Specific identifying information has been removed because it is not important to the big issue of preventing employee theft.
In this case the thief was employed by a municipal liquor operation. It could easily have been a private operation. In this case the thief was the manager. It could easily have been a bartender, clerk, assistant manager of other employee.
This article shows the importance of monitoring gross profit (something MMBA has been stressing) for not only maximizing profit but to detect theft.
It is also important to note some methods used to steal and for you to ensure policies and procedures are in place to prevent these activities (i.e. Defining which employees can adjust inventory records and monitoring the number of voided transactions.)
The potential amount of money taken from the municipal liquor store by the former manager was calculated to be $95,600 by the city's auditors.
The auditor reported the findings and how they were calculated, at a recent city council meeting.
The procedure agreed upon by the city administrator and the auditors to calculate the potential theft was to compute the revenues that would be expected based on the amount of goods purchased for sale.
This was done by calculating the average historical gross profit margin, then applying it to the purchases to compute expected revenues.
The expected revenues were then compared to reported revenue to calculate the potential amount of theft which occurred.
In making the calculations, the auditors used vendor reports and reconciled them with city and audit reports for 2004 through October 2011.
The auditors also calculated historical revenue from 2004 to October 2011, separated between on- and off-sale to take into account the differing gross profit margins.
The historical gross profit margin was then calculated using the historical revenues and the historical cost of goods.
The profit margins for the liquor store remained consistent for the years 2005 to 2008, then decreased in 2009, according to the auditor's report.
The lower profit margins continued through April 2011, corresponding with the manager's employment as the liquor store manager.
Following the manager's resignation in May 2011, the gross profits once again increased, according to the report.
Based on 2005 to 2008 historical data, the gross profit margin for the liquor store was calculated to be an average of 72 percent for on-sale and 18 percent for off-sale.
The difference between the expected revenue and the reported revenue for 2009, 2010, and January through April 2011 is $95,600.
The auditors also acknowledged the fact that the manager adjusted the inventory by one each time he made a no-sale transaction in an attempt to disguise his theft, according to the report.
All similar adjustments from 2008 to April 2011 were totaled to compute the potential theft using another method.
However, the total adjustments for each year were much higher than the potential theft, and items such as transfers, and cases broken down to individual categories (for example a case broken down to 12 packs), as well as true corrections could account for many of the adjustments.
Therefore, it would be impossible to determine the legitimate adjustments versus the manipulation of the system to disguise theft, according to the auditor's report.
While investigating possible causes for the loss of profit at the liquor store during the last several years, the administrator noticed several "subtotal voids" had been occurring, according to a report from the police department.
A disproportionate number of the subtotal voids occurred during the time the manager was working.
The manager began working at the liquor store in October 2007, became manager in November 2007, and resigned in March 2011 after the theft was discovered
The administrator informed the police of her suspicions, and two cameras were installed at the liquor store, one directly over the manager's desk in the office, and the other over the off-sale register, according to the report.
Video documentation began April 12, 2011, and was later compared to point-of-sale records and inventory adjustment records.
During the two-week time frame the cameras were recording activity at the liquor store, the manager was captured:
* "pretending" to ring up sales for customers, and using the "no-sale" button to open the register;
* voiding sales after being subtotaled;
* placing cash in his wallet that he had taken from customers or the register after "fake sales;"
* adjusting inventory records; and
* destroying, throwing away, or attempting to hide register receipts.
The total loss in "fake sales" for the two-week time period was $623.21, according to the report.
Following the investigation, the police questioned the manager May 3, 2011, at which time he admitted to taking money because he needed groceries for his children.
Although the manager said he did not keep track of how much money he was taking, and admitted he had been taking it for about six months, he also said he had been returning the money to the on-sale side by ringing up drinks (that nobody had actually purchased), and paying for them himself, according to the report.
The manager examined inventory records for adjustments for one product between 2 and 4:30 p.m. (when many of the adjustments were made to cover the "fake sales") dating back to January 2008.
The adjustments totaled $21,813.
Similar adjustments made in the six months the manager admitted to taking money totaled $3,587, according to the report.
The city carries bond coverage for all city employees, which includes recovery for proven losses by employee theft.
The next step is for the city to fill out the claim form and send it to the bond company, along with the auditor's report.
The city will also ask the Minnesota Department of Corrections for restitution in the amount of $250, its deductible for the bond insurance, and any accounting fees which are not covered by the bond.
The manager was sentenced Sept. 20, 2011 to serve 20 days in the Wright County Jail, and to pay a $300 fine and associated court fees.
He also received five years of supervised probation with a number of conditions that must be met during that term.
One of the conditions is to pay restitution in an amount to be determined by the Minnesota Department of Corrections and to be paid within four months.
Another condition is to write a letter of apology to the city.
