Biometric Identity

5 Ways to Reduce Employee Theft

You would think that an economy approaching full employment would be enjoying lower levels of employee theft. Think again. The data says just the opposite. Way back in 1999, an anonymous survey conducted by a forensic accounting and investigation firm (Kessler International) found that 79 percent of employees reported stealing from their employer. By 2013 a similar study revealed the percentage of employees saying they committed theft had risen to a staggering 95 percent. Even with a favorable labor market, employee theft is seeing yearly growth rates of almost 5.5 percent.

How Do I Steal from Thee? Let Me Count the Ways

There are a myriad of ways employees steal from their employers, but a few stand out. Take labor fraud, for example. The studies above uncovered extremely high levels of “time theft,” with more than 30 percent of employees admitting to fraudulently claiming more hours than they worked. Other significant sources of theft converge on the POS terminal, including fraudulent discounts, overrides, line item voids, suspended transactions, and refunds outside of allowable transaction thresholds.

For an industry that survives on razor thin margins, the impact of employee theft can be devastating. To put the problem in perspective, a retailer that earns a profit margin of 5 percent would have to sell $2,000 in merchandise to make up for every $100 stolen by an employee.

Motivation + Opportunity = Theft

Much of the theft attributable to employees is opportunistic. Employers inadvertently provide the means to steal and even encourage theft when there aren’t adequate controls established for labor reporting and POS transactions. The opportunity is reflected in risk-reward calculations employees often make when they consider whether or not to steal. Essentially the three-pronged rationale used is:

  • I’m worth more than you are paying me and I am entitled to what I am taking.
  • If you leave the door unlocked, you must not care if I rob you.
  • Everyone else steals so there is little chance that I will be caught.

Prevention is the Best Approach

There is a widely recognized series of steps necessary to address internal theft. They range from prevention and awareness to investigation and prosecution. It is also widely known is that prevention is the best strategy to reduce employee theft. Deterrence, rather than detection and prosecution, is a much more cost-effective and manageable means to deal with theft. As they say, “You can’t prosecute your way out of a shrinkage problem.”

Avenues of Prevention

Traditional access controls, such as passwords, PINS and swipe cards, have been ineffective in preventing labor and transactional fraud; they are too easy to share and steal. Although analytics can flag suspicious transaction patterns, without secure credentials irrefutably tying employees to transactions, excuses such as “Someone must have stolen my password” stymie prosecution.

Biometrics provide a viable method for putting a dent in employee theft. Adapting a “Situational Crime Prevention” framework in conjunction with the use of biometrics offers not only theft prevention benefits but also provides an irrefutable audit trail that counters commonly used excuses during investigation and prosecution.

Reduce Employee Theft with Situational Crime Prevention

In 2003 Ron Clarke, of Cornish & Clarke, developed an array of situational crime prevention techniques. He arranged his techniques into five clusters. Integrating biometrics into this model results in a promising approach to dealing with internal theft:

  1. Increase the effort – Target hardening    
    This category includes locks and physical barriers and biometrics play a key role. Employees must be present to clock-in and manager must approve transaction overrides and discounts.
  2. Increase the risks of detection – Guardianship and surveillance
    Manager oversite and audit trails are instrumental in thwarting internal theft. Ensuring that managers are present to authorize transactions and that there is an irrefutable audit trail tying employees to their actions make fraud detection a certainty.
  3. Reduce the reward – Target removal
    Because biometrics ensure that individuals comply with financial transaction protocols, it removes the opportunity to steal, unlike passwords and PINS.
  4. Reduce provocations – Neutralize peer pressure
    Biometrics remove the temptation to steal and eliminates peer pressure to do so. Employee behavior is changed, and work culture dramatically improves without the ever-present provocation to commit fraud.
  5. Remove excuses – Set rules and enforce compliance
    With biometrics, transaction threshold policies can be set with the certainty that they will be followed. Since employees can’t use their manager’s credentials to void a transaction, policies are naturally enforced, and compliance assured.

For retailers struggling to compete in today’s ultra-competitive market, reducing profit loss due to employee theft is crucial for their financial well-being, but traditional approaches have not been adequate to the task. Biometrics at the POS holds great promise for finally stopping the hemorrhaging of profits due to employee theft.

Chris Trytten has over two decades of technical and managerial experience in systems and security at leading companies in Silicon Valley, including positions with Crossmatch, DigitalPersona, Interlink Networks, Apple, Siemens and Amdahl. In his current position as Market Solutions Manager at Crossmatch, he is using his experience serving the Financial and Retail markets by guiding the product and market teams to address the security needs of these industries. Chris is the author of multiple security white papers and articles.

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