Opportunity is the most volatile of the three elements of theft since, by definition, opportunity may emerge from unsuspecting areas and forces. It evolves. To mitigate against opportunity, a business owner needs to increase risk.
Most often, opportunity in a business raises from the owner’s unfamiliarity with the nuances of theft and fraud and the prevalence of these crimes. Without exception, my new clients were startled to find the depth of the theft and fraud problem in their operation, even if they had called me to take a look at their operation.
One client—a chain grocer—expected that they had a significant theft problem, because their inventory shrinkage was averaging nearly $300,000 per year on an operation that typically had a 3-5% profit margin. Shrinkage, by the way, is defined as the difference between ideal inventory gross profit and actual gross profit. It did not mean, in this case, that the store was losing money, since it had adapted many of its other costs to decrease operating and even capital expense.
In the first month, I worked exclusively on shoplifter surveillance, working 32 hours per week (they were one of my first clients). In one month, I apprehended 87 shoplifters and two outside supplier salespersons (quite accidentally and incidentally). That was about 135 hours of work, including observing, arresting, documenting and waiting for the police. About one and a third hours per shoplifter!
The quarterly inventory count showed more remarkable results. Their usual $75,000 per period shrinkage had been cut to a mere $10,000. Those results improved over the coming years.
The more remarkable results were that over 85% of the apprehensions were of regular customers, rather than big-ticket, grab-and-run thieves.
That statistic speaks to the risk that the regular customer poses to your profitability, and to the misguided belief that stores are at greater risk from professional thieves.
Over the years, we discovered that the majority of employees we caught also were long-time employees, rather than new workers. The suppliers, drivers and salespeople we caught also were trusted, regular contacts of the businesses.
There is only one dominant reason for this. The more familiar a thief or fraudster is with systems, layout and operations, the easier it is to commit the crimes.
But identifying opportunity is more nuanced than noticing the obvious. Many of our apprehensions came as a result of the deviant creating their own opportunity, due to lax systems in the business. While the need to provide safeguards is clear, you cannot anticipate every possible avenue of theft, unless you also can think like a thief.
I have encountered thieves that actually spent a long time convincing their employer of the benefit of changing a process or system to ostensibly improve the operation, while, at the same time, plotting their own deviance.
My own brother was an example. He was an incredibly skilled machinist, welder and designer. His employer counted on Garry to come up with ingenious solutions for clients. But that meant my brother had to experiment. And experimenting meant waste, particularly in the metal fabrication business.
So Garry convinced the boss to purchase specific supplies and materials that he needed for a new design. Sometimes, that piece or idea did not work out. His boss let Garry toss out the failed piece. After all, the company would bill the development costs to the client anyway.
Garry then convinced the boss to let him source out the supplies he needed and go pick them up. Made sense. Garry knew what he needed, where to get it and how much he should buy.
Now Garry had created the perfect storm of benefits for himself, while still fulfilling his boss’s needs. After all, Garry had his own secret agenda. He was working on his own projects at home, and almost all of the failed pieces actually were perfect for his project. By design of course. So, each night, he would retrieve the scrap metal from the garbage bin and take it home. Again, because the boss had told him he could help himself to any of the garbage that he wanted.
In eight years working for Empire Metals, Garry built an entire backhoe and trencher (smaller scale), a small landscape dozer, a hydraulic stump grinder and assorted other equipment. To purchase them would have cost Garry over $130,000 (in the 1990s). His cost was under $18,000.
He had created his own opportunity, fueled by his employer’s lax systems.
If opportunity and familiarity with a business and its systems go hand-in-hand, the opportunity is multiplied many times where trusted employees are family members or close family friends. In fact, an analysis of our apprehensions of employees, over a twenty-year period, found that close friends and relatives of business managers or owners were 325% more likely to commit fraud and 150% more likely to commit theft than non-close connection employees with equal opportunities.
The perception of opportunity changed, with the belief that the deviant’s friendship or relation would provide some immunity from suspicion.
Scores of examples bear out the theory, which also was reinforced by statements made by those deviants at the time of their exit interviews.
One pharmacist employed a close family friend as his bookkeeper. When we investigated and found that she had been tripling her salary through fraud, we recommended that he terminate her sand demand restitution. He did receive restitution but advised us that he felt she had learned her lesson and would not repeat the behaviour.
Two years later, we found that she was stealing again.
Another trusted friend working for a small retailer had been discovered to be conducting fraudulent cash transactions. When we began overt surveillance of customers in the store shortly after conducting the mystery shopping, we arranged for hidden cameras to monitor various areas of the operation. We caught another employee, but did not observe the friend of the owner stealing or committing fraud for over three months.
Then, she began stealing again, pocketing approximately $100 per day. The day before we apprehended her, she had the owner—her friend—and spouse over to her place for a barbeque (ironically, paid for with the money she stole the day before).
When I conducted her exit interview, I asked her why she had started stealing after a three-month hiatus. She replied, “because you never arrested me before.” An odd answer indeed, since it would have been hard to arrest her when she wasn’t stealing.
She saw that, because I had apprehended other employees and customers and not her, I must not be watching her and that meant that her friend and boss trusted her. Both a peculiar interpretation of opportunity and a peculiar motive were at play.
In part, she was creating her own opportunities.
This is common in all aspects of theft and fraud. With a strong motive, many thieves or fraudsters will manipulate the environment to create an opportunity. These emerging opportunities or changing circumstances need to be evaluated regularly, to minimize the risk of reviving theft and loss patterns.
A grocer client hired our team for sixteen hours per week of surveillance in his store. It operated in a high-risk community. In our first month of approximately 68 hours, we caught 61 shoplifters. It was an incredible result but expected. In the second month, we caught 37, followed by 31 the third month.
Both our presence and highly visible apprehensions (there were many fights and scuffles), as well as the law of diminishing return meant that we would have a progressively decreasing rate of apprehensions per hour, until a plateau was reached. I had explained this to the owner.
After a year, we were averaging 15-18 apprehensions per month: still a significant amount but far less than at the outset.
The owner opted for false economy, decreasing our weekly contract to 10 hours per week. Our hourly rate of catches remained at about 1 every 4 hours, but instead of 64-68 hours and 18 catches, we now faced 22 hours and 6-8 catches. He chose to end surveillance.
I advised him that his theft would skyrocket as soon as our visibility evaporated. I also told him that our rate would be much higher when he called us back, since we were providing him with an extremely low hourly billing rate.
Less than a year after ending surveillance, he asked us to return. We did not have the manpower to take on new contracts and maintain quality, so we advised him that we would begin surveillance three months from then. We also advised him of the 25% increase in rates.
He was startled. “I thought we were a valued client.”
“Yes,” I replied, “until you were not longer a client.”
He paid the price and never complained further. Our apprehension rates, after a new initial period, returned to the one-every-four-hours rate, and he never suggested cutting back hours. In fact, he contracted for 20 hours per week, thereafter, and his operation’s profitability increased.
The changes in his apprehension rate largely were attributable to a perceived change in risk of detection (the other side of opportunity).
Opportunity, like motive, needs to be viewed from the perpetrator’s perspective, rather than your own. However, there are both perceived opportunities and risks, and real opportunities and risks in every business. Each must be evaluated routinely.