On 18th March 2014, Russia annexed the Ukrainian territory of Crimea. There was nothing remarkable about it (except if you were involved and suffered). Actions like this have taken place since the beginning of history, and are justified by the instigator with the belief that they have the ‘might” (theft) or the “right” (entitlement).
The thin line between entitlement and theft is similarly blurred in business.
For example, in our accounting practice, we once had a client company that owned a busy pub. By all appearances, the pub was popular and doing well. However, its bar gross profit was less than half of what it should have been. The business owners asked us to investigate this low gross profit. There were three partners and although they did not work in the business, they were often on the premises socially.
We observed the bar operation for several nights. We found that nearly all staff members helped themselves to a few drinks at the end of each evening. Some also gave free drinks to friends. Estimating the cost of these “free” drinks did not account for the full gross profit shortage, however. It soon transpired that the partners did not pay for the drinks or meals that they enjoyed at the pub – and they had not shared this fact with each other, either.
Who was entitled to the free drinks and meals? And who was stealing them?
Small “rewards” quickly snowball
Various inquiries and news items highlight the fact that many sports stars, church leaders, union officials, politicians and office bearers in all sorts organisations feel entitled to generously reward themselves. They ignore the rules and/or standards acceptable in the community.
This behaviour is repeated in the commercial world by employees who feel entitled to use company assets for personal use, doubtful expense claims, exchanging “free” or “promotional” samples for goods or even cash, and other perks too numerous to mention. When you add to this the cost of straightforward theft and embezzlement, the financial impact on business is significant. In the US, the estimated cost is $50 billion per year, causing 33% of all business bankruptcies. Most abuses start out small, but like a leaking tap they become a torrent that can drown the business.
There is also the coffee factor: when white-collar workers spend more time getting a coffee and bringing it back than they do actually drinking it. Do blue-collar workers enjoy the same benefit?
What rules do you have in place around entitlements?
Having procedures in place to deter and detect fraudulent activity is a basic requirement of all businesses. The use of secret shoppers and surprise audit checks are just two of the tools available.
Here are some key points to keep in mind when establishing guidelines:
- Establish clear rules (and punishments for breaches of these rules)Â for staff entitlements, otherwise “entitlement” becomes subjective and elastic.
- State the criteria and review them regularly.
- Set benchmarks and KRIs (key results indicators) and monitor them continuously.
- Investigate deviations immediately.
Ultimately, businesses do not survive constant and large amounts of theft and entitlements. Think about your business’s entitlements. What are they? If you were suddenly presented with an invoice with an item line for “Theft” and Entitlements”, would you pay it?
My professional experience with businesses in diverse industries – and the shenanigans that some employees get up to – helps businesses focus on the hidden costs that can kill them. Contact me at firstname.lastname@example.org to find out how you can set boundaries around entitlements so you stop losing money.