By Murphy Klasing

One of the most difficult problems to address and foresee in the workplace is employee theft, and self-storage owners aren’t immune. Studies by the U.S. Department of Commerce, corporate-training firm American Management Association and other organizations estimate employees steal more than a billion dollars per week from their unknowing employers. Some studies estimate that nearly one-third of all bankruptcies are caused by employee theft, and it takes approximately $20 in sales to offset every $1 stolen.

Every year, companies of all sizes go through the heartbreak of dealing with a corrupt employee. Management may have indications of the problem through declining profit, unexplained inventory shortages and rumors. Often, however, they’re ill-equipped to investigate and properly handle this ever-increasing problem. Let’s take a look at how to detect employee theft, steps you should take if it happens at your self-storage business, and why you should prosecute.

The Savvy Thief

With the increase in sophisticated technology, employees are devising more clever ways of taking money from employers. A top-level executive in a Houston-based company recently pled no contest and received seven years of probation for submitting false expense reports. He’d submitted more $50,000 in false expenses before he was caught. In another matter, an employee used a credit card swiping machine to place refunds totaling more than $250,000 on his Visa debit card over a two-year period. He was discovered by his own bank, which became suspicious of the large credits to his account through point-of-sale return.

Self-storage facilities can be ideal places for employee theft. Not only do managers often work alone, they’re exposed to cash from rental payments and ancillary sales. As the owner of a storage facility, you need to get into the mind of a thief and consider possible opportunities for pilfering. Are there crafty ways your staff could take cash, fake entries, overstate vendor bills or otherwise embezzle from your business?

Watch for red flags, such as missing petty cash or retail items, units that have locks but show vacant in your management software, or a large number of waived fees or discounts being offered. It’s critical you examine any and all chances for employee theft and take steps to prevent them. Have procedures in place for all aspects of your business, from handling cash transactions to providing refunds.

Get on the Case

If you discover a theft, it’s important to move fast to collect as much data as possible. Too often, employers move immediately to terminate the employee and lose a critical opportunity to gather information that could be used to prosecute the person and possibly recover some of the lost money.

Don’t worry—you don’t have to be a trained crime-scene investigator. If the theft involves expense reports, simply gather your data and contact your vendors to verify whether the expenses actually occurred. Obtain the employee’s personal file, and download and save copies of his e-mails. Also copy and save any phone logs, Internet activity, security pass-card logs and video surveillance.

The importance of gathering all this information can’t be overstated. Many state district attorneys’ offices are willing to assist in prosecuting employee theft, but they need evidence. Since it usually involves a paper trail that can be overwhelming, they need someone to gather the details if prosecution is to have a chance.

Criminal vs. Civil

Once you’ve gathered the information, meet with an attorney experienced in this area of law to discuss the next move. He’ll review the material, counsel you on the evidence and witnesses he may need, and assess whether a crime has been committed or the incident is merely civil in nature.

It’s generally believed that if someone takes something that doesn’t belong to him, it’s stealing. Although this is mostly true, “taking” isn’t always prosecutable in an employee/employer relationship.

For example, if an employee has use of a corporate credit card, uses it for personal expenses and fails to repay the employer, it’s more of a breach of the employee’s fiduciary duty than a crime. However, if he takes his supervisor’s corporate credit card and uses it for personal gain, forging his supervisor’s name to charges, a theft has occurred. Instead of sifting through the facts of each case, a self-storage owner can hire an attorney experienced in employee law, who can make decisions about whether to prosecute or sue the manager, or both.

Prosecuting the Crook

You may be wondering what the benefit is to prosecuting your manager. Perhaps you’re thinking, “I’ll never see the money anyway, so why waste my time?” The reality is if someone has stolen money but has no criminal record, that person has a chance of walking away with only probation if, as a condition, he pays back the money. Not too surprisingly, an employee seems to find the money to recompense an employer if it means he won’t go to jail.

Most states protect the property rights of individuals from civil judgment; therefore, the best chance for recovering stolen funds is through a criminal prosecution. However, a civil lawsuit is a great backup because it allows for other avenues of collection. For example, if the employee used the money to purchase cars, jewelry or other items, the employer may be able to attach those items to satisfy the judgment. Bank accounts can be garnished, and even some investment accounts can be attached. A civil lawsuit is also a great mechanism for gathering witness statements through depositions.

A tragedy that typically occurs is the storage owner confronts the employee and fires him, with the employee never to be seen or heard from again. The problem with that approach is the owner makes no attempt to investigate what was taken or mitigate his losses. More tragically, the employee is likely to walk down the street to another company and start stealing all over again.

If a trusted employee violates your trust, don’t give up hope. Instead, work toward recovering what was lost.

Murphy Klasing has a wide range of appellate, arbitration and trial experience, successfully handling numerous litigation matters. With more than a decade of experience in the self-storage industry, he serves as counsel for Public Storage Inc. in Texas, and has defended matters involving allegations of breach of contract, code violations, employment issues, fraud, negligence, personal injury, premises liability and theft. To reach him, call 713.961.9045; e-mail [email protected]; visit www.wkpz.com.