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Question 115: What measures may a business take to deal with employee fraud?

My family owns a retail business. At a single location, we operate a combined hardware and building supply store, lumber yard, and garden center—each of these units the largest of its kind in the city. Though we now have over a hundred employees, management-employee relations still are very relaxed and informal. Dad always has encouraged those working on the floor and around the lots to follow his own example: be familiar with all the merchandise and help customers find everything they need for even a large and complex project. Our sales people move about freely, and only those with special skills in filling certain sorts of orders are tied to particular departments.

A few months ago we began to experience an unusual and significant shrinkage of our inventory in several departments. After our accountants studied the problem and we ruled out other explanations, we were forced to conclude that either outsiders in collusion with some of our employees or some employees acting alone are systematically stealing from us. Our first move was to talk about the problem with a dozen of our oldest and most trustworthy people. None could help, and though we asked them to keep their eyes open, they have not come up with anything. After two months, with the problem continuing and even growing worse, we reluctantly talked with the police. They told us they would need evidence pointing to one or more definite individuals before taking action. We then hired a private detective agency. It sent in a number of plainclothes operatives posing as customers, some just browsing and others making purchases, with instructions to watch out for anything amiss. A month has passed, and this approach also has been fruitless.

Yesterday, Dad and I reviewed the situation with the head of the detective agency. He suggested several other steps: have some of his agents offer cash to people working on the dock to see if any of them will load goods without a ticket; advertise three upcoming openings as usual, but “hire” his agents, so that they can gain the confidence of “fellow” employees; put video cameras in strategic places; install numerous hidden microphones, not only where business is transacted but in the employees’ snack bar and locker rooms, and at the outside locations where the smokers take their breaks; have some of our suppliers package a sensor strip with certain small and relatively costly items that have been especially hard hit, so that the removal of those items from the premises can be detected.

Dad said he felt sick at the thought of doing such things, but we could not let matters slide. He told the head of the agency and me to work things out. Some of the suggestions seem shady to me, and none of them is appealing. I am wondering about their ethical acceptability.


This question calls for the application of relevant moral norms. Packaging sensor strips with valuable items would be morally acceptable. Provided privacy is respected, installing video cameras (without microphones) also seems acceptable. Offering cash to employees to see if they will cooperate in theft intentionally tempts them to sin, which is gravely immoral. Hiring detectives to pose as employees is unfair to real applicants and will involve readiness to lie. Installing hidden microphones to eavesdrop on unsuspecting employees is unjust, and eavesdropping on unsuspecting customers invades their privacy. Perhaps more helpful than any of these techniques would be revisions in personnel management, supervision, and incentives that would strengthen cooperative relationships and foster employee responsibility.

The reply could be along the following lines:

Packaging sensor strips with valuable items vulnerable to theft seems to me an excellent proposal. I assume it would help detect theft by customers as well as employees. No ethical consideration I can think of argues against this technique, which neither tempts anyone to steal, nor puts innocent people under suspicion, nor invades anyone’s privacy. It seems to me you should adopt this idea. Such electronic measures can be used without warning to try to catch thieves or with warning to deter thefts. But since your employees will soon learn that electronic measures are being taken, it seems best to me that you give them—and perhaps your customers as well—fair warning regarding what is being done. Still, a case can be made for giving no warning. The sensor strips might expose an unsuspecting culprit, so that he or she could be brought to justice. In any case, it may be necessary to limit the routes by which employees may exit the premises, but that should not bother or upset anyone provided the limits apply to everyone without exception.

Installing video cameras (without microphones) in strategic places, provided these do not include restrooms or other areas where people’s privacy would be invaded, does not seem to me morally objectionable in itself, although it might interfere with easy communication and good interpersonal relationships, since awareness of being observed makes many people self-conscious and anxious even about innocent behavior. However, this measure might help deter systematic theft if the cameras provided virtually constant surveillance of critical areas. Moreover, if that surveillance served other legitimate purposes, such as detecting accidents and fires, these benefits could be explained to employees, and the system might be better accepted by them.

Some of the other suggested steps are inherently and gravely immoral. They should not be adopted under any circumstances. Among these is offering cash to people working on the dock to see if any of them will load goods without a ticket. This technique of entrapping possible wrongdoers would tempt people to sin, which is scandal in the strict sense—an extremely serious offense against justice and love of neighbor (see LCL, 236). Using this technique might even corrupt previously innocent people. The head of the detective agency might argue that law enforcement authorities often use such methods, and their success often is applauded. True, and they also are guilty of scandal if they tempt suspects to commit crimes.323

Another excluded technique is hiring detectives to pose as employees, gain other employees’ confidence, and spy on them. “Hiring” the detectives would be unfair to real applicants, who, having been deceived about the availability of work, would waste time and effort in applying. Moreover, the project probably would not succeed unless the detectives maintained the deception by lying to other employees—if asked, for example, where they worked before and why they changed jobs. So, the detectives would have to be prepared to lie if necessary. Then too, if the use of these spies became known to honest employees, many would be offended, and their resentment surely would injure your relationship with them.

Installing hidden microphones in locker rooms, snack bars, and smoking areas to eavesdrop on unsuspecting employees would be unjust. Installing them in places to which customers have access would invade their privacy, since even when they are in a public place, people, noticing no one about to overhear, sometimes communicate confidences, and the hidden microphones would pick up such conversations.

Having plainclothes operatives act as customers, as you already have done, is a common practice in retailing, and need not be unjust in itself. People walk about stores for many reasons, often with no intention of purchasing anything. The detectives need tell no lies; they have legitimate business in the store, and their presence can discourage theft even if no one is deceived. However, this technique seems not to have helped.

Perhaps more helpful than any of the detective agency’s suggested techniques or others like them would be revising your way of dealing with employees and managing their work. On this, you probably would do well to consult someone with appropriate expertise. However, I shall offer a few thoughts to illustrate what I have in mind.324

Many newer employees probably regard your oldest and most trustworthy employees as part of management, and it is not surprising that they could not help solve the problem. Neither should they be considered entirely above suspicion—one or more might be involved in the thefts—nor should all the other employees be regarded as potential suspects. Most surely are innocent, and some might help solve your problem. Therefore, I suggest that your father and/or you call all the employees together, fully and accurately describe the relevant facts, explain their impact on the business and the employees’ own interests, and enlist their cooperation. Ask for suggestions. Explain why all employees have a duty to report any wrongdoing they observe, and why they should not childishly regard that as tattling: Everyone involved in the business will be injured if the thefts continue; criminals do not deserve support; people who keep secrets about ongoing criminal activities share responsibility for the crimes.

While it would be a mistake to supervise employees so closely that they cannot use their own judgment in helping customers, your practice of encouraging most to move about freely may have prevented you from developing the structures required for effective cooperation among a group as large as a hundred. If each employee belonged to a particular department, he or she would more likely take responsibility for it. Probably your “very relaxed and informal” management-employee relations deprive some, and perhaps many, employees of the conditions they need to work responsibly. Forgetting people’s weakness and asking too much of them puts them in an occasion of sin, which is unfair to them. You probably should more clearly define each employee’s sphere of responsibility, limit the mobility of most, and minimize their opportunities not only to steal but to behave irresponsibly in other ways, such as handling merchandise carelessly, wasting supplies, and so on.

In earlier times, when employees were fewer, emotional ties with them probably were closer and more familial. Since the business has grown, however, most employees apparently are not in the same category as your dozen “oldest and most trustworthy people.” The other employees’ feelings toward you and your father no doubt correspond to your feelings toward them. You need to find new and better ways to develop sound cooperative relationships and genuine community with all your employees. For example, you might consider introducing a profit-sharing plan, offering bonuses for employees in departments that achieve or maintain a level of profitability impossible if thefts continue, and giving employees a role in deliberation before making important decisions affecting the business.

323. Superficially similar methods of gathering evidence against persons known to be habitual criminals—for example, purchasing illegal drugs from those known to be offering them for sale—do not involve tempting anyone to do wrong and can be employed uprightly.

324. Screening job applicants with integrity-honesty tests would not help solve the immediate problem, but would be legitimate and perhaps helpful in the long run; see H. John Bernardin and Donna K. Cooke, “Validity of an Honesty Test in Predicting Theft among Convenience Store Employees,” Academy of Management Journal, 36 (1993): 1097–1108.