Employee Collusion

In less than three months, the video department of a large Canadian grocery store had an inventory shrinkage of over $140,000, on sales of just over $400,000. That’s a 35% loss. Yet, there had not been one apprehension of any shoplifters in that period, due to heightened electronic article surveillance use. As well, close monitoring of shipments through the receiving doors and of bookkeeping in the office eliminated those two spots as sources of the loss. Then, one of the regional loss prevention officers noticed an oddity: there were several $1.47 and $1.49 sales in a two-week period, midway through the 3-month section. And, in every case, those odd sale amounts occurred during the shift of one employee. They began to monitor him closely.

Nothing happened for two months, until the employee again felt comfortable that he was not being watched.  Then, he sold a television to a young man, ringing up the sale. But the customer offered up only a ten dollar bill for the purchase, which was worth nearly $1,500. The team of investigators waited until the customer left the store, then apprehended him discretely. Another investigator continued to watch the employee. Within the hour, another young client purchased a laptop, a gaming console and software. Total value was $2,300. Again, only two fives were tendered. Now they had a pattern. The second customer was arrested, and the employee remained on duty while the LPOs waited for the police to arrive. In the meantime, they interviewed the “customers.” Both willingly talked, telling of the chain of purchases that they and four others had been making at the store. They repeated their confession to the police. Even though the employee later denied it, he was charged and convicted of eighteen counts of fraud. Only $22,000 of the almost $150,000 was recovered. That was the impact of collusion.

Collusion between staff and customers can be problematic in any operation, from retail to manufacturing, from office to service from warehousing to transportation. But it is only one arm of a many-limbed problem, with collusion between bookkeepers and suppliers being one of the most common sources of theft and fraud. Back-door loss often occurs when delivery driver and receiver/shipper choose to cooperate to commit theft or fraud. Sales reps and floor managers, employees and forepersons, bookkeeper and cashier, merchandiser/stocker and receiver or supply company office staff and receiving company back door employees also are common combinations.

Collusion also is one of the most difficult forms of theft or fraud to detect and deter, as well. Simple cameras or basic control systems frequently are not enough.  At the same time, catching such collusion does not guarantee conviction, as it may be difficult to show that the employee knew he or she was causing a loss, if an arrest is based on only one incident.

To reduce collusion, regular monitoring & surveillance, knowing each employee individually, established policies and consistent  controls are essential. Collusion can be reduced, but it is almost impossible to eliminate. Your best choice is to keep the opportunity for loss to a minimum, by being a hands-on owner or manager.