MANAGING FOR PREVENTION

by Robert A. Gardner, CPP

According to U.S. Department of Commerce statistics, small businesses are 35 times more likely to become crime victims than businesses with receipts over $5 million. Insurance Industry estimates show that losses from employee dishonesty alone cause up to 30 percent of all business failures. Add to that losses from crimes committed by outsiders against business property, employees and customers.

Crime does have a significant negative impact on the small business. Yet, security and loss prevention are among the most neglected and poorly managed aspects of small business operation.

Failure to adequately address the crime threat can have serious consequences. Allowing opportunities for theft and dishonesty to exist certainly aids the true criminals who actively prey on vulnerable businesses. This alone is bad enough, but it gets worse. A lax environment where opportunities for theft abound can lead even the honest person into temptation.

Studies show that roughly 25 percent of a typical workforce are prone to dishonesty and will actively seek out ways to steal. Another 25 percent are extremely honest and would seldom steal. The remaining 50 percent are basically honest, but given opportunity and an apparent lack of concern by management, they may steal. Management's attitude toward loss prevention is the key to maintaining their honesty.

There is a misconception that security and loss prevention programs are too expensive. Small businesses often operate on the financial brink - especially during their first years - and the added expense of a security program may not seem justified. In reality, businesses that can afford it least, usually need protection most.

Security hardware and alarm systems can be expensive, but they're only part of a loss prevention program. Policies and procedures are the heart of any good security program and they normally involve little or no added expense. Management's most effective tool is a written loss prevention policy which: (1) spells out loss prevention procedures to be followed by company personnel and; (2) clearly describes the conduct expected of employees. Every aspect of business involving protection of personnel, property or assets should be addressed. Examples of key areas could include: employee selection, employee conduct, customer relations, inventory control, cash handling, return policies, trash disposal, access controls and physical security...etc.

What is most important, is that policies and procedures are well thought out and truly reflect the needs of the business. Too often, loss prevention measures are implemented as a hurried reaction to a bad experience. These are frequently emotional rather than logical decisions. Little or no research is done. Little effort is made to distinguish between real and perceived problems. No consideration is given to alternatives. The end result is a collection of independently operating procedures which, in some cases, may actually make matters worse. The benefits of a thoughtfully designed and coordinated system are lost. The patchwork approach to problem solving works no better in loss prevention than it does in the rest of the business world.

Loss prevention programs safeguard company assets. The first step in establishing a program involves identifying those assets. Inventory, equipment, supplies and cash are assets; so are people. Protection of employees and customers is an essential, but often overlooked, program element.

Employee morale and customer goodwill are also assets. Where theft is rampant or crime presents a physical danger, both employee morale and customer relations suffer. Worst of all, irreparable harm can occur when customers or members of the public are victimized by an employee. A good reputation and public trust are crucial. Lost property can be replaced. A business with a damaged reputation or loss of public trust may never recover.

The most important asset in any business is its personnel. A key element in every loss prevention program is the employee selection process. Background screening should be a standard part of the hiring routine. Identifying applicants with a history of dishonesty, instability, questionable character or poor work habits before they are hired protects the business and it's employees. And, it helps ensure an honest, dependable workforce.

The business itself is the ultimate asset and nowhere is it at greater risk than in the area of civil liability. "Failure to protect" and "negligent hiring and retention" are two rapidly growing areas of litigation. Business related injury, death or property loss suffered by anyone is almost certain to result in a lawsuit. Legal arguments will invoke the theory that the defendant - the business - knew, or should have known, that a danger existed and did nothing to eliminate it. Where injuries are caused by an employee, the plaintiff will try to show that the business negligently hired and retained a dangerous person. The Courts consistently hold businesses responsible for the security and safety of employees and visitors. This includes a duty to anticipate and prevent security problems. Businesses that don't conduct risk assessment surveys and don't perform background checks on employees are prime targets for litigation.

Insurance is often viewed as an alternative to loss prevention. That has never been a good argument, but today it's absurd. The high cost or total unavailability of insurance - particularly liability insurance - makes loss prevention planning mandatory. Even when losses are insured, the business still loses. Coverage is normally limited to cash value of tangible items. Downtime, loss of customer goodwill and of future profits are may not be covered by standard policies. And, rate increases are almost certain to follow any claim.

Every business needs a loss prevention program. The nature and extent will vary with individual requirements but some type of program is always necessary.

Loss prevention is a critical management function.

This article was first published in the February/March 1988 edition of the Ventura County Business Journal.

Copyright © 1988 by Robert A. Gardner, CPP