Occupational fraud, more commonly called “employee theft”, costs businesses billions of dollars a year. It’s not just office supplies that employees are swiping; large sums of money are being stolen from employers, leaving lasting and devastating effects on businesses. Non-profits like Habitat for Humanity are not immune to employee theft. This is why the Habitat for Humanity Affiliate Insurance Program wants to help your affiliate reduce the risk of such losses.
Habitat for Humanity ReStores are subject to significant risks of this nature. They are open to the public and engage with all kinds of people from all walks of life. They deal with unpredictable donated items that are usually not inventoried, and most of the sales business is cash based. Mitigating risk to the name and mission of Habitat for Humanity is the single greatest reason for effective cash controls. Affiliates around the world are doing amazing, life changing work. Their good work should not be allowed to be tainted by the misdeeds of a few renegade “bad apples.” As employees and volunteers with Habitat, we are charged with being protectors and good stewards of the assets entrusted to us. With the Habitat for Humanity brand name as widely recognized and as valuable as it is, we need to be very intentional and careful about maintaining that integrity.
It is imperative to frame your ReStore as a legitimate business, not just an extension of the affiliate ministry or a program. In the business world, there are all kinds of reasons for failure: lack of leadership, inefficient operations, poor customer service, etc. Within the NPO and earned income strategies in general, there are even more. One added reason is a blind philosophy that the mission will prevail. This extends in the world of ReStores with the myth existing that the virtue of our ministry downplays the need for any efficient cash control system. Good money management is an essential practice of any business.
According to a 2010 Global Fraud study, conducted by the Association of Certified Fraud Examiners, the median loss caused by employee theft was $160,000. In many cases, the criminal activities lasted an average of 18 months before even being detected. The study also found that businesses with fewer than 100 employees suffered the greatest percentage of employee theft, with the reason being that small businesses typically have fewer anti-theft controls than larger organizations. Executive Directors, especially in smaller affiliates, wear many hats. They are at all times running a mortgage lending service, a home remodeling and construction business, engaging in proactive fundraising and business development, as well as being the face and name of the organization in the community. With ReStores, now they are tacking a primarily cash based retail business into the mix.
Doing proper due diligence and hiring the right kinds of employees, while simultaneously creating an internal culture of accountability, are the best deterrents of employee theft.
TRUST BUT VERIFY- SELECTING THE RIGHT EMPLOYEES
A good way to detect the character of someone you’re considering as an employee is to verify past employment. While a prior employer may not tell you more than the dates the person was employed, they may give an impression of the candidate through the tone of their voice. Also, ask if the applicant is eligible for rehire. Aside from past employment verification, verify their education and licenses or certifications as described on a resume, especially if the person who holds the position will be handling your financials, running the cash register, or operating your ReStore donation pick-up service.
Drug screenings for all employees, even random, are another way to verify and reinforce the culture of accountability.
Additionally, conduct reference and background checks. Many applicants list people with important sounding titles, expecting that the hiring manager will not actually look into the references they’ve provided. Call the references and ask about their impression of the candidate. Check for prior criminal convictions, especially convictions that involved dishonest conduct or theft. Public record services such as Nexis and ChoicePoint have criminal conviction records for most large counties in the US. Most companies look for not only local crimes, but any state or federal offenses. If you are hiring a driver for your ReStore, also check their driving record.
You may need to obtain the consent of the candidate before conducting some of these checks. Numerous federal and state laws governing the gathering and use of information for pre-employment purposes, such as the Fair Credit Reporting Act, require that you obtain written consent from the candidate before amassing some types of information listed above. Check with your local attorney for particular requirements that may be applicable in your state.
Be consistent. If you choose to screen one candidate, you must screen all candidates.
POLICIES AND PROCEDURES THAT HELP DETER FRAUD
Treat Employees Fairly. Pay your employees fairly and try not to show favoritism. When employees feel cheated or de-valued, they are more likely to justify stealing. Minimize the opportunity for someone to rationalize stealing from your organization by compensating them with a fair wage. Unfair wage compensation and forced volunteer work not only increase the rationalization for employees to consider stealing, but these practices by employers are also illegal. Check out information on fair wage labor laws here.
Have an Open-Door Policy. Your employees are the people who are most aware of areas vulnerable to fraud. Talk to them and ask them for their help in reporting possible areas of concern. Make employees feel that it is okay to discuss concerns with management and that discussions will be kept confidential. When they do discuss their concerns, act accordingly. Ask questions, and be supportive. Post the accessibility to mysafeworkplace.com, where anonymous reporting of issues such as ethics violations, theft, fraud, discrimination, harassment, and substance abuse can be reported to the appropriate personnel within your organization for investigation and action without fear of revealing your name. MySafeWorkplace is a secure, third party anonymous incident reporting system not affiliated with any religious or political group.
Create a Culture of Accountability. If employees feel that they collectively represent and embody the organization, and they subscribe to the zero tolerance attitude toward employee theft, and the likelihood of being caught and ultimately fired is high, they will be less inclined to steal from you. It is possible to create this perception by implementing these procedures:
Conduct Regular Audits – Developing audits that focus on high-risk areas for fraud is something that many organizations have found to be effective. Select random days to verify that employees’ cash register drawers properly reconcile and that all cash handling policies are being upheld. Randomly check for hidden merchandise throughout the store, check for cash on hand in the store, and verify donation processes with random donor call backs. Check to see that gas receipts for the ReStore trucks match the expense reports, and audit any materials claimed in ReStore by affiliate construction supervisors for house projects. Other areas to consider auditing for fraud include: expense reports, payroll, purchasing, sales, accounts receivable, customer complaints, any cash donations to ReStore, alternative revenue streams at the ReStore (funds generated from scrap and recycling),the ReStore daily sales journal, as well as expense accounts.
Conduct Unannounced Audits – When employees know that audits will be conducted at random they are more likely to be trustworthy. Consider utilizing secret shoppers and donors a few times a year to report back their experiences. Again, inform your employees that random audits will occur and that they will be unannounced.
Third Party Audits – Hire an independent CPA to perform an annual audit of the financial records and procedures. Have the CPA report to the Board of Directors. Have them make recommendations on areas of vulnerability. Have a series of checks and balances in place at all levels of the affiliate. Know who is assigned to oversee what task as it relates to loss control.
Cash Handling, Receipt of Donations, Check Writing and Expense Payouts – Draft and adopt best practices to ensure that there are multiple levels of oversight with respect to these transactions. Make sure these policies are written and treat any suspicion of theft as a violation of policy, unless they are caught red handed. It is much easier to suspend an employee on the grounds of policy violation than vague hearsay about theft.
All sales are done at the register, no exceptions, and no excuses. The risk is too great for a manager or other staff to say, “Yeah, that sofa is $20, just give me the cash and I’ll help you load it.” Every sales transaction needs to be run thru the register. Each customer needs to get a receipt.
Monitor staff parking. Your best spots at your ReStore should be reserved for your customers and donors, especially if your ReStore and affiliate share a building. Have staff and volunteers park elsewhere on the property but be careful of staff vehicles parked too close to the donation drop-off center; It may be tempting for a staff member to throw that donation in the back of their vehicle before anyone notices.
Make Vacation Time Mandatory – Many times fraud or thefts are noticed when a perpetrating employee is away from the office for an extended period of time, allowing another employee to take a look at the books.
If you do catch an employee stealing from your business and can prove it, notify the police and press charges. This will demonstrate to your employees that Habitat for Humanity takes employee theft very seriously.
As an affiliate, carefully review the employee theft prevention controls you currently have in place, if any. Determine if the procedures are being followed and if they are effective in deterring employee theft. Management should be constantly looking for ways to improve procedures. Theft prevention is an ongoing process that requires continuous evaluation and improvement. As we continue to develop and shape the ReStore business and interact with more and more of the American public as donors and shoppers, it is imperative that we minimize the risk to our reputation. There are real world consequences for inefficient loss prevention systems.
If you have any questions about this information please call the Habitat for Humanity Affiliate Insurance Program at (888) 553-9002.