Ever had money, property or data "walk away" from your place of business or customer’s home?
If so, you’re not alone. According to experts PCT interviewed, businesses nationwide are seeing an increase in theft due to the economy. They said the biggest mistake is assuming it’ll never happen to you.
Pest professionals who’ve been stung and theft-prevention experts shared how to protect your company’s bottom line and reputation.
Theft from Customers. New Tech Pest Control President Frank Nabozny in Palm Harbor, Fla., learned his employee stole a $3,600 Tampa Bay Rays championship ring when TV reporters appeared at his door.
The nightmare started when a veteran technician was seriously injured falling from a ladder. In the scramble to cover his route, Nabozny tapped Scott Richardson, a former interviewee who was experienced, knowledgeable and charismatic, without performing a background check. Two days later, Richardson pinched the ring while doing rounds at a condominium complex and sold it to a pawn shop.
The incident made local headlines for more than two months, and Nabozny lost the $30,000 condo association account. "Our reputation was impeccable until this happened," he said.
Jeff Holper, president of Holper’s Pest and Animal Solutions in St. Louis, was blindsided when a trusted employee stole a customer’s $7,000 ring six years ago. "It was one of the worst days in the life of my company," he said.
He fired the technician, "but I really hurt for him and his family." That he succumbed to temptation "just amazed me."
Holper bought the ring back from a pawn shop for $150 and it was returned to his customer of 15 years. She didn’t fire Holper, who continues to treat her home and those of her family. "We could have lost her forever as a customer," he said.
Prevent It. Pre-employment criminal background checks are employers’ first and best line of defense, said experts.
At Orkin, "We live by the mantra, ‘hire hard and manage easy,’" said Mike Gibney, director of claims and loss control. The company performs felony record checks going back 10 years on potential hires. A felony and certain misdemeanors disqualify people from employment.
Each year, Orkin runs background checks on all 10,000 employees. An incident like theft is met with immediate termination.
How Safe is Your company’s Data?
Identity theft is big business. In 2009, the number of U.S. victims rose 12 percent to 11.1 million, according to a Javelin Strategy & Research report. Losses incurred: $54 billion.
Now cyber thieves are targeting the flusher bank accounts of small- and medium-size businesses. One school district near Pittsburgh lost $700,000 last year to an Internet scheme, reported The Washington Post.
"Small business is a fat cow compared to my mother’s bank account," said information technology expert Bruce Schneier.
Criminals rely on employees’ helpfulness — the very culture that makes an organization effective — to carry out their theft, said Schneier, who is British Telecom’s chief security technology Officer and the author of four best-selling books on security.
They often offer to help fix a problem or ask for help fixing one. A thief might call from the "toner company" and need a credit card number to refill the order, or send an email from a web hosting company requesting payment to renew your domain name.
How can a small business prevent itself from becoming a target? "You can’t," said Schneier. "Being in business is inherently risky."
You can limit risk, however, with good network security practices so criminals can’t break in and steal account information. "Outsource somebody trustworthy" if you don’t have an information technology person on staff, Schneier advised.
Also check bank statements carefully. "The crimes work based on the fact you’re not paying attention," warned Schneier. Companies have only two days to report banking discrepancies and most banks do not cover commercial banking fraud.
QualityPro companies run three background checks on all employees, said Executive Director Andy Architect.
Social security number checks identify every place a person established credit to help determine where he or she has lived. Discrepancies with an employment application may suggest someone "isn’t telling the entire truth."
State or metro-county checks look for convictions of crimes committed in the region where the applicant lived.
A national systems check runs the applicant’s name through 5,000 federal databases. A hit here should prompt employers to dig deeper, advised Architect.
QualityPro doesn’t force companies to make hiring decisions based on what they find, but the data does help them make a "best judgment," said Architect.
Holper’s company now is QualityPro, but even so, a background check wouldn’t have caught his former technician, who had no prior convictions.
One would have flagged Richardson before the Tampa Bay ring theft. When arrested, he was on probation for aggravated stalking, said police. A reference check would have found he’d been fired from his previous employer, Suncoast Pest Control, after being accused of stealing from customers.
Third-party dishonesty or criminal bonds protect employers financially from employees who steal. As the economy trended down, these claims increased across service industries, said Brownyard Group Program Manager Gamble Cuce in Bay Shore, N.Y.
Client type and location, hiring practices, and prior dishonesty losses or incidents determine risk.
A policy covering residential work generally has a minimum $5,000 deductible, said Cuce. Companies working in high-end houses with high-end valuables might have a $10,000 to $15,000 deductible.
Orkin employees are bonded to cover dishonesty, but the program has a fairly hefty deductible, said Gibney. "It’s to Rollins’ benefit to do the background check."
Theft from You. Organizations lose 5 percent of revenue to occupational fraud or white collar crime each year, according to a 2010 report by the Association of Certified Fraud Examiners (ACFE). Small businesses are disproportionately victimized because they lack the anti-fraud controls of larger firms.
Certified Fraud Examiner Allan Bachman, education manager for ACFE, expects more fraud will be uncovered in the association’s next report. More employees are under financial pressure and some may feel entitled for doing the jobs of laid-off coworkers, he said.
Employee thefts increase when the economy sours, agreed Cuce. "You’ll see more claims where people are putting their hands where they shouldn’t be."
A typical fraud lasts 18 months and causes $160,000 in losses. Check tampering and fraudulent billing — paying vendors that don’t exist — are the most common of small business fraud schemes.
"Fraud can happen to anyone, anytime, anywhere," said Bachman. "The idea that it can’t happen here is one of the first downfalls."
Prevent Small Business Fraud
When employees steal from the inside, "You never see it coming," said Allan Bachman, education manager for the Association of Certified Fraud Examiners.
ACFE suggested five ways to help prevent costly losses from white collar crime:
1. Be proactive. Establish internal controls to prevent and detect fraud. Adopt a code of ethics for all employees, and set a top-down tone that unethical behavior is not tolerated.
2. Improve hiring procedures. Regardless of company size, establish formal employment guidelines. Conduct pre-hire background checks and evaluate employee compliance with company ethics and antifraud programs in regular performance reviews.
3. Train employees. Do employees know the warning signs of fraud and how to report suspicious activity? Train workers in basic fraud prevention techniques.
4. Conduct audits. Target high-risk areas like accounting and inventory departments for routine audits. Holding surprise audits for all areas of the business is crucial.
5. Call an expert. When fraud is suspected or discovered, enlist the expertise of a Certified Fraud Examiner.
Prevent It. Bachman advised owners, many who focus on business growth, to "pay attention to small details." Specifically, watch the inflow and outflow of money.
Are you paying for storage space you don’t need, or carpet cleaning and don’t have carpets? "There are a number of ways to run a scam like that," Bachman warned.
If you have fewer employees because of economic compression "you don’t have the separation of duties you might have in a slightly larger organization." One person may be handling many tasks and can get away with a lot if so inclined, he said.
At Orkin, back office procedures have "lots of checks and balances," especially when dealing with money, said Gibney. No one person is ever in control.
The company also has a toll-free "business abuse hotline" employees can call anonymously if they see questionable business practices, said Gibney. (Fraud is more often detected by tip than by any other means, reported ACFE.)
Every call is investigated by Orkin human resources and internal auditors, who turn cases over to police and file charges if necessary. The consequences of bad decisions are "promoted through punitive measures," said Gibney.
Companies also can ensure against white collar crime. First-party dishonesty riders covering office employees can be added to criminal bonds, said Cuce.
As part of the process, she investigates applicants’ accounting procedures, like who has check-signing authority, who reconciles books, whether a yearly audit is conducted or a professional accountant is used.
Employee background checks likewise reduce risk, said experts.
Suspect fraud? Contact an outside professional who can secure evidence for trial or fix faulty bookkeeping, said Bachman.
Local accounting offices, law enforcement agencies, and the ACFE website can direct you to a Certified Fraud Examiner.
The Los Angeles Police Department suggested ways to deter burglars from targeting your business:
• Keep a record of all keys issued and lock up master keys and duplicates. Stamp all keys with "do not duplicate."
• Ensure the business name and address is visible from the street, especially at night.
• Fence your property and secure gates with quality padlocks and chains when not in use. Have a predetermined opening and locking schedule with one employee responsible for that duty.
• Deny burglars access to your roof by securing ladders, pallets, boxes and crates away from the building.
• Store property and equipment in a locked storage shed to protect it from theft and vandalism. Employ alarms, trained guard dogs and security patrols to protect property that must be stored outside.
• Install electronic gates, alarms, closed circuit television and other devices to help detect and identify intruders.
• Keep grass and shrubs trimmed and debris cleared from property to deny burglars a place to hide.
• Install floodlights with photoelectric cells or timers so they illuminate alleyways, rear and front entrances, the roof and parking lots from dusk to dawn. Install vandal-resistant covers over bulbs and place fixtures where criminals can’t easily access or break them. Maintain interior lighting that provides clear visibility into the building for police and civilian surveillance. Replace burnt-out bulbs.
• Use exterior doors of steel or aluminum with anti-shim dead-locking latches and non-removable hinge pins.
• Ensure windows have locking pins, bolts, locks or swing latches to prevent opening from the outside. Install bars or grilles.
• Anchor safes to the floor and illuminate them. Limit the number of persons having access or combinations.
• Install a building alarm that covers every access point, including heating and ventilation grates, and has a fail-safe system, fire-sensing capabilities, and testing feature.
• Familiarize employees with your security system and procedures.
When Outsiders Steal From You. Property crimes declined in 2009 reported the FBI, but that’s little consolation to business owners like Rob Haddox, president of Global Pest Services in Chesapeake, Va.
Since 2008, he’s had two trailers and license plates stolen from his truck yard. The most recent theft occurred in May, when someone stole his Bri-Mar dumping trailer valued at $6,000.
The thief was caught on video by a neighboring company’s newly installed security cameras, but he never was apprehended or the trailer found.
Last February a sheriff’s deputy stole the plates off Haddox’s vehicle and used them in a bank robbery.
White Collar Criminals
Frauds committed by owners and top executives are more than three times as costly as those committed by managers, and more than nine times as costly as employee frauds, according to a report by the Association of Certified Fraud Examiners. Executive-level frauds also took longer to detect.
More than 80 percent of frauds are committed by employees in one of six departments: accounting, operations, sales, executive/upper management, customer service or purchasing.
More than 85 percent of those who commit fraud have no previous charges or convictions for fraud-related offenses.
The most common behavioral red flags displayed by perpetrators: living beyond their means (43 percent) and experiencing financial difficulties (36 percent).
Prevent It. A crime prevention specialist at your local police department can tell you how to make your property less appealing to burglars. Ideas range from installing improved lighting, security cameras and alarms to making sure your property is clearly visible to other businesses and citizen surveillance.
Build good relationships with neighboring business owners and watch each others’ assets, reminded Gurnee Police Crime Prevention Officer Tom Agos in Gurnee, Ill.
Good environmental design also makes your business less appealing to thieves, he said. Examples include well-lighted paths and a clearly marked main entry, along with fences, low shrubs and different colored driveways and walkways that visually reinforce your "territory."
Most insurance companies give a discount if the insured has an alarm, said Brownyard Group Account Manager Peter Young. He suggested owners use safes to store money and securities, install pull-down gates for doors and windows, and store mobile equipment in a tool storage box with dead bolt.
He suggested PMPs carry three types of insurance. Business personal property policies cover property within 100 feet of the building, such as computers, supplies and inventory. Inland Marine policies cover mobile equipment like scanners, laptops and tools when the equipment is away from the insured’s premises. Auto coverage insures service vehicles from theft and vandalism.
PMPs who operate home-based businesses should have commercial property coverage, too, advised Young. Most homeowner insurance will not cover items used in a home business. He recommended owners make an inventory list, separating business contents from home contents, in case of a claim.
The author is a frequent contributor to PCT magazine. She can be reached at email@example.com.