THE CASE OF THE MISSING MILLIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP66B00403R000100370008-1
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: December 16, 2016
• Document Release Date: November 29, 2004
• Sequence Number: 8
• Content Type: MAGAZINE

Approved For Release 2005/04/21 : CIA-RDP66B00.403R00010037000'8-1
The Case of the Missing Millions
Investors Are Deprived
Of Millions Every Year by
Inside and Outside Crooks
ONE of the senior executives of a
well-known manufacturer was re-
cently Caught in an extra-curricular
venture which had netted him a hot
$1.000,000 in about a year. He had
been in Charge of the sale of company
salvage and surplus equipment to the
highest bidder. He surreptitiously or-
ganized his own private company to
buy the equipment for one tenth its
value. The trusted executive submitted
his own company's offer as the high-
est. The rest was routine-the private
company sold the same equipment at
the market price which was some.
Wines as much as $45.000 on a single
transaction.
This incide-vv dramatizes one ver
sion of employe theft which right now
costs American tusiness an estimated
billion dollars a year. This is an In.
crease of 15-tes20% since 1960. Com-
ments Lincoln Loin. president of his
own security consultant firm with head
offices in Manhattan: "if your ern-,
ployes didn't steal money. merchan
dise or time from you last year. yours
'" an exception to the ruts."
Perhaps the biggest "inside" fraud
of all times is in the still-unfoldii
vegetable oil mess which has already
thrown a dozen firms into the bank-
ruptcy courts and has produced claims
of over $170.000.000.
Notoriousy vulnerable to quick-
fingered employes are department
stores and srperm arkets which also
suffer from chranic shoplifting,
to inside grpo4is, most store sa-
ecutives consic.r shoplifters as neo-
phytes. One estate indicates that
"for every $1 taxeal by shoplifters. $IS
is taken on the inside." President
Arnold H Bachrwir of Holly Stores Corp
(a 31-state wr.'vi,i's & children's &p-
pares chain `rfsickeertered in Manhat-
tan) recently O%-gIpd,'a major factor
in final earnings wilt he shrinkage, the
amount of n-snrftasl se fait throt h
theft and pilfersgu. Company e
mates such nl 1018111110111111 losses cams
 in ?t Y11f 7.Q O
to rn
~~~{{o??~arrt than 3% of bbl soles In the at 4AW saurcut *r dr
It'" a Year. 2%% tha
Us us"em
fact retailers eften
Mitt." Ihsire to dissi~ on rrlrer~
Mbarrwe Lincoln Zorn, r that people theft Is most prevalent trot th4 tooled-
slwiys deal from Mat, never from sus is .they+'r* on hw+eo before toy
tMerss." Fle aont#rup; gee's easy for a start to wom " #ecurt ~ arc iai plats
aww" arket "WOW to shrti-s of the the MsiponsibllIty tor'thlove
nOVASK" theft of a1w .pacir of clga- squarely on the
rMta. But Ww" a cashier tocfats clia- kit
R+enoienlart}.I 'trx
vats esiInj for PS he has taken 1 . David pbrtlw of Su row
? of
art of 27i.". i s reeaonin America fates "an on
is that It "If der* tlfrosrs a hsble nl
2% Mat Bshlp ter the b dw
es
MrMt vaar,l r. tt his as 2Ti fa fatal . girt of business and"*
"
costs to IMt the e'arets in 1. out of One psnecapy- prowerod is an
tt+e !torn-whether they' leaver via cosh overai strewithheer ` R
nlibter'or Mppo?ket TM-Nprs. for labors. A bi sr '
rvwy lo* of Nlprltf etoIo the Nor* heeds more f
alum I,i Mother 27 $.st to beak on,. - mss" , ,
Tina years "D III ~ a" 4"ed /er
dotlirre In ~lMrpiere,
bow J w Mays lee Aftwoused Cet. ji tistf v11
feaiueit 1r r owkiy re"thle IN ry
and s.:._ t
of an "*rbrrswrnN Ieven+loet, lowta".. Jospsn r .
Whkh cost It Sol1.000 b#ora taxes In that rt
anded AWO 1962, what`s it1t ma??t
 Approved For Release 2005/04/21 CIA-RDP66B00403R000;100370008-1
n arl c~oemes into a #flt9ori
llAefl s` rrakty Out Pt hand Mon
be *4 6#104- It .~. I
rtafifaa fit* illy It
f 1o ate tlnl~4iR twrgiers, flFii oytls r,
'.:
fty
titAtca ?or bio+sr.. t e safe; fy ?*t
teady t triri and the roeh rfi
binatian... . i .
'This Is one reason for the $utt esa
of the topt'iisttcattd aenbezzler-*ipe-
dully in banks. The American bankers
Association estimates inside crooks
stole '9n the neighborhood of $9,000,-
000" lost year and the actual total is
Much higher because many of them
are still enjoying life. A publicized case
was a dimpled, elderly lady named
Minnie Clark Mangum who used her
executive position to "borrow" $3,.
000,000 from the Commonwealth
Building 8 Loan Association of Nor
folk some years ago. As an outside
#i
$500 but had
laa+, tat ` +
'M I 11 11.
l s of atf kinds. We orii ' all, I ,
thosae who can bah
merchandise. '`. Oat f
years we've had .to institute in `as
tremlfy tight security program'"
Among these steps. 1) prospective
employes must ffn out applk+a5on
blanks which make pointed klkries
into their honesty In previous employ
meet; 2) during their probationary em
Ployment period, new imployes are
given a polygraph exam, 3) new a!,fn?
example, a California builder is now ployes receive a company handbook
an trial because he, used "f heft by which emphasizes the knportane# of
false pretenses" to steal $373,000 on-the-job honesty and outlines e*ptf.
from an S&L company. citty the company's security pи
U. Detector Probes 4) periodic personnel sessions are
Methods of seeking out crooked am- to remind' lirlpioyes of Mcttssaoet'a
ployes vary according to the size and regular poky of turning security viola-
nature of the company. One highly tors over civil authorities for prose-
controversial device is the polygraph cution. ? '?
or lie detector. "graph expert Lin- Vice preens Doerr refuses to
coin Zonn considers the test a vital lease am f trres but notes "we're s#?
tool of his trade, "more than 98% isfied with this results of our gan.rsl
effective; it sometimes does its work tightenirr Lo and feet that for us this
in a roundabout way but it always method a )fhs best." As a point of
works.' history. k!.4Resson may be especially
N. cites an incident when a Mid- sensitive cause of the famed Muska
western discount store submitted all embazs;e rli4nt of 26 years ago wfdcN
employes to polygraphs after noticing put t-rx; : horny in bankruptcy.
a loss of $500. They were all cleared th- Moe "rP!wr side, the November
and the $500 was toter discovered in 1916P 4 i,% e4? Harvard Business It* -
the back of a cash register. The chart cren; =.t,sta4 " ?v10% of lhos,_wt
,of one employe. however, showed a
t Pia a for gists are quatt#ed `
----.--,may
 se:2005/04/21 : CIA-RDP66B00403R000100370008-1
Lie defector defecting
to interpret the squiggles that are sup.
posed to represent the subject's
changes in pulse rate, breathing, blood
pressure, muscle tension and perspir?
ation." Adds one expert: "You can't
run an organization on fear."
It has been said that "if a good
crook had put his mind to better things
he would be rich and respectable."
Some schemes are simple; others are
complicated. In the supermarket field
alone, Safeway Stores had to quit sell-
ing mail bottles of liquor because so
many vanished in coat pockets.
Another grocery chain discovered its
inside burglars worked under the very
brightest lights-when the midnight
police patrol investigated, the crooks
were "taking inventory-and shipping
out the old goods."
In restaurants a shifty waiter pre-
sents a happy table of seven the bill
from the next happy table of nine.
Most times the seven pay for nine, the
waiter collects nine from nine and
keeps the change.
In the construction business, theft
is common. The bigger the job, the
more activity-and frequently the
most losses. Despite watchmen,
checkers and supers, 630 boxes of tile
dwindle to 580 boxes, steel or copper
pipe seems to shrink, 325 squares of
big shingles become 290. Says youth.
ful Larry Harris, president of Northeast
Plywood of St Albans, LI: "If a builder
is not extra careful, they'll walk off
with everything but the land."
When the thieves are finally ex.
posed, the police may or may not step
in. Saul Astor. president of. Manage-
ment Safeguards Inc, which works
with management to set up security
controls once theft has been reported,
estimates that for reasons of bad pub-
licity "teas than 5% of the employs-
thieves are prosecuted." To this Nor-
man Jaspan adds "out of one billion
lost each year less than 3% Is re-
covered."
McKesson i Robbins, which gets
particularly close cooperation from the
police because it sells narcotics and
prescription drugs as medicine, notes
that "in California local authorities
don't prosecute for grand theft unless
the amount exceeds $200." Because
of the difficulty in establishing proof
of ownership of stolen merchandise, a
grand larcenist is often tried for petty
larceny.
SUght ~eedarelort
In other cases restitution is virtu.
ally impossible. Lincoln Conn cites an
instance of a wholesale grocery for
which he obtained signed confessions
of pilferage of perishable goods "in
excess of $3,000 for one year; only $50
was ever paid back.'.' It stolen goods
&ra sold, buried or tossed in the sec
chances of recovery are slim.
Insurance executive David- Portter
estimates that "only ,t5rto,20% of the
ration's business establishments carry
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fidelity bonds." Surety companies
have the right to pursue bonded em-
ployes until restitution Is made. The
amount in losses paid by insurance
companies in 1962 totaled nearly
$40,000.000. "It is obvious," notes
David Porter, "from the known losses
suffered that the unknown and un-
reported losses to employers present
a staggeringly large figure."
Probably the worst penalty for em-
ploye-thieves is the blot on the em-
ployment record which makes it diffi-
cult if not impossible to find another
job. The McKesson system does not
result in the automatic dismissal of
revealed thieves. Explains vice presi-
dent Doerr. "If in our opinion an em-
ploye deserves another chance, he is
allowed to stay on with us providing he
agrees to future polygraph examina.
tions from time to time; arrangements
are made for him to pay back the
amount stolen. We have faith in this
rehabilitation plan."
Honor System
Perhaps the most unique approach
for dealing with inside crimes comes
from British retailers Marks & Spen-
cer which first responded to the in.
crease in employe pilferage three
years ago by instituting a system of
trust which involves eliminating stock-
room guards and allowing salespeople
free access to stockrooms OR, March
1, 1961). A recent progress report in-
dicates the honor system still works
"extremely well;" the store, which
has more than 237 outlets throughout
Britain, has observed no increase in
pilferage during the last few years.
"In fact," one store official claims.
"we don't have any problem at all
along these lines.
April 1, 1964
COAL
Hard Facts on Soft Coal
lOGEST MONTH of the year for re-
tail deliveries of bituminous coal
k ordinarily January. This January's
fl urea, released by the US Bureau of l
t
Mi s two weeks ago, were the lowest.
In any years-only 2,968,000 tong
corn red with 4,710,000 in Januar
1963 d 8.336.000 in January 1954
The co tent descent reflects the d
creasing se of coal in factories, offs s
and horn . In hot contrast is the re-
markable imb In consumptio by
electric util 'es. January's tol of
20,390.000 yens compares wi 19,?
680,000 a a ago and 10,62OX;000 in
1954.
The longer-to picture pr sses the
point even more arply. Co Wating
their docadeoldion a cook's best
customer. electric u ' itias ght 209;
000,000 tons of bi misdous in 1963
compared with on 6,700,000 In
1944. The utilities are main reason
why total production of oal has swung
up again in each of tfie st two yeah
to reach 452,000,0(y0 s in 1963 Its '
best figure since 1917.
This is despitl decline in many
traditional usei( of coal. The 1903
total for retail deliveries we 23.500,-
000 tons, conpared with 12 100,OU0
in 1944. Anthracite (hard coal) pria
duction was#off from 63,700.0100 tons
in 1944 to 19,300,000 last yeak.
Perhaps the most extreme of u*
changes ,in the use of coal has come
with the diesel rail engine: del
to Class I railroads In 1944 4e a
vital,:component of the market at 32,?
000,000 tons, By 1960 the total was
down to 2.100,000. The figures a no.
longer even published 'separately.\