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Automotive Service Industry Association

Internal Security Presenation by
Doug Wicklander, Representative
John E. Reid and Associates
Chicago, Illinois

(Mr. Wicklander's presentation was given during the 1981 ASIA PBE Division Management Conference on Sunday, March 8, at the Hyatt Regency Hotel, Chicago, Illinois)

I find the topic we will discuss today very interesting. I have worked in the field of Security for nine years, and, as time goes by, I have found that more and more companies are putting an emphasis on Security because they have seen what is happening in the area of pilferage or theft.

The U. S. Chamber of Commerce and various other professional organizations are finally publicizing the harm that an employee and internal theft can do to a business. Let's look at one example.

If your bottom line profit is 5%, and then someone steals $5.00 in merchandise, you must sell another $100.00 in merchandise just to stay even. Some employees never look at it that way. They say, "The owner has sold 10 cases of oil today, so he has made a lot of money. I can take one case for myself." Well, that isn't so. The owner hasn't made much money, if any, on the 10 cases of oil, again depending on the profit line, but the employees don't realize this fact.

Shrinkage Due to Employee Theft

The reason that so many companies are taking such an interest in Security is because studies show that up to 80% of shrinkage is due to employee theft. This is a very alarming figure, but it is true.

If a prospective customer enters your business location, he or she can shoplift, but how much? Certainly not to the extent that the manager, the counterman, or the cashier can do.

Many thousands of dollars are spent on External Security, in purchasing alarms, special lighting fixtures, and in having experts come in to design or change storefront windows. One grocery chain recently hired a former professional burglar as a consultant, and the first advice he gave was to "remove all of the advertisements from their stores' front windows." This was done and the burglary rate dropped appreciably.

Now, a lot of money is spent on External Security but very little on Internal Security, which is the subject we will be discussing today. We also hope to generate, in our discussions, some ideas on what you can and can't do in relation to Internal Security.

ASIA Pilferage Survey

Did any of you complete the recent ASIA Market Research Survey on Pilferage? I see that several of you participated in this Survey. We don't have time today to go through the whole Survey, but there are some points I would like to discuss which I found very interesting.

For example, one of the questions that was asked is, "If you caught someone stealing (an employee), would you give him or her another chance?" 49% of the respondents said "yes". I guess it is a nice, patriotic thing to do. Please remember, however, that a person seldom gets caught the first time. If you decide to give that person another chance when the person is caught, then you're getting ripped off several times.

If You Have Bonding!

I discourage giving that person another chance, especially if you have bonding. Once it is known that an employee has stolen something, whether it is $1.00 or $1,000.00, that employee is immediately off the bonding policy.

I know of an employee who was given a second chance, and he stole even more the next time. The firm turned it over to the bonding company, and when the bonding company investigator interviewed the accused, the employee said, "Well, the owner gave me another chance". The investigator said, "Oh, he did, tell me about it". The employee told the investigator what had happened, and, as a result, the bonding company refused to pay the claim.

Giving and Obtaining References

Another question in the Survey is, "Would you disregard it if an employee stole $10.00? There were both yes and no answers to this question.

Still another question in the survey is, "If you fired an employee for theft and another prospective employer asked for references on this person, would you respond to the employer truthfully?" 77% of the respondents answered in the affirmative. Realistically, I think that is what you would like to do. I seriously doubt, however, that 77% of you would tell a potential employer that you fired "John Doe" for theft.

Let's face it. We live in a society of litigation and none of us want to be sued. I know this is a problem that each employer is faced with when he checks out an employee. An employer could be telling you that this person is the greatest employee in the world, and all he is trying to do is to get him out of the company. Has anyone here received a good reference and later found that it was a lie?

(Comment from an attendee: - "Also, when you pass that person on, he is working for someone else and no longer drawing unemployment insurance against you.")

Internal Security Is Where You Need to Concentrate Your Efforts

What percent of your people will take small items, about 78%? As a matter of fact, one study reported that 85% of employees answer that they would take something if they know that they can get away with it. You are going to have these problems.

Many people answering the Survey said, "The counterman was in collusion with the order taker, or the customer, or that the bookkeeper was stealing. And it goes on and on. It might be a case of friends helping friends. All of a sudden you put two and two together, and you find out that Internal Security is where you need to concentrate your efforts.

Polygraph Test

First, what do you do if you have or suspect you have a theft problem?

If you are in a state that doesn't have licensing laws prohibiting it, then consider using Polygraph Tests. There are 18 states that have laws restricting polygraph. Some restrict it, some prohibit it entirely. States with antipolygraph laws are: Alaska, California, Connecticut, Delaware, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nebraska, New Jersey, Oregon, Pennsylvania, Rhode Island, Washington, Wisconsin and the District of Columbia.

Polygraph is an effective tool. Its accuracy has been shown to be anywhere up to 95%, possibly higher. The cost per test is between $40 and $60. The results of the test are tremendous, because they will eliminate any suspicion of your honest employees and will identify the thieves. You will also prevent or reduce the possibility of theft from happening again in the future.

If you don't do anything about it, you are encouraging theft to happen again, not only by the person who stole this time but by every other employee as well.

Behavioral Analysis Interviews

If you are located in a state where polygraph is prohibited, or for some reason you don't want to use the polygraph, or it is written in a contract that you can't, you have the option of using Behavioral Analysis Interviews, which are legal in all states. This type of interview is also called Kennesis Interviewing.

A professional is hired to interview the employees in a nonaccusatory manner, and by studying the verbal and nonverbal behavioral symptoms, the interviewer can eliminate up to 80% of the honest employees from suspicion. The employer can then concentrate his investigative techniques on the remaining employees rather than on the entire workforce. As with the polygraph, the cost of the Behavioral Analysis Interviews is $40 to $60 an hour. We have found that more and more police departments and security firms are using this technique effectively.

Undercover Investigator

You can retain an undercover investigator, working as a regular line employee. He builds confidence with the employees and gradually finds out how they are stealing from you. These investigators usually require a six month contract, so it can be expensive. However, it usually takes that much time to infiltrate.

If all you are doing is "putting out fires", more will keep cropping up. What you need to do is practice prevention. Keep the dishonest person from coming on board. Putting a lock on won't keep a pro out. What you need to do is keep your honest people honest. Try to eliminate any temptation.

Cash Register Shortages

What do you do when you discover a cash register shortage of $5.00 or $10.00? Something that amazes me is the number of these shortages that an employer won't even try to uncover, because he considers it an effort. It could be $5.00 or $10.00, or maybe even $200.00. Is the shortage an error or something else?

Some employers feel they don't have the time to go through the cash register to check for these amounts. This is like telling your people that you don't care, and that you won't take the necessary time to do anything about it. Please check out shortages, and let your employees know that you are taking Internal Security seriously.

Refund Policies

I have also seen every kind of refund policy under the sun. Some businesses only require the buyer to hand over a receipt to obtain a refund. This is the worst policy. The problem here is that if the customer is in a hurry, and buys an $8.00 item but forgets the receipt, there is a temptation for the employee to put that receipt in the register as a return, and take out $8.00. It will never be missed.

What I recommend is that the business use a short refund form. Have the customer write down his name, address, and phone number, and then staple the form to the receipt. This is relatively easy to do, and it won't upset the customer if he is aware that this is your firm's policy, and that it won't take him one half hour to do.

What if you see a rise in refunds? In checking you may find three different names living at the same address or three different addresses listed for the same person. Employees often make stupid mistakes, so check your receipts. I encourage everyone to use this plan if they don't have a better one. Keep the honest employee honest.

(Comment from an attendee: - "Check the register tapes for shortages, or for an overage. Close the trays before the cashier has a chance to take the funds.")

(Mr. Wicklander's Response) - That is a good idea. I have seen companies put an extra $10.00 in the tray as bait money. I have seen employees get caught in situations where they don't ring up the sale, and at the end of the day they pull out any money that is over the balance needed.

(Comment from an attendee: - "If you pull the tray when your employees aren't suspecting it, this helps. It keeps them off balance. Spot Check."

(Mr. Wicklander's Response) - Yes, I also recommend a daily deposit, even if it is not a large one. Don't let three or four days go by without a deposit. To do so could be laziness only, but then again it could be a pattern, a pattern that is easily picked up.

Borrowing against today to pay off yesterday is a dangerous practice. I have never seen an embezzler steal the first time. They don't consider that stealing. They borrow the first time, then they steal. Daily deposits are a deterrent, so use them.

Inventory Records

If your managers or employees always do the inventory, I recommend that you should do it every now and then. Also, hire an outside firm that is specialized in this area to come in and do your inventory. Only let this firm's people do it, and you may be amazed at the discrepancies when compared to an inventory made by your people. The results are well worth the cost involved.

I would discourage any "announced inventory", if possible, because it gives the thieves time to "borrow", from another store or department, what they need to cover shortages.

Employee Selection

Another procedure is employee selection. Keep the dishonest person out, by doing as many credit and reference checks as you can. However, existing screening measures have proven to be only about 60% effective in identifying honest people. People won't tell you they have fired someone for theft, and people don't get caught that much. If you had a $5,00 shrinkage last year, I doubt if you have located $5,000 in theft . . . though this may be the reason. There are many loopholes and problems with reference checks, when trying to screen out the undesirables.

Different Tests To Use as A Check

I encourage the following as a supplement. Use polygraph tests, which will help to keep a dishonest person from being hired. The person is questioned about his past honesty, drug abuse, and criminal activity. If you can't or don't want to use polygraph, use a pencil and paper honesty test, such as the Reid Report. It is an inexpensive way to keep out dishonest people, and it only costs $8.00 to $11.00 per test.

The difference between polygraph and a paper and pencil test is as follows. Polygraph will tell you if a person is telling the truth regarding his honesty. The Reid Report or paper and pencil test is a psychological test that measures a person's attitude toward honesty. The accuracy of these tests has been shown to be between 86% and 88%. In other words, we are increasing your accuracy in identifying the honest individuals.

One method alone doesn't work very well. Usually a conglomeration works better. Look at what is happening and determine what it is you need to do.

OPEN DISCUSSION (Question and Answer Periods)

(During his presentation several questions were asked of Mr. Wicklander. Instead of including the questions in the body of his presentation as they were being asked, these questions and all answers and other discussion generated by the questions are being placed together in the transcript at this point.)

Q. - (Unidentified) - How do you approach your already-hired people and get them to take polygraph tests without everyone walking out?

A. - (Mr. Wicklander) - The key factor is that you don't present the test in an accusatory manner. Be positive. If you have had a big shrinkage, notify your people. Admit that you are trying to track it down. Tell your people that it could be in delivery, inventory, etc. In talking to them, don't ever say that you are hunting for a thief that you will have prosecuted. Present it in such a way that they know you want to clear the honest in order to find the guilty.

(Comment from attendees: - "Encourage your employees to have a family-type relationship. Let them know that they can come to you if they see or suspect something. Many times they will report important things to you if you have that sort of relationship. Give them a share in the company too.")

(Profit sharing will not keep a bad person out, but it may keep an honest one honest.)

(Sometimes an employee is reluctant to come to the boss. I employ a policeman part-time, who works on the books, etc. I find that people open up to him, and he checks out what they tell him. God knows how many thousands of dollars he may have saved me.)

Q. - (Unidentified) - What do you do if you suspect hanky-panky in the bookkeeping department?

A. - (Mr. Wicklander) - There are a couple of things that I recommend:

  1. Require the bookkeeper to take a vacation. We had one woman who stole $60,000, and she was the most conscientious person in the plant. Never late, always there, never even took a vacation. In some firms a two-week vacation a year is mandatory.
  2. Tell the person, that you are going to do an audit, and hire an outside firm. Present the information to the bookkeeper with a positive attitude. State that you have found a shortage, and that you are hiring an outside firm to run an audit, so that you can clear up the problem and clear the person.
  3. Don't let the purchasing agent check in shipments. Have a different person handle this responsibility.

Q. - (Unidentified) - If you feel that you have an honest crew, isn't it possible that you could be stirring up trouble by introducing these measures?

A. - (Mr. Wicklander) - Chances are that you probably have a problem already but just don't realize it. I would simply tell the employees that as standard policy, you have decided to introduce these measures at the recommendation of X-company.

Q. - (Unidentified) - What about offering a reward?

A. - (Mr. Wicklander) - I don't like rewards. When you start rewarding people to be honest, you create problems.

(Comment: - If you start offering rewards, you create dissension among the employees.)

Q. - (Unidentified) - If a person has stolen once, should you give that person a second chance?

A. - (Mr. Wicklander) - - If I owned a company and someone stole from me, I wouldn't give that person a second chance. Besides, once a person has stolen, his or her bonding is terminated. Giving a person a second chance might be okay if the person didn't steal from my company originally, but if the whole company knows that X stole $12 and the boss gave this person a second chance, others will think the employer won't mind if they steal $15 or $25 or $50.

(Comment from attendees: - We have tried a number of times to rehabilitate people by giving them second chances. It works for us about 50% of the time.)

(We have a monitoring system using microphones, to pick up the noise in the event anyone is trying to break in. Any employee who wants to get into the store after-hours must first call the manager for an okay, and at the end of the month we receive a report on how many people keyed-in after hours.)

(We have certain hours and certain days when we are closed and no one can get in. We use a combination lock in conjunction with a timer, and the only way to get in is to contact the people who installed the lock and obtain the combination)

(We caught several people for theft, mostly through customers informing us, and we later fired these people. For instance, a customer called to report that our driver offered him a spray-gun for $35.00, and it sells for $100.00. On another occasion one of my salesmen found a guy with some of our stuff in his car. The salesman knew he didn't sell it to him, so we sort of played cat and mouse with the guy until we found out who did sell him the merchandise.)

(Mr. Wicklander) - There is a landmark case in Chicago about telling a potential employer whether or not a person was fired for theft. A bank fired an employee for theft, later, a savings and loan company asked for a reference on this person from the bank. The bank, not wanting to be sued, hedged, and merely said they wouldn't consider the person as a possible rehiree. The savings and loan company hired the person, and he stole a considerable amount from this employer. They caught him, fired him, and then they found out that the bank had fired him for theft. The savings and loan company then sued the bank for concealing this fact, and won its case. So you're stuck between a rock and a hard place.

(Mr. Wicklander) - If an employee who is a member of a union requests his union steward to be present when he is interviewed, the U. S. Supreme Court has ruled that you must permit it. This detracts from the interview, because it can be compared to having a lawyer present. The steward sits there and he consuls the employee, "You don't have to answer that if you don't want to".

Q. - (Unidentified) - What about the "voice-stress" test?

A. - (Mr. Wicklander) - The Supreme Court in Illinois ruled that blood pressure, pulse and respiration must be measured when giving a test. Since voice-stress tests don't do this, the Court ruled that they are illegal, unless given in conjunction with a polygraph test, which does measure the blood pressure, pulse and respiration.

Q. - (Unidentified) - Do you recommend bonding?

A. - (Mr. Wicklander) - Yes. It's an inexpensive way of protecting your assets. The problem is that generally there is a $5 - $10,000 deductible.

(Comment from attendees: - You can get a blanket bonding for every employee, usually very cheaply.)

(You can legally tell a person he or she wasn't hired because he didn't pass the test, but it's better to simply say he didn't meet your standards.)

Q. - (Unidentified) - Can you put a person on for a probationary period, then give him or her the test?

A. - (Mr. Wicklander) - Yes, but be consistent. Do it with all prospective employees.

Q. - (Unidentified) - Do you encourage annual polygraph testing?

A. - (Mr. Wicklander) - Yes, but if a person has been an employee for 15 or 20 years, he or she could be tested out. A different type of test might be administered. Also, stagger your testing with one half of your employees being tested during the first 6 months, and the other half over the next 6 months.

(Comment form attendees: - Many people steal small things, such as pens, pencils, and will admit it. But they say they will draw the line at stealing anything larger. Few people start out big, but then something triggers them and they really take something substantial. The tendency to dishonesty is there, and the dishonesty increases with opportunity.)

(Since all buildings must have two doors for fire safety, I recommend that you have an alarm bar on the back door, so that you know when people are going out the back way. This is a good way to stop your employees from simply putting things out in the back trash to be retrieved later.)

(In one store operation I am aware of, delivery drivers never come inside. They have a separate restroom, and a waiting room to wait in for merchandise to be delivered. Somebody else fills the orders and places them in this room, where the drivers can pick them up and load them.)

(This is rather accusatory. It is sort of like walking around saying, "I know you're dishonest, and I'm going to catch you." Never present any form of Security in an accusatory manner. Don't accuse the people. Let them know that your Security program is for the good of everybody.)

Q. - (Unidentified) - Do you have any cases where the owners are too concerned with the cost of firing, rehiring, or prosecution to do anything about it when a thief is found?

A. - (Mr. Wicklander) - Yes. Some employers would rather put up with an employee of this type than go to the expense of hiring and training a replacement. I've been in this business for 9 years, and have only been to Court five or six times. Owners of companies don't want to pay lawyers, court costs, or the costs of professionals to prosecute, because they know it will cost 10 times more than what the theft was worth, and they may not get a conviction.

Q. - (Unidentified) - Who grades the paper pencil test? Would I get back a grade?

A. - (Mr. Wicklander) - Yes, you can send the test to our office for evaluation, and on the same day, you will receive a telephone call giving you the results. Also, you can call a toll-free number and obtain an instant result.

We're out of time, so we have to adjourn this session. I have enjoyed speaking to you, and I hope that I will have the opportunity of participating in another of your programs in the future. Thank you.



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