Employee Theft in Jewellery Businesses: Prevention, Detection, and Insurance

Internal theft is often a bigger risk than external robbery. Almost one-third of business bankruptcies are caused by employee theft, and the average scheme takes two years to detect. For jewellery businesses handling high-value, easily concealed inventory, the risk is amplified. This guide covers prevention strategies, detection methods, and the fidelity coverage within your jewellers block policy that most dealers don't realise exists.

The Scale of the Problem

The numbers are sobering:

• 29% of retail shrinkage is caused by employee theft
• Average detection time: 2 years
• 1 in 5 cases costs companies over US$1 million
• Median loss: US$130,000
• Recovery rate: Most victims recover nothing

For jewellery businesses, a single dishonest employee with access to inventory can cause catastrophic losses before anyone notices.

Why Jewellery Businesses Are Vulnerable

Several factors make jewellers particularly exposed to internal theft:

High-Value, Small Items

• A single ring worth S$10,000 fits in a pocket
• Easy to conceal, easy to sell
• Hard to track without proper systems

Trust-Based Operations

• Staff must handle merchandise to serve customers
• Small teams mean limited oversight
• Long-term employees gain increasing access

Cash Transactions

• Cash sales create skimming opportunities
• Discounts and refunds can be manipulated
• Less paper trail than card transactions

Complex Inventory

• Thousands of unique SKUs
• Items look similar but vary greatly in value
• Manual counts are time-consuming and error-prone

Common Employee Theft Methods

Direct Inventory Theft

• Pocketing merchandise during handling
• Taking items during opening/closing when alone
• "Borrowing" items that never return
• Concealing theft in legitimate outgoing shipments

Cash Manipulation

• Skimming: Pocketing cash before recording the sale
• Lapping: Using new payments to cover previous thefts
• Voiding transactions: After customer leaves, voiding the sale and pocketing cash
• Refund fraud: Processing fake refunds to cash drawer

Discount and Pricing Schemes

• Giving unauthorized discounts to accomplices
• Selling at reduced prices and keeping the difference
• Price tag switching on items

Documentation Fraud

• Manipulating inventory records to conceal theft
• Creating fictitious damage/loss reports
• Falsifying consignment records

Consignment Manipulation

• Undervaluing consigned items on intake
• Reporting items as unsold when actually sold
• Claiming consigned items were returned to owner when kept

Red Flags: Signs of Employee Theft

Behavioral Indicators

Operational Red Flags

• Inventory shrinkage exceeding industry norms
• Unexplained discrepancies during counts
• High void/refund rates for specific employees
• Customers complaining items they bought don't match receipts
• Missing documentation or altered records
• Cash register shortages

Prevention: Building Controls

Hiring Practices

Prevention starts before day one:

• Background checks: Criminal history, credit checks (where legal)
• Reference verification: Actually call previous employers
• Employment gaps: Understand the full history
• Document verification: Verify qualifications claimed

Segregation of Duties

No single employee should control an entire transaction:

• One person handles merchandise, another processes payment
• Different staff for receiving inventory and updating records
• Separate individuals for bank deposits and reconciliation
• Manager approval required for voids, refunds, and discounts

Inventory Controls

• Daily counts: High-value items counted every day
• Surprise audits: Unannounced full inventory checks
• Rotation: Vary who counts what
• Documentation: All movements logged and signed

Physical Controls

• Limit safe/vault access to essential personnel
• Use dual-control (two people) for high-value access
• Secure displays when staff not present
• CCTV covering all handling areas
• Bag checks for staff leaving premises

Detection: Technology Solutions

POS System Controls

Modern point-of-sale systems offer powerful loss prevention features:

• User permissions: Control who can void, discount, or process returns
• Transaction logging: Complete audit trail of every action
• Blind counts: Cashiers don't know expected drawer totals
• Exception reports: Flag unusual patterns (high voids, large discounts)
• Employee tracking: Every transaction linked to specific staff member

RFID Inventory Systems

For jewellery specifically, RFID technology provides:

• Real-time tracking: Know where every piece is at all times
• Automatic alerts: Notification when tagged items leave designated areas
• Fast audits: 70% faster stock counts
• Discrepancy detection: 90% reduction in stock discrepancies

CCTV Integration

• POS-integrated cameras that sync transactions with video
• Review footage of specific transactions
• Identify discrepancies between recorded and observed behaviour

Exception-Based Reporting

Software that automatically flags:

• Transactions outside normal patterns
• Employees with unusual metrics (high voids, frequent discounts)
• Post-void transactions (voiding after customer leaves)
• No-sale drawer openings

Detection: Traditional Methods

Mystery Shopping

Hire third parties to:

• Make test purchases and verify receipts
• Attempt to negotiate improper discounts
• Observe employee behaviour
• Test adherence to procedures

Anonymous Tip Lines

• Provide confidential reporting channels
• Often employees know but won't report publicly
• Consider third-party hotline services

Regular Reconciliation

• Daily cash reconciliation
• Weekly inventory spot checks
• Monthly full inventory counts
• Quarterly consignment reconciliation

Responding to Suspected Theft

Investigation Steps

1. Document suspicions: Record what triggered concern
2. Preserve evidence: Secure relevant records, footage, logs
3. Consult legal counsel: Before confronting employee
4. Professional investigation: Consider forensic accountants or investigators
5. Controlled confrontation: With witness present, following legal protocols

What NOT to Do

• Don't accuse without evidence
• Don't conduct surveillance that violates privacy laws
• Don't discuss suspicions with other staff
• Don't destroy or alter evidence
• Don't delay notification to insurer

Police Reporting

Most insurers require police reports for theft claims. File promptly and obtain:

• Police report number
• Investigating officer details
• Copies of all documentation submitted

Fidelity Coverage: Your Insurance Protection

Many jewellers don't realise their jewellers block policy includes fidelity coverage for employee dishonesty.

What Fidelity Coverage Protects

• Direct theft: Employees stealing inventory or cash
• Embezzlement: Misappropriation of funds
• Forgery: Falsifying documents for personal gain
• Fraudulent transfers: Unauthorized movement of assets

Typical Coverage Limits

Fidelity coverage within jewellers block policies typically ranges from S$50,000 to S$500,000, depending on policy structure. Higher limits may be available.

Key Exclusions

Coverage typically excludes:

• Prior knowledge: Theft by employees you knew were dishonest
• Owner/principal theft: Business owners stealing from themselves
• Unverified losses: Claims without adequate documentation
• Inventory shortages: Without evidence of theft (mysterious disappearance)

Claim Requirements

To successfully claim:

• Evidence that theft actually occurred
• Identification of the dishonest employee
• Police report filed
• Documentation of loss value
• Proof that reasonable controls were in place

Standalone Fidelity Bonds

If your jewellers block coverage is insufficient, consider additional protection:

First-Party Coverage

Protects your business from employee theft. Added as endorsement to commercial property or purchased separately.

Third-Party Coverage (Fidelity Bond)

Protects your clients from theft by your employees. Important if handling customer property (consignment, repairs).

Cost

Premiums typically range from US$300-1,000 annually for small businesses, varying by:

• Coverage limits
• Number of employees
• Nature of access to assets
• Claims history

Building a Culture of Integrity

Controls matter, but culture prevents more theft than cameras:

Lead by Example

• Owners follow the same rules as staff
• No shortcuts on procedures
• Transparency in business dealings

Fair Compensation

• Pay competitive wages
• Clear bonus/commission structures
• Financial pressure is a theft motivator

Open Communication

• Staff can raise concerns without fear
• Regular team meetings
• Feedback channels

Recognition

• Acknowledge honest behaviour
• Reward loss prevention suggestions
• Build pride in the business

Prevention Checklist

Hiring

• Criminal background checks conducted
• References verified (actually called)
• Employment history gaps explained
• Clear job descriptions and expectations

Operational Controls

• Segregation of duties implemented
• Manager approval for voids/refunds/discounts
• Daily cash reconciliation
• Regular inventory counts (surprise and scheduled)

Technology

• POS system with audit trail
• User-specific permissions
• Exception reporting enabled
• CCTV covering all handling areas

Physical Security

• Limited safe/vault access
• Dual control for high-value access
• Bag checks for departing staff
• Secured displays when unattended

Culture

• Written policies on theft and consequences
• Anonymous reporting channel
• Fair compensation
• Regular communication

Key Takeaways

• Internal theft often exceeds external — 29% of retail shrinkage is employee-caused
• Average detection time is 2 years — significant losses accumulate before discovery
• Segregation of duties is your most powerful control
• POS systems and RFID provide technological detection capabilities
• Background screening protects both inventory AND insurance coverage
• Fidelity coverage exists in most jewellers block policies — verify your limits
• Documentation is essential — you can't claim what you can't prove
• Culture matters — fair treatment reduces theft motivation
• Report promptly — notify police and insurer when theft is discovered

Employee theft is an uncomfortable topic, but ignoring it doesn't reduce the risk. Implement controls, use technology, and know your insurance coverage. The businesses that acknowledge this risk and prepare for it are the ones that survive it.