Magazine

Stopping Employee Theft With Adequate Audits

Larry Donoghue

Editor's note: Larry Donoghue is a legend in the parking industry, being arguably its senior active member. In this article, he reprises many of the items that many of us consider routine, so routine we often forget them. We spend hundreds of thousands on fancy systems, but forget that people run them.

In the past 30 years, our firm has conducted numerous investigations of employee theft of parking revenues. In every single case, the fraud would have been detected readily if the parking organization had conducted adequate independent internal audits and done them at the proper frequency.
In more than 90 percent of our operational audits, we found that, under the in-place revenue controls, the existing weaknesses in those parking facilities would readily permit patron cheating or employee theft allowing up to 10 percent of the annual revenues to be lost without
detection.
The worst single case of employee fraud occurred at a facility that was grossing about $5 million per year. The owners brought in a new operator with all new employees. There was no change in rates and no change in revenue control equipment. The number of vehicles handled annually was approximately the same. When the new firm totaled up receipts for its first year's activity, everyone was amazed at the results. The revenues had jumped from $6 million to $10 million. This represents a 40 percent theft rate.
Investigation showed that the previous operator had widespread collusion among many employees, including cashiers, supervisors and the on-site parking manager. The parking operator had relied only on what are called primary audits, and the audit clerk was in collusion with the others.
Most of the fraud cases we've investigated were a result of the parking organization conducting only primary audits. Those usually are done at the parking facility site by an audit clerk, who then reports to the facility's parking manager. The parking organization did not conduct a secondary audit to confirm the reliability of the primary audit. Secondary and even tertiary audits are essential if employee theft is to be prevented. But more about that later.
Circumstances Allowing Theft
We have conducted extensive research into the circumstances that allow theft to occur. For that to happen, the following have to be present:
Opportunity
Opportunities for theft result from a weakness in revenue control equipment or procedures. For example, an unlocked exit barrier gate housing can permit a cashier to collect a patron's parking fee, raise the barrier gate using a toggle switch inside the housing, wave the patron out, and then pocket the parking fee. An example relating to procedures would be the absence of recording the license numbers of vehicles that remain overnight and the lack of a requirement for cashiers to record the license number of a vehicle when processing a lost ticket transaction. If this is not done, a patron who has parked for three days can be charged the full three-day fee. Then the cashier can fill out a lost ticket form for only a one-day parking charge and keep the rest of the parking fee. If the license numbers are recorded each night, an audit person can confirm whether or not the cashier turned in the proper fee for a lost ticket transaction.
Perceived Need of Money
The cashier must have a pressing need for money to take care of some expense that can't be met with routine wages. For example, he has just found out that he needs to replace the engine in his vehicle. It will cost $1,800 to do this, and it is not covered by insurance. Or the cashier may have a drug habit or be addicted to gambling.
Perception of Low Risk of
Detection
The cashiers must believe that due to inadequate monitoring, their fraudulent activities won't be detected. It may be that the supervisor has to leave the facility for several hours to take care of a family matter. It may be because there never is any supervisor on duty during the third shift. In this circumstance, the exit barrier gate housing is frequently left unlocked because the cashier is working alone at the facility and must have a way to open the gate in case the equipment fails to operate properly.
Cashier's Lax Conscience
To continue stealing on a regular basis, a cashier must have a lax conscience and not be troubled by feelings of guilt. In several instances, we have had parking managers report to us that cashiers have come into the office, closed the door and confessed to having stolen several hundred dollars. And they want to pay it back by taking $10 out of each paycheck. Evidently, their consciences have gotten the best of them, and they decided to make restitution.
Types of Losses Due to Fraud
Losses can be due to internal or external theft. External theft occurs when a cashier is held up or robbers burst into a parking office and announce a holdup. Fortunately, these types of losses are relatively infrequent.
However, internal losses occur frequently. There are three basic forms of internal theft:
* Cashiers stealing in the booth. The most common form involves the cashier stealing a ticket from a dispenser and substituting that for a parking ticket that has a high value. For example, the cashier collects for an all-day, maximum parking fee, rings up the stolen ticket that was issued less than one hour ago, and improperly pockets the balance of the parking fee. If the patron complains that they paid $15 and the fee display shows only $2, the cashier tells the patron that "the fee display is broken. They never fix nothin' around here. They never pay attention to me."
* Employees stealing funds left on a supervisor's desk before it is deposited in a safe. This is usually done when a cashier turns in tickets, the starting bank and cash receipts. The cashier leaves these items on the supervisor's desk and goes to the washroom. Some other parking office employee steals the cash.
* Supervisors or managers stealing funds from the daily receipts. This is usually done by selling monthly permits and not turning in the patron's payment. Another common trick is to extract, say, $100 out of yesterday's parking receipts. Then before the armored service makes its pickup to carry the money to the bank, the supervisor or manager extracts $100 from today's earlier turn-in by a cashier.
How Fraud Starts and Grows
Cashiers regularly test a revenue control system and find an existing weakness. When that happens, the stealing starts out on a small scale. For example, cashier Tom finds a weakness by trying some action only once. He waits a week or so; if there is no corrective feedback, he tries the action again twice in the same week. If still no feedback, he does it once per day. This continues for a while, then it is done twice or more per day. Finally, it is being done eight to 10 times per day.
The stealing doesn't stop with cashier Tom. He is so proud of what he has discovered that he tells fellow cashier B about it. Fellow cashier B starts out slowly, doing it just once. If no feedback, fellow cashier B accelerates the frequency of the fraud and gets up to the eight to 10 fraudulent transactions per day much sooner than does Tom the discoverer. Fellow cashier B then spreads the word to fellow cashier C, who in turn passes it on to another cashier. Meanwhile, cashier B has also passed it on to cashier D. Each cashier teaches two cashiers how to do it. Thus, employee theft grows geometrically. It is like the spread of an epidemic.
Much cashier fraud occurs with "exception transactions." Those are non-revenue, lost ticket and insufficient funds transactions, and manually processed transactions when utilizing a machine read fee computer.

If you want to protect your parking operations from employee fraud, you must implement a proper comprehensive audit program for cashiers, supervisors and managers and conduct the audits at the recommended intervals.
Types of Audits
There are three types of audits conducted in the parking industry:
Primary
This is the first review of a cashier's activity. In larger facilities, say, one having 500 or more parking spaces, an on-site audit clerk or supervisor checks the cashiers' shift reports. At smaller facilities, the primary audit is conducted at a parking organization's city office or headquarters.
The purpose of the primary audit is to confirm that the cashiers are conducting all of their activities in accordance with established company revenue control procedures.
Secondary
This type of audit is conducted either by someone from a city office of the parking operator or by headquarters audit personnel. Secondary audits review cashier activities and also the activities of supervisors and the facility manager. It is extremely important to monitor the activities of the supervisor and the manager. If stealing is going on, cashiers frequently take about $100 per day; however, supervisors and managers take closer to $1,000 per day.
Tertiary
Tertiary, or third, audits are usually conducted on behalf of the owner of a parking facility. It may be done by the owner's own internal audit personnel. In some cases, it is done by an independent CPA firm. Our experience indicates that most CPA audits of parking facilities are inadequate. Frequently, no tickets are examined and daily master reports aren't checked. Often, all the CPA audit does is confirm the amount of money deposited into the bank. It doesn't determine how much money was actually turned in by patrons. It is not possible to check for all types of employee fraud without checking the tickets, cashier shift reports, daily master reports and sales of monthly permits.
A strong audit program has several important benefits. It will tend to create an "honest culture" in your operation. The dishonest employee who has been stealing will be deprived of his past ill-gotten gains and will voluntarily leave the organization. He can't afford to stay with you. He will seek employment at a parking operation that is less sophisticated and where he can practice his tricks to get those much needed car payments. With luck, he may go to work for your biggest competitor!

Larry Donoghue has specialized in revenue control of parking facilities for four decades. He can be reached at ldonogh@aol.com.

Article Abstract from January, 2004




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