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Home > Cases > Internal Theft: The Disappearing Discs > Preliminary Report

Internal Theft Case Study: The Disappearing Discs - Preliminary Investigation Report

Internal Theft Case Study - The Disappearing Discs: Case Studies, Summit Loss Prevention Consulting, Inc., Indianapolis, Indiana (IN)

As part of the investigation in the case study "The Disappearing Discs", this preliminary report with an initial set of findings was submitted to the client about six weeks into the investigation, with recommendations made to improve employee theft prevention in the future.

For those interested in the complete details of the case, you can also read the final Internal Theft Investigation: Findings and Recommendations Report submitted to the client.

(Note: All names and locations have been changed to protect the privacy of those involved.)

Case Study: Internal Theft

M.W., Vice President of Human Resources for a major compact disc manufacturer, contacted the firm to conduct an investigation concerning internal theft from their facility in Central Indiana. After preliminary research and fact-finding, investigators began interviewing employees that worked on the night shift at the facility. This report will detail the results of the investigation.

During the investigation, which was initiated on 5/18/01, the local PD arrested three employees.  One individual, an employee of a temporary labor company, was arrested due to an outstanding warrant.  The other two employees were arrested for theft from the company.

Preliminary Investigation

On 5/18/01, investigators met with MW to gather initial information on the case.  On 6/4 our investigators began conducting interviews with the three employees who had been arrested for theft. Two of the recently arrested employees were cooperative with investigators and provided useful information, however the third was not. In addition, interviews were conducted with the Police Detective in charge of the case, as well as several other individuals with possible knowledge of the issues or prior involvement in theft from the company. 

In addition, two former employees were located and approached by investigators.

One of the former employees, B.K., was extremely helpful in providing useful information.  He was used as an informant by the Police Department., and set up the purchase of stolen discs from the three employees that led to their arrests.  He agreed to be interviewed by investigators and identified several employees as being involved in theft.  He also provided pertinent information on G.D., the other former employee.

Based on conversation with the Police Detective, it was learned that G.D. was stopped by police and that during the stop, police recovered 54 stolen discs from his car.  It was later learned that employee H.S. had stolen the discs from company facilities and given them to G.D.  G.D. was questioned by police, and gave them information concerning theft activities of company employee L.D., but he was not arrested in this incident. 

G.D. was initially uncooperative with investigators, however after several attempts to interview him failed, he agreed to a discussion with investigators in his house. During the interview, G.D. admitted to the theft of approximately 500 Play Station I discs during his employment with the company. He admitted to buying more than 500 Play Station II discs from L.D., who had stolen them from the company. G.D. admitted to buying hundreds of stolen discs from H.S. as well. 

G.D. stated that he had sold hundreds of these stolen discs on e-Bay over the past year.  He indicated he paid L.D. and H.S. $8.00 or $10.00 each for the games they removed, and then sold them on e-Bay for $15.00 or $20.00 each.  G.D. stated he sold them to people all over the country and shipped them via the U.S. Postal Service, FedEx and UPS. 

During an interview conducted with employee L.T., he stated that G.D. informed him he deposited over $8000.00 from the sale of the stolen discs during February 2001, and also claimed that he purchased an ATV valued at $5000.00 with profits from stolen disc sales.    

G.D. was asked to submit a written statement summarizing his activities, but he declined.  He also initially agreed to a second meeting with investigators and W.M at the company's facility, but later called and cancelled.  The investigators are working with the FBI in an effort to prosecute G.D. for theft and interstate distribution of stolen goods. [Note: Read the complete summary of events surrounding the attempts of our investigators to interview G.D.]

Management Interviews

Prior to conducting additional employee interviews, the investigators met with M.K. (HR Director), F.S. (Packaging Manager), and S.K. (Packaging Supervisor) to obtain pertinent information concerning the theft allegations.

S.K. produced several potential witnesses that were interviewed prior to any of the suspects. On 6/15, the internal interviews were initiated at the facility. Prior to each internal interview being conducted, a Release Form was signed by the subject to be interviewed.

Several members of company management were interviewed to determine the extent of their awareness of internal theft and to apprise them of the investigation.  Directors F.S. and F.D. were interviewed to provide an overview of the investigation and to obtain any information they had concerning potential theft issues.  F.D. did not have any new information but was cooperative.  F.S. was straightforward, offered several suggestions, and apprised investigators of several items he had been made aware of.  He was very cooperative in making his managers and supervisors available to be interviewed. 

Managers J.R., M.K., and S.M were each interviewed by investigators, who were able to detail a couple of suspicions that had been passed to them by subordinates.  S.M. provided information concerning a six-month old allegation of employee theft but it was later determined that he failed to inform the investigators of a suspicion that female employee Y.B. had relayed to him within the previous three weeks.  Upon re-interviewing S.M., he acknowledged his failure yet he was unable to explain his lapse in communicating the pertinent information. 

The majority of managers and supervisors interviewed did not have any real sense of professional responsibility as it relates to loss prevention or internal theft deterrence.  Their responses indicated that they did not feel security and loss prevention were a part of their overall job duties.  Most stated they were frustrated because they, and their employees, knew that internal theft was occurring; yet they felt somewhat powerless to do much about it. 

Many were afraid to come forward with only a suspicion, fearful that their information wouldn’t be handled properly and that they would end up caught in the middle of an awkward situation with no resolution either way.  They repeatedly asked for training to educate them on how to deter internal theft and/or respond properly when a subordinate makes them aware of an incident.

Investigative Interviews

During the in-house portion of the case to date, the investigators conducted 49 investigative interviews, resulting in 16 written admissions of theft.  The employees who were interviewed and later returned to work offered substantial information that led to the admission statements of some of their co-workers.  These employees also expressed frustration and indicated that in many cases they had already given their information to a supervisor or manager weeks or months ago.  Several of them stated that it wasn’t their job to watch other employees and felt that if the company truly wanted to stop theft they would be more pro-active about it.

One employee initially signed his Release Form, however he refused to answer specific questions or generally cooperate with the investigation and walked off the job.  He was eventually terminated for his failure to cooperate with investigators. 

Two employees were suspended during the investigation and later returned to work after administrative review.

Each employee who admitted to theft also submitted a written resignation from the company. 

Upon Further Investigation...

Additional employee interviews were conducted after the investigators met with managers M.K. (HR Director), F.S. (Packaging Manager), and S.K. (Packaging Supervisor) to obtain pertinent information concerning the theft allegations.

During these interviews, S.K. produced several potential witnesses that were interviewed prior to any of the suspects.  Each employee that was interviewed signed a Release Form prior to the interview being conducted. Based on the information provided by these employees, further thefts were uncovered, as well other incidents, such as employee drug use on company property, that resulted in at least five additional terminations and/or criminal charges being filed.

DorMart Research

During the interviews conducted, several subjects indicated that some of the finished product games that were stolen from the company were returned to DorMart stores in the area for refunds or in-store credits that were used to make purchases.  Investigators met with DorMart management and obtained refund and exchange records linking employee E.M. with the returns of numerous PS II games to the store. Records were obtained that indicate he received in-store credits on 4 occasions totaling approximately $209.00.  It appears that he returned the same game on more than one occasion to the store. 

Additional research is being conducted at DorMart by their Loss Prevention Manager to determine if the other suspects have been involved in refund fraud as well.  Investigators will follow-up with the LP Manager on this information and forward it to the company and local Police officials.

On 4/1/03, investigators traveled to the Central Indiana DorMart and met with Loss Prevention Manager D.R., who took all the relevant information provided by the investigators and indicated he would run a full report on each individual to determine how many refunds or exchanges they had made at all DorMart stores in the west-central region.  Investigators will follow-up with D.R. to verify his information.

Investigation Follow-up Activities

A preliminary Investigation Findings and Recommendations Report (see Conclusion, below) was submitted to the company at that time. Additional findings and recommendations were added to that report and a final version submitted, at the conclusion of the active investigation. As outlined in that report, there are numerous action items that should be addressed to avoid a recurrence of the issues identified during the investigation. [Note: Read the complete Findings and Recommendation Report.]

Conclusion - Initial Findings and Recommendations

The firm will continue working to assist the local Police Department in their criminal prosecution efforts against the employees arrested for theft.  In addition, investigators will attempt to collect restitution from those who agreed to pay the company back for the items they stole. 

The firm also has recommendations concerning internal findings related to loss prevention and security practices within the facility.  It was observed that many of the employees determined to be involved in theft were stealing the discs in their jackets and/or baggy, ‘cargo’ style pants with extra large pockets on them.  The coats and jackets are not procedurally allowed at the workstations, however the regulation is not being enforced by supervisors or security officers.  These items, in addition to lunch containers and purses, should always be controlled in employee lockers and not allowed on the production floor. 

In addition, security officers should be given the authority to ‘pat’ a large pocket area on ‘cargo’ style pants as employees are departing the facility, and ‘pat’ or shake coats and jackets as well.  Employees should be discouraged from wearing these ‘cargo’ pants, and advised that they may be subjected to additional screening by security officers if they choose to wear that style of clothing due to the security risk posed.

It was also determined that employees are not subjected to the same type of search or screening when they leave for lunch as when they leave at the end of their shift.  The security officers must remain vigilant and observant at break times and lunch times as well as the end of a shift to deter theft at those times.  Training should be recurrent with officers to ensure they stay focused on their responsibilities. 

Additional reports will be made available as these respective cases are processed through the criminal court system.  If there are any questions, please do not hesitate to contact Tony Jarana at (317) 363-8312.  Thank you.

How to Prevent Situations Like This

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