the tune of $1.9 million!

The first of 3 former executives of a popular restaurant chain plead guilty in federal court in September for a theft scheme that involved phony invoices and shell bank accounts. He worked as an analyst in the Treasury Department. Another employees involved was his supervisor and the third was an executive in the company’s Fixed Assets department.

When the judge asked the defendant with two bachelor’s degrees why he would risk everything, he replied, “I didn’t want to let the person I was working for down.” There may be other explanations why a well paid employee would succumb to the temptations of embezzling staggering sums of money. The phenomenon is often described as the “Theft Triangle”. According to this concept, theft can occur with the presence of three elements, 1) Opportunity, 2) Motive, and 3) Low Risk of Detection.

Big losses like this occur most often with employees in a position of trust. Opportunity is certainly a factor as handling millions of dollars was in their job description. Motive was a component to this crime as well when the defendant revealed to the judge that he spent stolen money paying off credit cards, a car loan and buying clothes. In this case, the collusion of three closely affiliated employees in their positions of trust apparently thought there was little chance of getting caught as their thefts mounted.

So now, lives are ruined, a restaurant chain is reeling, and there are enough lessons here for everyone. When the elements of the “Theft Triangle” are present, theft can and does happen. I have been personally involved in investigations like this one. A lot of conversations start with; “I trusted them, I never thought …” It is good to trust. Many deals and companies were built on trust; but it must be accompanied by verification, checks and balances, and accountability. Policies and procedures, business ethics compliance, employee “hotlines”, and corporate standards for behavior and code of conduct established for all employees from the CEO down, go far in establishing a culture of honesty.

Employees at every level will be talking about this corporate breach of dishonesty. The company will have a black eye for awhile; but black eyes heal. I hope that the leaders of the company talk about it openly throughout the organization. Workers thrive in an environment where everyone knows the rules are applied fairly and consistently. There are theft and ethics controls in place and routinely audited – at every level. The employees will appreciate open communication up and down the organization. This appreciation transforms into pride – pride for their contributions to the success of the company. Particularly in lean times, honesty and pride are key attributes of happy, fulfilled employees in thriving, successful companies.

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