Introduction
Employee theft has become a problem in several industries and more common than one might imagine. In a Midwestern credit union company, a vice president abstracted more than one million dollars from the institution (Swedlberg 42). Although at a much higher scale than the Douglass Café or any food industry, the robbery at the credit union outlines a perfect example of how theft could easily occur within a company. Thieves within a business are usually people in the high ranks; a manager, vice president or even CEO’s. The vice president of the Midwestern credit union company was “a master of trust”; she was the one individuals consulted when there was a problem in their bank accounts and who they trusted to fix the situation (45). Similarly, the accountant for 14 Discount Department Stores in the district uncovered the reason why one of these 14 stores lost money consistently for three years and eventually went bankrupt. Again, the case of a fraudster was presented and the manager of that particular branch was the one who stole thousands of dollars throughout three years. Managers compose the largest group of thieves within industries due to their control of cash and operations within the company (Wells 90).
Rite Aid, although a different industry, reported that 46 percent—$14.9 billion—of their losses are due to employee theft (Kolettis, Mesenbrink 16). Betsy Crespo, a student manager who has worked for the café for over three years, stated in an interview that full time employees have a habit of taking inventory home. They take home everything from whole turkeys to cases of drinks, and student employees will do the same in a smaller scale, where they may take a couple of drinks and some sandwiches. However, all the inventory not calculated in sales goes towards the losses of the café. My former supervisor stated that the financial statements for the past year reached an approximate 250,000 dollars in losses. These losses, he explained, related greatly with the issues many organizations and business deal with on a daily basis. Employee theft and poor management are some of the many problems involving the termination of a business. As in the case of a Discount Department Store that went bankrupt, private investigations led to the sad truth that any employee can be the thief, but managers are the ones most likely to commit the crime (Wells 91). On February 14th, 2003 my supervisor was fired due to cash discrepancies and thousands of dollars missing from the safe along with other allegations. Employee theft does not only constitute cash when dealing with a food company; in the United States, hundreds of companies go bankrupt due to employee theft and “virtually no antifraud training” (Wells 89, 92).
A specific incident I encountered was with the former manager at the Douglass Café. He was a simple man, pleasant to work with and extremely concerned about the well-being of the café. Working as a student manager for him, I did cash transmittals, inventory and all the filing of income statements. I never noticed any ambiguity in his character, and it was not until his termination that I realized the severity of the allegations. Aside from taking money from the safe, the former supervisor also forged signatures of other student managers on the cash transmittals. Figure 1 is a graphic representation of the different areas in which a business or organization might lack proper supervision and will therefore suffer losses. Figure 1 shows that more than fifty percent of the time, a manager of a small business or the CEO of a company are the ones responsible for cash discrepancies. The other forty-five percent of theft occurs within employees or by shoplifters.
Percent of Loss Each Year from Different Industries
Figure 2
In figure 2, the approximate percentage of losses is shown from 1998 until 2001. Income statements, cash flow and industry sizes differentiate for each industry presented above; therefore, the numbers might vary for each one. The Douglass Café is a much smaller industry in comparison with Rite Aid or Discount Stores; however, it suffers higher losses percentage wise. Starting in 1998, the losses from each of the three industries were extremely high. Moving along from 1999 until 2001, losses went down due to new technological improvements and loss prevention tactics to tackle employee theft, shoplifting, and cash flow management (Jennie, Blaine 60). In the next section, four methods that have helped Rite Aid and other companies fight losses are discussed.
Literature Review
As can be seen, employee theft can be classified in many ways, and even though cash constitutes for most of the losses (because cash is more liable), theft of inventory is also at stake. Technology is expensive, but so are losses to a business. Rite Aid, a retailing company suffered drastic losses in 1999, averaging more than $32.3 billion of inventory shrinkage due to internal theft ( Kolettis, Mesenbrink 16). However, with the help of Loss Prevention Solutions director, Reed Hayes, and the National Retail Security Survey, Rite Aid implemented the electronic article surveillance or EAS. The system tracks the amount of inventory from the computer to the register, allowing for the perfect count of items sold in a day (17). Another method used is the StoreVision, by CA Technologies. Giant, another retailing company, uses this option. The system provides information from the register or from a camera directly to a PC in the loss prevention office where information can be reviewed in 5 to 30 minutes. Sales for the company increase approximately 12 percent (Muzzi).
(http://catechnology.com/sviswalkthruf.htm)
Although EAS is widely used by department stores, it is not a system well fit for the Douglass Cafe. EAS is composed of a tag that is attached to all the products within a store, a wiring system that tracks the purchase of all the products, and a software that detects all of the sales information into a PC. However, for a food industry such as the Douglass Café, it would be extremely hard to tag all of the products, given that we are a dining facility. Figure 3 represents the StoreVision system, where cameras are implemented throughout the store, and items purchased are accounted for without a tag. The system works given that cashiers ring up the exact item purchased, and with the re-enforcement of the camera, transactions are reviewed in minutes.
Similarly, supermarkets found that implementing security video surveillance allowed for an increase of 10 percent in revenues ( Seideman 120). Video cameras allows cash management companies to monitor and control movement of money with greater accuracy and effectiveness than ever before, for managers and supervisors will be more reluctant to tamper with cash and illegal transactions such as voids and refund discounts knowing that they are being watched ( Swedberg 45).
Along with surveillance cameras, Seideman states yet another vital tool to cash based businesses (118). In order to accurately monitor company’s transactions, Crate & Barrel added a digital safe to their stores. The safe has the ability to communicate, collect information and change combinations at a moment’s notice (119). Figure 4 illustrates a cashier counting out a till and the digital safe where all the cash should be stored. The surveillance camera together with the luxury of a digital, steel safe creates a well-watched environment for managers to supervise.
When dealing with inventory in the food industry, and menus that change frequently, a periodic inventory-turnover analysis can be an option when looking to increase revenues (Reynolds 54). The focus of the turnover analysis is simple management practices where food operation can provide efficiency and profitability. Reynolds explains that inventory should be treated as an asset; there should be neither excess nor shortage leading to theft. This method of operation can tell whether the food is being used properly or simply being used by the employees who take it home (Reynolds 56). This inventory analysis is very similar to the one used by Rite Aid, where everything is accounted for, however the turnover is conducted in a periodic manner where technology is used to count the inventory sold. Both methods will aid a business in detecting employee theft.
(http://www.toolkit.cch.com/text/P06_4280.asp)
This is a simple example of an Inventory Turnover Analysis. Based on the information, inventory could have been reduced in some areas. The turnover analysis shown above helped Jeff determine the specific items creating a buildup in the inventory of the home repair and improvement department of his hardware store. Eliminating the excess inventory levels will reduce the size of Jeff's investment in inventory and improve his cash flow. Although not related to a food industry, Figure 5 demonstrates how efficient the inventory-turnover analysis is.
Renovation of in-campus dining facilities has proven to increase revenues in many other locations. Students at a private university in Michigan described their dining halls as gloomy and unpleasant experience. Once a new manager came into play, he renovated the facility, carefully selected menus and administered the cash flow of the dining hall so that it attracted students and faculty to the dining hall (Lawn 40). However, the bottom line of the manager’s strategy was increase profitability by carefully analyzing the industry’s cash and investments (42). Cash industries are highly liable because cash is the most liquid asset. By carefully managing cash and inventory, dining facilities can profit immensely in any educational institution.
The Plan
Project Objective
In order to decrease costs and achieve high revenues, the Douglass Café must take into consideration remodeling the count of inventory and cash transaction tactics.
The Initial Steps
To employees:
Informational Seminar for Employees, Managers and Supervisors
Intended to create awareness of the new plan:
- notice of implementing the Loss Prevention Plan
- StoreVision
- Digital Safe
- Inventory-Turnover Analysis
- consequences of employee theft and termination
- distribution of edited employee manual
Retraining Workshops
Each employee in his or her designated station will be retrained during a one-week period in regards to cash handing and inventory count:
- Opening and closing procedures are vital—
- Opening or Closing managers may only perform cash transactions with the presence of another employee
- The keys must be signed for when they are received from a building manager, or given to the building manager at the end of the night.
- each employee and their given station will be re-evaluated by their supervisor
- every employee will learn the procedures of counting cash and or being a witness
- procedures on handling inventory will be discusses
Technical Procedures
To managers and the work place:
Implementation of StoreVision System (POS)
Goal: StoreVision POS (point-of-sale) loss prevention surveillance system is used to detect and deteriorate theft and unintended operation errors at the point-of-sale terminal and other areas of the industry. Furthermore, it serves as an excellent training aid for cashiers, and as a result, leads to less overall shrinkage, leading to high profits. The StoreVision also serves to reduce investigation time.
How it Works:
1. A single screen with multiple windows record all transactions in full motion video
a) The StoreVision Audit Station feature allows you to search and play only desired transactions using the inspection criteria that you prefer.
2. Every information is stored in your PC for 90 days. Given that investigations need to take place, the database finds all transactions and displays then clearly on the screen with a receipt review and replay if needed.
a) The Remote Audit Client feature runs on any Windows 95/98/NT – based PC or laptop.
3. The view mode will allow you to click the mouse and view a replica of receipts on items purchased; void transactions or simply no transactions when items are “purchased”.
Installation Plan and Technical Specifications:
Installing StoreVision is simple and less time consuming than other surveillance plans. Due to high technological advances, the program runs digitally and with no wires
required, therefore, there will be no electrical drilling needed.
Operation System:
- Server Operating System: Windows 2000
- Client Operating System: Windows 98 or 2000
- Register Capability: Unlimited
- Camera Capacity: Unlimited
- Data Storage Capability: Up to 45 days with 9GB drives, 90 days with 18GB drive
- Memory Requirements: Based on number of cameras, addition of hard drive storage is needed
- Hardware Requirements: -1 Image Management Module per 16 cameras
-Ethernet Switch
-Server with processing capability for specified number of cameras
-Client Workstation – Pentium class machine with Windows 98 or 2000
In the Douglass Café:
- StoreVision surveillance cameras will be installed in the safe room, front and back entrance of the Café, storage rooms, in the kitchen and over the registers.
- The master computer where the information will be feeding to will only be accessible to the full-time supervisor and dining services personnel.
- It will be located in the office where a password must be entered in order to access information.
Implementation of Digital Safe
Goal: The Digital Safe serves as storage for cash and tills; therefore, only managers (along with a witness) must have accessibility to the safe. It is “digital” so that each manager has his or her own combination. The safe will keep track of all transactions made by each manager and the times those transactions were made.
How it Works:
- The safe acts like a computer, where all the information is digitally stored
- This information is fed into the computer in the main office and added to the cash transactions database
- managers are identified by a number given their differentiated passwords
- all transaction times are recorded
3. The “smart” safe also has the capability of changing combinations at a moment’s notice through data in the computer
In the Douglass Café:
- The digital safe will be an asset to the StoreVision system where both machines will be synchronized by the same computer system.
- The digital safe will take place of the old safe and will be watched by the surveillance cameras.
- Along with the safe, witnesses will still be required, and upon every cash deposit both signatures are needed on the deposit envelope assuring that the right amount was accounted for.’
Implementation of the Inventory-Turnover Analysis
Turnover analysis is the most basic and fundamental tool for controlling your investment in inventory. Turnover analysis looks at your business’s investment in individual items or groups of items making up your entire inventory.
Goal: The analysis will help decide whether investments in inventory are excessive, too low, or just right. From a cash flow perspective, performing turnover analysis is useful for finding inventory items that are over-stocked or inventory that is being stolen.
How it Works:
Since the turnover analysis focuses on individual inventory items or groups of items, it requires that:
- Periodic count of all the items making up your total inventory is taken
- the Café already takes a physical count of its inventory, so the information is already available to perform the turnover.
- Number of inventory items sold on an individual basis is accounted for
- take into account the number currently on hand
- the number sold
- then, the number on hand in relation to the rate at which each item sells
- The register receipts prints out every item that is sold in a day, so if there is a discrepancy on items sold and the number left in inventory, the issue can be addressed right away.
In the Douglass Café:
- Weekly physical inventory count should still take place every Fridays
- two managers or employees should be designated to this area so that there is always a witness.
- The inventory to sales ration is calculated by dividing the inventory balance at the end of any month by total sales for the same month.
- at the end of every month the supervisor should designate a weekend to calculate the inventory to sales ration
Table of Contents
Abstract…………………………………………………………………………i
Table of
Contents…………………………………………………………………………ii
Table of
Figures…………………………………………………………………………..iii
Executive
Summary………………………………………………………………………...iv
Introduction……………………………………………………………………...1
Employee theft…………………………………………………………………..1
Percentage of losses by industry……………………………………………...2
Literature Review………………………………………………………………..3
Different Surveillance Systems to prevent losses…………………………...3
Cash monitoring………………………………………………………………...4
Inventory-Turnover Analysis…………………………………………………..5
The Plan………………………………………………………………………….6
Project Objective………………………………………………………………..6
The Initial Steps………………………………………………………………....6
Technical Procedures…………………………………………………………..6
StoreVision……………………………………………………………. .7
Digital Safe……………………………………………………………..8
Inventory-Turnover Analysis…………………………………………9
The Budget………………………………………………………………………10
Discussion………………………………………………………………………..11
Works Cited……………………………………………………………………...12
Table of Figures
Figure 1: Theft Comparison between
Managers & CEO’s, Employees and Shoplifters………………………………..1
Figure 2: Percent Loss Each Year of Different Industries
Douglass Café, Rite Aid and Discount Stores……………………………………2
Figure 3: StoreVision by CA Technologies
Store Surveillance System………………………………………………..… ……...3
Figure 4: Cash monitoring and the
Digital Safe………………………………………………………………………..…4
Figure 5: Inventory-Turnover Analysis
Example………………………………………………………………………………..5
The Budget
This budget is an estimate of the maximum cost incurred on the Douglass Café, a division of Rutgers University Dining Services, for the implementation of StoreVision surveillance system, a digital safe and proper training to perform the inventory-turnover analysis. The budget below is calculated for the first year’s total costs for startup and for the following year’s total costs for maintaining.
Technology Installment
- Six Surveillance Cameras (6 x 375)……………………………………$ 2, 250
- Image Management Module (1 x 500)…………………………………$ 500
- Installation Fee …………………………………………….... $ 150
- Pentium class machine with Windows 98 or 2000…………………… $1,557.99
- Digital Safe…………………………………………………………….$ 3,450
Total = $ 7,907.99
Labor and Training
- Technicians ( 2 x $ 60 per hour for 7 hours)………………………….$ 840
- Informational Seminar for employees
- 35 employees at approximate $9 per hour for 2 hours…………$ 630
- Inventory Turnover Training Session
- 2 managers at $ 8.50 per hour for 10 hours of training…………$ 170
- 2 hours per week for actual turnover analysis (1 year)…………$ 3,536
Total = $ 5,176
Total Cost for First Year………………………………… $ 13,083.99
Total Annual Cost…………………………………………$ 7,535
Discussion
My proposal is extremely complex and involves many areas of the Douglass Café, however, the intricate plan is safe and has been proven to work in several other industries. Aside from the project being affordable, it involves simple managerial steps in order to stop theft infiltration. In comparison with the approximate $250,000 dollars in losses incurred by the Café, my plan is not only affordable, but it will prevent any other leakages.
The new StoreVision will allow information to be stored for 90 days in its database; given any discrepancies, information can be retrieved and investigated in no time! Furthermore, with StoreVision managers or supervisors will be able to accurately evaluate employee’s performance. It is easy to use and can be installed on any PC or laptop. The Digital Safe is cheap and has the ability to communicate, collect information and change combinations at a moment’s notice. The system will take place of the old safe and better assist in keeping the cash flow information accurate and up to date. The Inventory-Turnover analysis might seem like unnecessary strenuous work; however, after a few months, the Douglass Café will only see profits on the income statements. The analysis allows for a better investment plan on inventory and less excess inventory to attract thieves.
With such a small fee and some changes within the operations of the Douglass Café, there will only be room for profits. Better management is hard to achieve, and one person does not have 10 eyes to watch what goes on at all times. The plan is designed to keep honest employees, honest.
Works Cited
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Crespo, Betsy. Personal Interview. 25 Feb. 2003
James, Jennie and Greteman, Blaine. “How to Stop Sinking.” Time Atlantic. 25 Nov.
2002. Vol. 160 pg. 60
Kolettis, Helen and Mesenbrink, John. “Guarding the Shelves.” Security. Troy: Feb.
2002. 14-18
Lawn, John. “Born to Run.” Food Management. Cleveland: Oct. 2002. 38-42
Muzzi, John. “All the Fixin’s.” Security Management. Arlington: Dec. 2002
50-52. Vol 44.
Reynolds, Dennis. “Inventory-Turnover Analysis: Its important for on-site food service.”
Cornell Hotel and Restaurant Administration Quarterly. Ithaca: Apr. 1999
54-58
Seidman, Tony. “Digital Technology Makes Cash Handling More Secure.” Stores. New
York: June 2002. 118-122
Swedlberg, Jamie. “A hand in the Till.” Credit Union Management. Madison: Aug.
- 42-45
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Wells, T. Joseph. “Control Cash Thievery.” Journal of Accountancy. New York: Jun.
- 88-92.