US firms hit by the recession are losing more than money and people – they
are seeing their company assets diminish too as laid-off staff steal company
property as a parting shot. What can UK personnel managers learn from their US
counterparts who have been dealing with this costly phenomenon since the
downturn began over a year ago? By
Stephen Phillips
Companies might send us an asset list of 100 laptop computers, but by the
time we see it they’re down to half that." John Rademaker, director of
auction services for industrial auctioneer Dovebid recounts the toll of
employee theft – a personnel management nightmare as the recession bites and
the threat of layoffs creates masses of light-fingered workers.
Operating from Dovebid’s flagship practice just south of San Francisco,
Rademaker has seen a surge in business as folded dotcoms dispose of their
assets. However, by the time the corporate inventory winds up as auction lots,
laid-off staff have depleted the stock somewhat.
Rademaker tells of industrial-strength corporate servers stripped bare of
their processors. The same items frequently surface on consumer Internet
auction sites, he says, where they command respectable price tags.
In the majority of cases, though, employees embezzle items for their own use
– slipping a laptop into a briefcase, swiping a fax machine or raiding office
supplies.
And it doesn’t stop there – ever-sophisticated thieves download trade
secrets, proprietary information and other corporate crown jewels that they
hope can be used to secure a job with a rival.
Thefts accompanying layoffs are nothing new. "It is cyclical –
different times, same game," observes Westbrook, Connecticut security
consultant John Kennish, author of a pamphlet on employee theft.
But this time around, frenetic recruitment and purchase of new equipment
during the preceding boom may have left employers more exposed than previously.
Moreover, many of today’s office items double as desirable consumer products – PCs
and laptops top thieves’ shopping lists.
Tim Dimoff, CEO of SACS Consulting and Investigating Services, Ohio, says
his firm has been inundated with requests from companies to secure their
locations amid cutbacks over the past 18 months. In November, the security firm
was retained by a manufacturing firm going into liquidation. Disgruntled staff
working their notice had already hauled out gear worth more than $20,000,
Dimoff says. "They thought they were entitled to it because the company
was going out of business."
He advised the manager not to let employees in for their final week.
"They would work, but they would steal more than [the value of] their
work."
Kennish says: "The majority of companies don’t publicly report theft
because they don’t want the embarrassment of publicised lawsuits."
As well as exposure to counter lawsuits from employees in hyper-litigious
America, it is prohibitively expensive to go through the courts to try to
recover stolen items spread across multiple former workers.
Meanwhile, employers’ prospects of collecting on insurance covering stolen
goods are slim, with many policies containing clauses excluding payouts for
crimes without clear-cut breaking and entering.
Recovery problems can be compounded by poor inventory record-keeping or
tracking of employees checking out laptops for home usage, for instance.
This is especially true of dotcoms that typically spent lavishly to gear up
for anticipated demand during the Internet boom, then contracted just as
precipitously as orders failed to materialise.
"Accounting for items is very important for establishing a trail of
ownership and who things were issued to," says John Case, president of
California-based security consultancy John Case & Associates. "Dotcoms
grew too fast – they didn’t put in place procedures or put them in and didn’t
enforce them."
The get-rich-quick mentality of much of the new economy workforce also puts
dotcoms at the sharp end of the employee theft problem. "What you have is
people who had their hearts set on becoming multi-millionaires – they get their
hopes dashed and this feeds a desire for revenge," says Rademaker.
Security consultants like Case are typically retained by US firms to guard
premises during layoffs. This entails dispatching a security detail to
physically guard equipment and install surveillance cameras.
But experts concur that prevention of layoff-related theft should start much
earlier and HR professionals have a key role to play. "The old adage
applies – strive not to hire other people’s problems by doing background and
criminal history checks," says Kennish. Even temporary staff should be
carefully screened, he advises.
Induction meetings are the time for personnel professionals to "set
forth the consequences if someone is caught stealing", according to Jim
Ratley, programme director at the Association of Certified Fraud Examiners,
which vets US fraud investigators. Ratley notes that a policy of naming and
shaming thieves who are caught fails to serve as an effective deterrent to
others. "[Employers] who investigate fraud have no less incidents than
those who don’t – the real difference lies in prevention." Moreover,
prevention can usually cut fraud in half at less than one-tenth of the cost of
an investigation, says Ratley.
The cornerstone of any prevention programme should be a freephone number for
staff to anonymously report theft, he suggests. "Give employees a way to
tell managers what they need to know without giving their name – there’s
nothing worse than being branded a snitch."
Ultimately, HR managers have their work cut out curbing employees bent on
theft, agree the experts. Where they can have an impact, however, is with
opportunistic stealing – which accounts for most inside jobs. This means
minimising grounds for grievance and reducing the chances of staff thinking
they can get away with stealing.
However, spiralling demands on employees have created a culture of
entitlement across all types of organisation that lies behind the broader
phenomenon of staff theft, say experts. "Employees are going 150 miles an
hour wearing different hats and feel they are entitled to more than the
employer is providing," says Dimoff.
Industrial psychologist Stanley Harris, Everett, professor of management at
Auburn University, extends the economic concept of equity theory – which
suggests people seek fairness – to the problem. "When [employees] feel the
outcome they are receiving from work is unfair they are motivated to correct it
– theft is one of a multitude of options to re-establish this sense of
fairness."
According to Dimoff, increased willingness to steal also stems from growing
estrangement between employers and workers. "There’s less of a dedication
to the company because workers feel the company is less dedicated to
them."
Dr John Byrnes, head of the Center for Aggression Management, ranks theft
alongside tardiness and absenteeism as classic "passive aggressive
behaviour".
Perpetrators frequently rationalise their actions, even denying that they
steal says Harris. "Most people cannot live with themselves if they think
of themselves as a thief so they look for ways to justify it like, ‘I’ve given
my sweat and blood to this place’."
Harris also says peer pressure can engender a free-for-all atmosphere,
enticing people who normally wouldn’t consider stealing to get in on the act.
"It’s like bankruptcy, which had a stigma until everyone started doing it
– if other people are [stealing], it’s easier to justify it."
Fundamentally, HR can minimise layoff theft in the way it handles redundancies.
"HR [managers] have direct control over the methods by which people are
released – people can tolerate being laid off but not bad treatment," says
Dimoff. "There are two methods of letting someone go – the cliff or the
ramp.
"The more humane way might be outplacement or pay severance, but we see
more of the inhumane methods where [workers] are handed a pink slip and a
cardboard box, escorted to their desk and told to clear it and leave."
Unfortunately, in the current straitened economy many employers,
particularly dotcoms that recruited most intensively in the boom, find it
beyond their means to give workers a soft landing into the ranks of the
unemployed.
In the increasingly common instance of workers being summarily given their
marching orders, they have scant chance to swipe items as they leave. But by
this point, or even if they are working out a period of notice, the danger has
passed anyway, according to John Case.
"In the last days [workers] know something can be tied to them, it is
the threat of layoffs that increases the risk of theft in the workplace,"
he says.
Such a spectre has hung over staff across the economy as companies flagged
planned job cuts in quarterly or half-yearly financial reports. A
representative at a major Silicon Valley-based multinational firm, which has
followed this practice, says it posted notices in offices reminding staff to
return notebook computers and other items issued for home use. "We have
very strict guidelines and have not had any incidents," says an anonymous
manager.
All too frequently, however, investigators see internal controls lapse
during layoffs. "Faced with restructuring an entire department, one of the
first things to go is internal controls – companies lose track of inventory and
record-keeping goes out of the window," says Ratley.
This places employees in the path of temptation, according to Ratley.
"People find themselves in an environment that is friendly to theft."
Case suggests frisking staff at the gate or docking non-returned items from
their final pay packets, but notes that employers are often reluctant to take
such action. "They don’t want to kick an employee when they’re down."
Meanwhile, Dimoff advises downsizing companies to shut staff out on their
final day. "Pay them for it, but don’t let them in. If you can decrease
the opportunity to steal you can reduce theft."
Nevertheless, such logical solutions discount the human factor of dealing
with people who have often devoted a major part of their life to a job and are
leaving friends behind. Experts suggest that a clamour to beef up security
could herald a return to heavy-handed people management regimes that previously
damaged staff morale. There is a trade-off between "freedoms and a safe
environment", admits Bill Napier, CEO of United National Security, based
in Ohio.
"If you increase security you increase inconvenience, HR managers and
security directors need to weigh this up."
This is the fine line HR finds itself treading as the recession deepens. If
it doesn’t reduce its organisation’s exposure to employee theft, cost-cutting
layoffs could prove to be a false economy.
Recent theft incidents
July 2001: A former Motorola
worker, whose security clearance was not revoked after he was laid off, is
arrested for stealing computers and other equipment worth $445,549 from the
electronics giant’s Oak Hill, Texas plant. Authorities said the man peddled the
loot at a local airport and on eBay, masquerading as the head of a bankrupt
technology firm.
July 2001: $100,000 worth of
equipment from a bankrupt San Francisco dotcom is looted by former employees as
it is stacked up ready to be transported for a liquidation sale.
September 2001: SACS
Consulting and Investigative Services is called in to secure the premises of a
failed dotcom, but only after former employees at the Cleveland, Ohio Internet
firm made off with armfuls of computers, monitors and printers. The heist left
executives, venture capitalist and other financial backers to whom proceeds
from a planned sale of the equipment had been pledged, out of pocket to the
tune of $50,000 to $100,000.
How to prevent employee theft
during redundancies
– Conduct thorough background checks
on new recruits
– Notify recruits of company policy on theft at induction
interviews
– Offer a freephone number for staff to report incidents
– Compile inventories of equipment and keep track of who is
using what or has taken it off-site. This helps with insurance claims
– Check workers’ bags
– Retain additional security guards and install
surveillance cameras
– Revoke laid-off workers’ security clearance
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– Offer redundancy packages that help ease workers back into
the jobs market. For instance, six months usage of an outplacement service
– Where workers on notice are clearly disgruntled, don’t allow
them onto the premises for their final day – pay them at the front gate
