DOCUMENT RESUME

ED 373 236 CE 067 070

TITLE Risk Management. Unit 20. Level 2. instructor Guide.PACE: Program for Acquiring Competence inEntrepreneurship. Third Edition. Research & -

Development Series No. 302-20.INSTITUTION Ohio State Univ., Columbus. Center on Education and

Training for Employment.PUB DATE 94NOTE 29p.; For the complete set, i.e., 21 units, each done

at three levels, see CE 067 029-092. Supported by theInternational Consortium for EntrepreneurshipEducation, the Coleman Foundation, and the Center forEntrepreneurial Leadership Inc.

AVAILABLE FROM Center on Education and Training for Employment, 1900Kenny Road, Columbus, OH 43210-1090 (order no.RD302-20 IG, instructor guide $4.50; RD302-20 M,student module, $3; student module sets, level1--RD301M, level 2--RD302M, level 3--RD303M, $45each; instructor guide sets, level 1--RD301G, level2--RD302G, level 3--RD303G, $75 each; 3 levels andresource guide, RD300G, $175).

PUB TYPE Guin.s Classroom Use Teaching Guides (ForTeacher) (052) Guides Classroom UseInstructional Materials (For Learner) (051)

EDRS PRICE MF01/PCO2 Plus Postage.DESCRIPTORS Accident Prevention; Behavioral Objectives; *Business

Education; *Competency Based Education; CrimePrevention; Decision Making; *Entrepreneurship;Insurance; Learning Activities; PostsecondaryEducation; *Risk; *Risk Management; SecondaryEducation; *Small Businesses; Student Evaluation;Teaching Guides

IDENTIFIERS *Program for Acquiring Competence Entrepreneurship;Shoplifting

ABSTRACTThis instructor guide for a unit on risk management

in the PACE (Program for Acquiring Competence in Entrepreneurship)curriculum includes the full text of the student module and lessonplans, instructional suggestions, and other teacher resources. Thecompetencies that are incorporated into this module are at Level 2 oflearning--planning for a business in one's future. Included in theinstructor's guide are the following: unit objectives, guidelines forusing PACE, lists of teaching suggestions for each unitobjective/subobjective, model assessment responses, and overview ofthe three levels of the PACE program. The following materials arecontained in the student's guide: activities to be completed inpreparation for the unit, unit objectives, student reading materials,individual and group learning activities, case study, discussion..questions, assessment questions, and references. Among the topicsdiscussed in the unit are the following: risk management; risk ,

managersr.duties; crimes causing losses for small businesses; theof shoplifting on small businesses; shoplifting techniques

and prevention; procedures for apprehending shoplifters, reducinglosses from bad checks, protecting against counterfeit currency,reducing vendor theft, reducing vulnerability_to_burglary androbbisky,--bandling and controlling internal. theft, preventingaccidents and lawsuits; and types of insurance. (MN)

UNIT 20LEVEL 2

PACETHIRD EDITION

;rk CENTER oN EDUCATIONAND TRADOWIFOR EMPLOGIEWL

COLLEGE OF EDUCATIONTHE OHIO STATE UNIVERSITY

Objectives:

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;Program for AcquiringCompetence inEntrepreneurship .

Rewamh & Dec elopment Scrim No. 302.20

Explain the responsibility of the entrepreneur in riskmanagement.

Identify various protective measures that can helpminimize shoplifting.

Determine procedures that can be used to reduce theamount of losses from internal theft.

Identify procedures that can be used to reduce theamount of bad check or counterfeit currency losses.

Discuss how to secure business premises againstburglary and robbery.

Discuss how accidents and lawsuits can be prevented.

List the different types of business insurance policiesavailable.

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PERMISSION TO REPRODUCE THISMATERIAL HAS BEEN GRANTED Ely

TO THE EDUCATIONAL RESOURCESINFORMATION CENTER IERICI'

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Unit 20

Risk ManagementLevel 2

HOW TO USE PACE

Use the objectives as a pretest. If a studentis able to meet the objectives, ask him orher to read and respond to the assessmentquestions in the back of the module.

Duplicate the glossary from the ResourceGuide to use as a handout.

Use the teaching outlines provided in theInstructor Guide for assistance in focusingyour teaching delivery. left side ofeach outline page lists el. jectives with thecorresponding headings (margin questions)from the unit. Space is provided for you to,add your own suggestions. Try to increasestudent involvement in as many ways aspossible to foster an interactive learningprocess.

When your students are ready to do theActivities, assist them in selecting thosethat you feel would be the most beneficialto their growth in entrepreneurship.

Assess your students on the unit contentwhen they indicate they are ready. Youmay choose written or verbal assessmentsaccording to the situation. Model re-sponses are provided for each module ofeach unit. While these are suggestedresponses, others may be equally valid.

BEST COPY AVAILABLE

Objectives Teaching Suggestions

1. EXPLAIN THE RESPONSIBILITYOF THE ENTREPRENEUR INRISK MANAGEMENT

What are the duties of a risk man-ager?

What crimes most often cause lossesfor small businesses?

2. IDENTIFY VARIOUSPROTECTIVE MEASURES THATCAN MINIMIZE SHOPLIFTING

How does shoplifting affect smallbusinesses?

What are the most commonly usedshoplifting techniques?

What can be done to prevent shop-lifting?

How should shoplifters be appre-hended?

3. DETERMINE PROCEDURESTHAT CAN BE USED TOREDUCE THE AMOUNT OFLOSSES FROM INTERNALTHEFT

How can internal theft be handled?

How do employees steal and howcan it be controlled?

What is vendor theft and how can itbe reduced?

4. IDENTIFY PROCEDURES THATCAN BE USED TO REDUCE THEAMOUNT OF BAD CHECK ORCOUNTERFEIT CURRENCYLOSSES

How can risk of losses from badchecks be reduced?

Review the task list for identifying risks, and lead a generaldiscussion about them. Discuss the concepts of over- and under-insuring a business.

Discuss the crimes included in the text and challenge the class toadd to this list.

Point out the staggering nature of the financial consequences ofshoplifting for retailers. Illustrate how shoplifting, and shopliftingprotection escalates the cost of goods.

If a small business owner is to prevent the losses from shoplifting itis best that they be familiar with common tactics. Review the listin the text and attempt, with the help of the class, to add to it.

Ask a local security company to provide a guest speaker. Thespeaker can use the list of anti-shoplifting suggestions provided inthe text as a basis for the discussion. Encourage the speaker to use"real life" examples of theft and theft-prevention measures.

Lead the class in a discussion about the wisdom and methods ofconfronting shoplifters.

Lead the class in identifying some of the main causes for badfeelings toward the business or business owner. Then, have thempractice human resource management by suggesting ways to removethese causes of bad feelings.

Review the list in the text of procedures to effectively controlinternal theft.

Explain why vendor theft is considered an "insider" crime.

Discuss with the class the ramifications of losses due to bad checks.Create a fictitious business and with the help of the class design acheck-c Thing policy for the business. Encourage creativity whenoutlini, g the details of the business (e.g., demographics ofneighborhood, previous policies, etc.)

Objectives Teaching Suggestions

How can businesses be protectedfrom counterfeit currency?

5. DISCUSS HOW TO SECURE ABUSINESS PREMISES AGAINSTBURGLARY AND ROBBERY

Which businesses are most vulner-able to burglary and robbery?

How can a business be protectedagainst robbery?

How can the business be protectedagainst burglary?

6. DISCUSS HOW ACCIDENTSAND LAWSUITS CAN BEPREVENTED

How can accidents and lawsuits beprevented?

7. LIST THE Dia-PERENT TYPESOF BUSINESS INSURANCEPOLICIES AVAILABLE

What are the types of insurance?

Contact your local police department for information on the subjectof counterfeit currency.

Ask the students to identify businesses in your area that they be-lieve to be at-risk for burglaries or robberies. Have them state therationale for their choices.

Lead a discussion about the level of effectiveness of each of theanti-robbery suggestions listed in the text. Provide the class withdetails describing a fictitious small business that they are trying toprotect from robbery. Divide the class into work teams and taskthem with compiling their own lists of protection practices that theyfeel would be most effective.

You may wish to invite a representative from your local law en-forcement agency, or private security company, to speak on thesubject of preventing burglaries.

Discuss ways a business might determine what actions are "rea-sonable and prudent" in creating a safe work environment. Youmay want to introduce the Occupational Safety and Health Act(OSHA) here.

Divide the class into work teams. Assign each team one of thetypes of insurance listed in the text. Using outside sources, eachteam should produce a group report of approximately two pages inlength. Each team can then share its' findings with the entire class.

MODEL ASSESSMENT ANSWERS

1. Risk management includes all activities designed to avoid or reduce the possibility of loss and lessen its impactwhen it occurs.

2. Small business owners are sometimes reluctant to prosecute shoplifters because of the fear of false arrest and/ordefamation of character claims.

3. A method to reduce or prevent "ticket switching" is to use tamper-proof gummed labels that rip apart when anattempt is made to remove them.

4. Shrinkage is a result of merchandise leaving the store without payment. Shrinkage can result from both internal(employees, vendors, etc.) or external (burglary, shoplifting) sources.

4

5. The term NSF refers to 'Non-sufficient funds'. These checks are most often handled by business owners bysimply calling the customer. There is usually a charge to the issuer for an NSF check.

6. A check verification system can electronically inform the business owner of a history of bad checks. In thesecases, the owner would simply refuse the check, thereby eliminating the risk completely.

7. Vendors are the suppliers of a business. One type of vendor theft occurs when a delivery person (vendor) leavesless product than signed for. Another type of vendor theft occurs when easy access to back doors and stockrooms provides the opportunity for the vendor to steal from the owner's stock.

8. A fidelity bond would be purchased if there was a risk of insider dishonesty such as embezzlement. A fidelitybond provides coverage against such losses. It should be considered if large amounts of money are handled orcompany assets have been delegated to others in the business. A maximum amount payable is usuallyprearranged by the insurer.

9. Continuation life insurance would most likely be purchased if there are partners or employees that are essentialto the managing of the business. Should any of these key figures die or become disabled, a benefit would bepaid. Often, in the case of partnerships, this cash benefit is used to buy the shares of the deceased or disabledpartner from the heirs.

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Incorporates the needed competencies for creating and operating a small business at three levels of learning, with experiences andoutcomes becoming progressively more advanced.

Level 1 Understanding the creation and operation of a business.Level 2 Planning for a business in your future.Level 3 Starting and managing your own business.

Self-contained Student Modules include: specific objectives, questions supporting the objectives, complete content in form of answersto the questions, case studies, individual activities, group activities, module assessment references. Instructor Guides include the full textof each student module and lesson plans, instructional suggestions, and other resources. PACE,Third Edition, ResourceGuide includesteaching strategies, references, glossary of terms. and a directory of entrepreneurship assistance organizations.

For information on PACE or to order, contact the Publications Department at theCenter on Education and Training for Employment, 1900 Kenny Road, Columbus, Ohio 43210-1090

(614) 292-4353, (800) 848-4815.

Support for PACE, Third Edition provided in whole or in part by:

International Consortium for Entrepreneurship Educationand

International Enterprise AcademyCenter on Education and Training for Employment

The Ohio State University

The Coleman Foundation

Center for Entrepreneurial Leadership Inc.Ewing Marion Kauffman Foundation

Risk UNIT 20

Management LEVEL 2

Your Potentialas an

Entrepreneur

Nature ofSmall Business

BusinessOpportunities

Global MarketsThe

Business Plan

Help forthe

Entrepreneur

Types ofOwnership

Marketing LJcation PricingAnalysis Strategy

LegalIssues

BusinessManagement

HumanResources

Promotion Selling

Record FinancialKeeping Analysis Credit

Operations

CENTER ON EDUCATIONAND TRAINING FOR EMPLOYMENT

COLLEGE OF EDUCATIONTHE OHIO STATE UNIVERSITY

Progr for AcquiringCompetence inEntrepreneurship

Research & Development Series No. 302-20

April 7, 1994 RISK MANAGEMENT

BEFORE YOU BEGIN . . .

1. Consult the Resource Guide for instructions if this is your first PACE unit.

2. Read What are the Objectives for this Unit on the following page. If you thinkyou can meet these objectives now, consult your instructor.

3. These objectives were met in Level 1:

Discuss the importance of planning to minimize risk.

Define areas of risk for the entrepreneur.

Explain preventive measures that can be taken by entrepreneurs.

4. Look for these business terms as you read this unit. If you need help with themeanings, ask your instructor for a copy of the PACE Glossary contained in theResource Guide.

Bad check lossesBurglaryBusiness continuation life insuranceBusiness interruption riderCasualty insuranceCounterfeit currencyEmbezzlementExtended coverage endorsementFidelity bondsFire insuranceForgeryInternal theft

Copyright © 1994, Center on Education and Training for Employment,The Ohio State University. All rights reserved.

Key person insuranceLiability insurancePost-dated checkProduct liability insuranceRisk managementRisk managerRobberyShopliftingShrinkageSurety bondsVendor theftWorkers' compensation

RISK MANAGEMENT

WHAT ARE THE OBJECTIVES FOR THIS UNIT?

Upon completion of this unit you will be able to

explain the responsibility of the entrepreneur in risk management,

identify various protective measures that can minimize shoplifting,

determine procedures that can be used to reduce the amount of lossesfrom internal theft,

identify procedures that can be used to reduce the amount of bad checklosses,

discuss how to secure business premises against burglary and robbery,

discuss how accidents and lawsuits can be prevented, and

list the different types of business insurance policies available.

WHAT IS THIS UNIT ABOUT?

Once a business is formed, it is importantto protect it against the many problems andsituations that might slow its growth. Someentrepreneurs lose large amounts of moneyeach year simply because they do not knowhow to protect their businesses. The entre-preneur must be able to identify the risksthat the business faces and take appropriate

3

preventive measures to minimize losses fromthose risks.

The unit focuses on identifying the mostcommon risks faced by small businesses.The most common types of business crimeare described, and procedures to minimizelosses from these crimes are identified. Inaddition, the most common types of businessinsurance are described.

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WHAT IS RISKMANAGEMENT?

Entrepreneurs should know how to protecttheir businesses and personal assets fromlosses caused by the risks they face. Busi-ness owners should realize that the catas-trophic effects of an accident, such as a fire,could wipe out their business and their ownfinancial resources. Therefore, every entre-preneur should become familiar with riskmanagement, which includes all activities toavoid or reduce the possibility of loss andlessen its impact when it occurs.

In most small businesses, the owner must as-sume the role of risk manager until the firmgrows enough to have the job assigned toanother staff member. Although most entre-preneurs cannot become experts in all thefacets of risk management, they should beable to design a protection plan for theirbusinesses based on the risks they have iden-tified.

Small business owners must be concernedwith protecting their businesses againstcrime and other events that could harm theirfinancial well-being. Managing risk involvesmore than installing better locks on doors,placing convex mirrors and TV camerasaround the store, or purchasing insurance.Risk management must include all the proce-dures and activities established to controlrisk. The business owner must protect thebusiness against natural disasters and law-suits brought against the business by em-ployees, customers, or other individuals. Inaddition, he or she must guard against lossesfrom crimes such as shoplifting, bad checklosses, employee theft, embezzlement, ven-dor theft, robbery, and burglary.

WHAT ARE THE DUTIESOF A RISK MANAGER?

Risk management activities are performedcontinuously. Frequent reviews of the kindsof risk the entrepreneur faces are necessaryto support a sound risk management pro-gram. Many entrepreneurs find the follow-ing task list helpful as they identify the risksthey face and develop an effective risk man-agement program.

Walk through the business/plant on aregular schedule, talk with key person-nel, and make note of any unsafe prac-tices or conditions.

Review financial statements Co determinewhich assets should be insured.

Identify all potential causes of loss.

Estimate dollar amounts for potentiallosses.

Determine how to handle potential loss-es. Identify losses that should be cov-ered by insurance and those that can bereduced or avoided.

Design and implement a risk manage-ment program. Involve all employees inits development and implementation.

Reevaluate existing insurance policies aswell as all other parts of your risk man-agement program on a regular basis.

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Entrepreneurs should not risk more than heor she can afford to lose; yet, they shouldnot over insure the business. Careful anal-ysis of potential losses will allow the entre-preneurs to insure only those items that arefinancially significant.

5

and improper cash handling by employeescan lead to losses.

Entrepreneurs need to develop crime preven-tion programs to reduce risks and protecttheir assets. However, no crime preventionprogram will prevent all criminal acts.

Sources of Shrinkage

Shoplifting 38.4 percent

Employee Theft 37.8 percent

Paperwork Errors 18.0 percent

Vendor Fraud 5.8 percent

WHAT CRIMES MOST OFTENCAUSE LOSSES FOR SMALLBUSINESSES?

Each year, small business profits are sub-stantially reduced by various types of crime.Shoplifting, customers passing bad checks orcounterfeit currency, vendor theft. burglary,and robbery all lead to losses for the firm.Business owners also face losses from insidetheir firms. Employee theft, embezzlement,

Therefore, the entrepreneur can only hope tominimize their occurrence and severity.

HOW DOES SHOPLIFTINGAFFECT SMALL BUSINESSES?

Although some loss is inevitable, the busi-ness owner must manage the loss if the pro-fitability of the firm is to survive. Shop-lifting, or theft of merchandise by customers,is one of the most serious crimes facing all

6

retail businesses. Shoplifting costs over $8billion annually. On average, losses run be-tween 2 and 15 percent of sales. In fact,some security analysts claim that one out ofevery three small business bankruptcies canbe attributed to shoplifting losses.

Developing a shoplifting prevention programis difficult because of how widespread thecrime has become. No single group of thepopulation performs the majority of shoplift-ing. However, there are some statisticaltrends. Shoplifters are 20 percent more like-ly to be female than male, and one survey ofteenagers revealed that 70 percent of themhad some shoplifting experience. In fact, asmany as 1 customer in every 10 may beshoplifting. By their sheer numbers, amateurshoplifters, rather than professionals, accountfor most shoplifting losses.

Because they may be unable to afford moresophisticated protection devices, small retail-ers are more vulnerable than larger retailersto shoplifters. Also, small firms have beenmore hesitant to prosecute shoplifters be-cause they may be related to or friends withimportant customers. Even though convic-tions occur at a rate of 95 percent, time-consuming court proceedings may representa financial loss to the small business owner.

WHAT ARE THE MOSTCOMMONLY USED SHOP-LIFTING TECHNIQUES?

To develop an effective shoplifting preven-tion program, entrepreneurs must be awareof typical shoplifting methods. Employeesmust also be provided training to detectthese commonly used theft techniques. In

fact, alert, watchful, and well-trained em-ployees may be the best deterrent againstshoplifting.

The most common shoplifting method isto conceal the merchandise in a peaonalitem such as a handbag, shoppi ig bag,briefcase, or closed umbrella. Baby car-riages and strollers have also been usedsuccessfully by shoplifters to concealmerchandise. Professional shoplifterssometimes use boxes with fake bottoms.

The second most common method is toconceal the merchandise in clothing.Coats folded over arms or clothing withlarge pockets are typically used.

Another technique is the switching ofprice tags. Computerized bar codes onthe product's package is one way tocombat this maneuver. Cashiers mustalso be knowledgeable of store productsand typical prices and be alert for itemswith inappropriate prices. To prevent"ticket switching," you might also wantto consider using tamper-proof gummedlabels that rip apart when an attempt ismade to remove them or using hard-to-break plastic string tags.

In apparel stores, the use of fitting roomsby shoplifters allows them to walk out ofthe store with merchandise concealedunder their own clothing.

Pairs and groups of shoplifters will oftenwork together to divert the attention ofstore personnel. For example, in ajewelry store, an accomplice could dis-tract the salesperson while theft is madeby sleight-of-hand.

After shoplifting merchandise, somethieves even ry to return the item for arefund. Store managers should insist onreceipts to accompany returns to preventthe acceptance of merchandise stolenfrom other stores as well as their own.

WHAT CAN BE DONE TOPREVENT SHOPLIFTING?

No retail business can afford to leave itselfunprotected against shoplifting. Proceduresand practices to deter or prevent shopliftingshould be implemented. Some techniques toprevent these losses are presented in the fol-lowing list.

Comprehensive records and a carefullymanaged inventory control system aremandatory. Records of sales, purchases,and inventory are tools that should beused to determine if merchandise is dis-appearing from the store without pay-ment. Records should be examined todetect high shrinkage areas. Then stra-tegies should be developed to curb theftin that department. Shrinkage, or mer-chandise shortages, should be measuredfrequently. Many small businesses donot measure shrinkage often enough tohave a preventative impact on theft.

Signs should be posted in the businessstating that shoplifters will be prose-cuted. This must not be an idle threatbecause businesses that build a reputa-tion for prosecuting shoplifters find thatsuch losses diminish substantially.

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Unuged checkout lanes should be keptclosed, and the store or departmentshould never be left unattended.

Small expensi,e items should be display-ed in an enclosed, locked case.

Entrances to fitting rooms and restroomsshould be observed constantly by storepersonnel. Many store owners limit thenumber of items taken into fitting rooms.

A sufficient number of salespeopleshould be maintained on the store floorat all times. Fast customer service isrecommended as a deterrent to shoplift-ing. Honest customers generally appre-ciate the quick service, whereas theshoplifter does not want the help. Also,attentive service will likely force theshoplifter to move to another store.

The interior arrangement of the storeshould provide maximum visibility.

Large, convex mirrors placed in thecorners of the business will allow sales-people to watch the aisles more care-fully. Two-way mirrors placed stra-tegically can also be used to detectshoplifting.

In recent years, marking merchandisewith sensitized tags has proven to be auseful deterrent to shoplifting. The tagscannot be removed by a shoplifter with-out damage to the merchandise. Also,trying to leave the store without havingthe cashier remove the tag will trigger analarm.

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Larger stores en:ploy closed-circuit TVcameras to combat shoplifting.

Some stores have developed a warningsystem so that all employees can bealerted when the presence of a shoplifteris suspected.

HOW SHOULD SHOPLIFTERSBE APPREHENDED?

Some small business owners shirk from ap-prehending and prosecuting shoplifters be-cause of the fear of being accused of falsearrest or defamation of character. Suchreluctance. however, may encourage shop-lifting.

Local police should be consulted to deter-mine what local law permits when confront-ing and detaining shoplifters. Some statesallow apprehension of the shoplifting suspectinside the store if the retailer can proveintent. Intent to shoplift may be shown if

the customer has taken the item past thecash register or concealed the item. How-ever, apprehension of the shoplifter outsidethe store strengthens the case.

When apprehending shoplifting suspects,never touch them because the contact couldbe construed as roughnt When approach-ing the suspect, say, for example, "I believeyou have some merchandise in your bagwhich you have forgotten to pay for. Wouldyou please come back to my office tostraighten out this matter?"

At many retail stores, employees are instruc-ted never to accuse customers of stealing butto keep the shoplifter in sight and alert theowner or manager. When a shoplifter is sus-pected, the following information is needed:

What merchandise was taken?

From what location in the store was themerchandise taken?

How was it taken?

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Where is the merchandise concealed?

In addition to shoplifting, small businessesalso face, losses from customer crime in twoother areasaccepting bad checks and ac-cepting counterfeit currency.

HOW CAN RISK OFLOSSES FROM BADCHECKS BE REDUCED?

Most businesses accept a check for pay-ment of goods and services. However, theyface the risk of loss by accepting "badchecks." Approximately 1.75 percent of allchecks written to retailers in 1992 were badchecks. Of those checks, 28 percent werefraudulent whereas the remainder werechecks written on accounts which had insuf-ficient funds to cover them. These lossescan be reduced if the proper policies, in-cluding sound step-by-step procedures foraccepting checks, ar; established.

These policies and procedures must be de-signed to fit the specific needs of the storeand the customers. By accepting checks, thebusiness is relying on most of them beinggood. To avoid the risk of losses from badchecks, the business owner may decide notto accept any checks. However, it should berealized that a large number of customersmake purchases only by check or credit card.Because of this fact, the business may losea large number of sales with a "no checks"policy.

Businesses can use two methods to help re-duce losses from bad checks. The first is toestablish check-cashing policies. The second

9

is to install equipment to help identify andstop people who often pass bad checks.

All check-cashing policies should rely on anumber of basic practices.

Store personnel should examine the partsof the check that may indicate it is bad.These include the company or customername being rubber-stamped, poor spac-ing, erasures, or the signature being il-legible. Be sure the check is dated withthe month, day, and year. Never accepta postdated check. Do not take a checkthat is more than 30 days old, or worse,one that is not dated. Finally, make surethe amount on the check agrees with theameunt written out.

The second step is to ask for identifi-cation. Is the customer who he/sheclaims to be? Legitimate forms ofsigned identification include a validdriver's license and national credit cards.Many businesses ask for two pieces ofidentification. One should include aphysical description of the owner, andthe other is usually a major credit card.

After the check has been inspected and suit-able identification presented, the customer'scheck can be compared against a list of badchecks that that store has accepted in thepast.

In addition, policies should be developed inthree specific areas. The first is whether ornot to permit customers to cash checks formore than the amount of purchase. If thispractice is permitted, a limit of the amountwill need to be set.

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Another policy is whether or not to cashpayroll, social security, welfare, and similartypes of checks. Stores that accept thesechecks anticipate establishing a solid groupof repeat customers. But, at the same timethe business is exposed to higher risks.

Finally, a policy dealing with the prosecutionof bad check-passers should be determined.What course of action will the business own-er take to recover losses from bad checks?This usually includes notifying the properlaw enforcement agency, signing a com-plaint, and prosecuting bad check-passers ifand when they are caught. The problemmay continue unless the commitment ismade to prosecute. Such a commitment,however, will mean time away from yourbusiness when cases come to court.

A bad check can be the result of anythingfrom a careless mistake to a well-plannedforgery, but the result is always a headachefor the business owner. If the average dollaramount of a bad check is over $50, it onlytakes a few bad checks each month to turn aprofit picture sour.

Careless customers who cannot keep theircheckbook records balanced present you witha special problem. If the business acceptssuch a bad check, it is returned by the bankmarked "NSFnon-sufficient funds. Abusiness may sustain permanent losses fromfraudulent checks, but business owners cancollect on NSF checks by simply calling thecustomer. Most businesses usually chargethe customer a fee for NSF checks.

Some businesses turn over bad checks to acollection agency, despite the fees theycharge. Such collection costs are, however,an additional drain on profits.

Finally, equipment is available to help deterchronic bad-check passers. These includethe following:

New computer cash registers can com-pare a customer's checking account num-ber against a list of bad checks acceptedby the business in the past. This system,however, will detect only persons whohave given the store bad checks before.

A check verification service is availablein most states. A business that sub-scribes to such a service, notifies theservice electronically of the checkingaccount number of the customer or his orher driver's license number. Within sec-onds, the store is notified whether or notthe customer has a history of passing badchecks. Check verification services us-ually charge only a few cents for eachverification.

Some stores have even installed finger-print equipment that places a customer'sthumb print on the back of the check.Some store owners, however, have hesi-tated to use such devices, fearing theymay turn away customers. More expen-sive photographic equipment takes a pic-ture of the customer cashing the check.To find out more about check-protectionequipment, look in the Yellow Pages forcompanies selling these devices. Youcan also talk to neighboring businessowners to find out what policies and pro-cedures work best for them.

Even the most cautious procedures andthe most up-to-date equipment may notovercome the problem of professionalbad check passers who may be equippedwith machines that duplicate and alter

stolen checks and official identification.Remember, a business is under no obli-gation to accept a check. This is a cour-tesy and service extended to customers.

HOW CAN BUSINESSESBE PROTECTED FROMCOUNTERFEIT CURRENCY?

Every precaution should be taken to preventthe acceptance of counterfeit bills by busi-ness employees. Each year millions of dol-lars worth of counterfeit currency is seizedby the Secret Service, and the most commonbills counterfeited are $10 and $20. Largemetropolitan areas remain the major basesfor counterfeit operations because of a largernumber of potential victims, but smallertowns and cities are equally vulnerable. Noone is exempt.

When employees suspect that a bill is coun-terfeit, compare the bill with a genuine billof the same denomination. Look for differ-ences. Portraits on a good bill look lifelikeand have distinct hairlines. Bad bills aredarker and less distinct. Paper of a good billis also distinctive with visible, interspersedred and blue fibers. Bad bills are usuallyprinted on bond paper with no colored fibersor with red and blue lines printed on thepaper. Dollar amounts should correspondwith the proper portrait.

If possible, employees should be instructedto delay the passer, and the police should benotified. If the passer leaves, write down hisor her description. Employees should alsowrite their initials and the date on the bill;otherwise, handle the bill as little as possibleto preserve any fingerprints. Place the bill

11

in a protective cover and surrender it only tothe police when they arrive.

WHAT IS VENDOR THEFTAND HOW CAN IT BEREDUCED?

In addition to theft from customers, busi-nesses also face possible theft by their ven-dors. Vendor theft occurs when deliverypersons leave less than the number indicatedon the delivery form that the business owneror an employee signs. For example, a deliv-ery of bread was supposed to be 200 loaves.The business owner was rushed and simplysigned for them without counting them.There were actually 190 loaves. The busi-ness owner realized too late that he/she hadbeen cheated. Delivery persons take itemsthat they do not deliver and use or sell them.

6

Procedures to reduce such theft include thefollowing:

Check all deliveries carefully.

Assume nothing about the contents ofthe delivery.

Check to verify any shortages or over-ages immediately.

Have the delivery person sign the billnoting any differences.

If possible, have a specific area and timeof day for all deliveries. Most vendortheft occurs during peak business hourswhen the owner and employees may be

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rushed. They may feel they cannot takethe time to make a physical count of themerchandise delivered.

Again, the key to reducing vendor theft iscontrol. Policies should be established forchecking deliveries from vendors and thebusiness owner should make sure that em-ployees follow those policies on alloccasions.

WHICH BUSINESSES AREMOST VULNERABLE TOBURGLARY AND ROBBERY?

Burglary and robbery account for only a

small part of all business losses. However,burglars and robbers still present a dangerfor the small business owner. Some busi-nesses are more vulnerable than others be-cause of their location or the type of mer-chandise being sold. Stores in high riskcrime areas are particularly susceptible asare stores with valuable inventories, such asjewelry or liquor. Businesses that keep largeamounts of cash on hand are also lures topotential robbers. In addition, stores thatremain open 24 hours a day or late into thenight,have greater chances of being robbed.

HOW CAN A BUSINESS BEPROTECTED AGAINSTROBBERY?

A business can never be protected com-pletely against robbery, but some practiceshelp reduce the chances of robbery. Suchpractices include the following:

Cash should be emptied from registersthroughout the day. Cash registerscrammed with bills can be tempting to arobber. Cash should be kept in a strongsafe that is both fire and burglar resis-tant. It should be locked at all times.

Bank deposits should be regular and fre-quent. Many business owners do thisduring the day when there is more traf-fic; however, carrying large sums ofmoney is still a risk. If possible, thehours for bank deposits and the routes to,the bank should be varied. Cash shouldnot be carried in obvious containers.

If the business can afford the expense, anarmored car service should be used tomake bank deposits.

Large amounts of cash should not bekept in the building overnight. Instead,arrangements with the bank for night de-posits should be made. This procedureallows the business owner or designatedemployee to make a deposit at the bankafter it has closed. The bank issues akey to the "night depository" drop andspecial bags for the deposit that can onlybe opened by a key. One key is held bythe business owner, and a duplicate isheld by the bank.

At night, lights should be on at the busi-ness both inside and outside. Lights helppatrolling police spot robbers, and causespotential thieves to think twice beforeattempting to rob the business.

Policies should be established for all per-sonnel to follow in the event of a rob-

bery. Employees should be trained toremain as calm as possible if confrontedby a robber. They should be advised tocooperate with the robber in every way.In general, nothing should be done toprovoke a robber's use of firearms.Nevertheless, a silent alarm should betriggered if possible.

Signs should indicate that a security sys-tem is in place. Signs should also tellcustomers that the cashier cannot unlockthe store safe. Many businesses keeponly minimum cash amounts in registerdrawers and have signs which tell custo-mers of that practice.

Electronic devices such as alarm systemsor surveillance cameras, should be in-stalled if at all affordable. They act aspowerful deterrents to both robbery andburglary.

HOW CAN THE BUSINESSBE PROTECTED AGAINSTBURGLARY?

Protecting the business against burglarybegins with a physical inspection of thebusiness. The business owner should ask,"How could a burglar enter my business?"Then, he or she should take steps to correctthe problem areas. The following policiesand deterrents should minimize burglarylosses.

Protection against burglaries begins bysecuring all points of entry. Secure locksshould be installed on all doors and win-dows. Since a cheap lock can be opened

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easily with a knife or plastic card, securityanalysts recommend a sturdy deadbolt and apin tumbler cylinder. The bolt should be aslong as possible so it cannot be released ifsomeone attempts to pry the door open. Alocksmith should inspect the premises andprescribe the safest type of lock for thebusiness.

A good key control plan is as important as asecure lock. Locks are only as good as thecare you take of the keys. Keys issued toemployees should be stamped "Do Not Dup-licate." Also locks should be changed if anemployee leaves or quits without returningthe keys.

Windows provide burglars with easy accessto the building's interior. Because mer-chandise is displayed in them, windows atretail store are susceptible to "smash-and-grab" thefts. Installing tempered or lami-nated glass that can resist such blows isrecommended. Iron screens, grills, or barsplaced outside windows and securely fasten-ed at night can also keep out thieves. Mai.),grills and screens can be removed during theday so as not to detract from the merchan-dise being displayed. Many ironwork com-panies specialize in designing attractive grillsthat both dress up the building's decor andfoil burglars. Transoms, skylights, ventilatorshafts, air vents, and utility access coversshould also be protected with steel meshscreens or bars. Because they are oftenshielded from view, these entrances areespecially inviting routes for burglars.

Security specialists advise business ownersto clear their grounds of overgrown shrub-bery, especially near windows or entranceways that offer burglars safe places to hide.All ladders, ropes, and tools that could helpa burglar gain entry into your business

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should be locked upnot left outside thebuilding.

Illuminate the building's exterior and interiorwith lights to discourage burglary attempts.Most burglars prefer working at night be-cause the darkness conceals their activities.Keeping the business well lit., will help pa-trolling police identify suspicious persons.

In high crime areas, the business owner maywish to consider hiring guards who eitherstay in the building for a certain amount oftime or who check the building at regularintervals. For many small businesses, suchservices can be expensive. However, bypooling resources a group of businesses cangreatly lower the cost for each individual.Watchdogs could also be purchased or rent-ed. They present the intruder with an im-mediate physical threat, and for some typesof businesses provide effective security.

If locks, screens, and other physical deter-rents do not provide enough protection, thebusiness owner may consider installing analarm system. Alarm systems that are on themarket should be carefully investigated. Toomany entrepreneurs invest large sums ofmoney in elaborate alarm systems that pro-vide too much protection. Security special-ists and local law enforcement agencies canprovide information about the most reputablealarm companies in the area. By securingbids from several companies, the entrepre-neur is better able to select the one that bestfits the budget and one that is the mostreliable.

HOW CAN INTERNALTHEFT BE HANDLED?

In addition to losses from crmes committedagainst the business from people outside thefirm, the entrepreneur must also recognizethe potential losses due to internal theft byhis or her own employees. Each year, inter-nal theft substantially cuts the profits ofsmall businesses. Some reports indicate thattheft by employees accounts for nearly 38percent of the losses suffered by small busi-nesses. Embezzlements by trusted employeeshave also driven many established firms intobankruptcy.

The first step in preventing internal theft isto do a good job of screening job applicants.Check with previous employers of applicantsand have applicants account for lapses be-tween jobs. Lie detectors are used by somefirms to test the trustworthiness of appli-cants. However, the tests are expensive andtheir validity is sometimes questionable.

There are two specific reasons that employ-ees steal:

1. To punish the employer for real or imag-ined grievances

2. To take advantage of a permissive viewof what constitutes theft.

The first reason is based on feelings ofboredom, being underpaid, not respected, orunderutilized. Such feelings may lead totheft because the employee asks, "How elsecan the employer be punished?"

The second reason is corrected by makingsure that employees know what constitutestheft. For many of them, taking low-costitems, like pens, tapes, or stamps, may notbe viewed as theft, but it is. Theft of smallitems must be controlled because, aver time,substantial losses can result for the firm.

Preventing major employee theft is chiefly amatter of establishing effective proceduresand removing the main causes for bad feel-ings toward the firm. Each employee shouldbe told that his or her work is respected andvalued by the firm. The business ownershould consider job enrichment activities.Happier employees are less likely to steal.Employers can show employees that they ex-pect honesty at all times. They can set theexample with their own behavior. For ex-ample, overshipments should be returnedpromptly, and even small supplies should notbe taken from the business for personal use.

HOW DO EMPLOYEESSTEAL AND HOW CANIT BE CONTROLLED?

Internal theft often occurs when employeessteal petty cash funds or steal cash paymentsreceived in the mail. Some employees stealfunds by cashing company checks made outfor fictitious bills from nonexistent vendors.Other employees steal company supplies,equipment, or merchandise. Some employ-ees take kickbacks, split commissions, ormake other deals with suppliers or custo-mers. In retail stores, employee theft cantake the form of employees ringing up itemsfor friends or relatives at less than theticketed price.

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The following procedures have been usedeffectively to control internal theft:

To deter embezzlement, company recordsand accounting books should be auditedregularly by a competent accountant.

Spot checks will ensure that cashiers areringing up all sales and at the correctprices. At no time should an employeebe allowed to ring up his or her ownpurchases.

Trash receptacles should be inspectedfrom time to time to make sure that nomerchandise has been placed in them forlater retrieval.

Employee packages should be inspectedleaving the premises.

Loading and unloading proceduresshould be observed. Make sure all itemsordered are received. A responsible per-son should be assigned to load outgoingshipments to ensure no more goes outthan has been ordered by customers.

Truck loading should be spotchecked tosee that no stolen goods are on the **tick.

Many companies will not allow employ-ees to park in the receiving area. Thereceiving door should be shut and lockedwhen not in use. Mary firms have in-stalled alarms that ring each time thedoor is opened.

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Employers should tell employees thatthey expect honesty from them and thattheft will not be tolerated.

In hiring, employers should be thoroughin checking the honesty and character ofjob applicants.

The devices used for detecting shoplift-ing can also be used to detect employeetheftconvex mirrors, two-way mirrors,and closed-circuit TV.

HOW CAN ACCIDENTSAND LAWSUITS BEPREVENTED?

in addition to crime prevention, businessowners must also protect their firms frompossible lawsuits from customers or otherindividuals. Lawsuits by customers who fallin a business are the most common, andprobably the leading liability claim that mostbusinesses face. On-site accidents will prob-ably be caused by one of these reasons:

Customers and employees tracking inrain

Slippery floors after waxing or mopping

Cluttered aisles caused by restockingactivities

Unmarked changes in floor levels

Everything reasonable and prudent should bedone to keep businesses safe. Court deci-

sions have gone against business ownerswhen it was proven that a dangerous condi-tion existed when it should have been spot-ted during routine inspections. Althoughmost lawsuits for falls are settled out ofcourt, store owners still incur attorney's fees,and they or their insurance company mustpay the settlement amounts.

The following suggestions should help re-duce accidents from occurring.

1. Keep floors dry. Quickly mop rainwater tracked in and put up caution signswhen floors are wet. Many firms installnon-skid mats at entrances, but as effec-tive as mats may be, they must be prop-erly maintained. For example, corners ofold mats may curl up causing customersto trip over something that was intendedto reduce accidents.

2. Schedule maintenance properly. Youmay be asking for trouble by havingworkers :lean or wax floors during busi-ness hours. Also, recent court decisionshave gone against businesses that haveimproperly applied floor wax.

3. Remove clutter in aisles. Boxes placedin aisles while employees are restockingshelves can be dangerous and cause cus-tomers to fall.

4. Conduct regular inspections. Beforeissuing a policy, many insurance com-panies will audit the business closely forpotential sources of physical ii.jury toemployees, customers, neighbors, orothers. Have someone assigned to lookregularly for hazards such as inadequatelighting, improperly cleaned floors, orclutter in the aisles. Where floor levels

change, reflective tape should be used.Above all, keep written records.

5. Educate employees. Use meetings, bul-letin boards, and posters to stress safetymessages. Make sure that employeesknow how to handle accidents if they dooccur. Keep records of employee educa-tion programs that you conduct.

Following all these guidelines will not elimi-nate all accidents. When someone falls inthe business, make sure the person is com-fortable, then call for medical assistance. Ifa trip to the hospital is necessary, call anambulance rather than using a company ve-hicle or a personal car. Doing so may openthe business to other liability claims ifsomething goes wrong.

After taking care of the person who has hadthe accident, prepare a written description ofconditions surrounding the accident. Takephotographs of the accident site, if possible.Determine who witnessed the accident, andtake statements from them. Determine whatcaused the accident and check records todetermine when the site was last inspectedfor hazards.

WHAT ARE THE TYPESOF INSURANCE?

Entrepreneurs purchase insurance in theevent that problems occur. In general, mostfirms should consider insurance coverage forthe situations described below. Each type ofinsurance provides a means of managing riskin the business.

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Fire insurance is one of the most commontypes of insurance to be considered. If theentrepreneur is renting or leasing, he or sheshould find out what is covered by the own-er's fire insurance. The contents of thebusiness, such as inventory, fixtures, andequipment will probably need to be consid-ered. In most situations, the fire insurancepolicy should be supplemented by an extend-ed coverage endorsement that insures againstloss from windstorm, hail, explosion, riot,and smoke damage. Purchasing fire insur-ance does not take the place of active fireprevention measures. Good housekeepingand maintenance, use of smoke and heat de-tectors, and the availability of fire extin-guishers are as important as insurance.Some businesses have established a no-smoking policy to stop the chance of fires.

Fidelity bonds provide coverage against fi-nancial loss caused by dishonesty, such asembezzlement. This type of protectionshould receive careful consideration if theentrepreneur has delegated authority to otheremployees to handle large amounts ofmoney or company assets. Most companiesoffering fidelity bonds state a maximumamount payable for a loss.

Surety bonds cover the failure of one personto perform a legal obligation to another, suchas not constructing a building as promised.Before issuing such a bond an insurancecompany would check the reputation, creditrating, and resources of the principalsinvolved. The company's competency to dothe work is also assessed.

Casualty insurance protects a business fromspecific loss situations. For example, busi-nesses can purchase casualty insurance thatprovides protection from losses caused byburglary, robbery, theft, and larceny. Some

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entrepreneurs also purchase a business inter-ruption rider to provide some income if abusiness is closed down because of otherdamages. For example, while rebuildingafter a fire, the entrepreneur must continueto pay salaries to key employees and tomake loan payments.

Liability insurance protects the businessagainst claims arising from personal injuryor property loss. Liability coverage is oneof the most important protections the smallbusiness should have. Such insurance pro-tection covers the firm against customershaving accidents at the business and thenbringing a lawsuit against the firm. Law-suits can tie up the entrepreneur's time andasscts, and they can even affect credit avail-ability. Another form of liability insuranceis product liability insurance which protectsa manufacturer against claims that the pro-duct is unsafe. This type of insurance isoften prohibitively expensive.

Workers' compensation is another type of in-surance which provides medical care, deathor dismemberment benefits, or income pay-ments for employees who are injured or kill-ed on the job. Specific benefits payable tothe worker are determined by the state, andsome exemptions from workers' compensa-tion coverage exist in almost all states. Forexample, employers of a small number ofemployees may be exempt.

Key person insurance covers the firm if part-ners or employees essential to managing thebusiness become disabled or dies. Businesscontinuation life insurance is used by manypartnerships to provide cash on the death ofone owner. The cash is used to buy thepartner's share of the business from heirs.

These are only the major coverages thatmany small businesses have. Every businessis different, and insurance needs will vary.The entrepreneur should consult a reliableinsurance agent to develop a complete insur-ance plan that will meet the specific needsof the business. Insurance rates also vary.Entrepreneurs should shop around before de-ciding what to purchase. If the entrepreneuris a member of a trade association, specialpolicy rates may be available from a groupinsurer.

Protecting the business is a complex issuethat requires planning. By not taking thenecessary steps to protect the businessadequately, the entrepreneur could lose allthat he or she has worked to build.

3

ACTIVITIES

The following activities are designed to helpyou apply what you have learned in thisunit.

INDIVIDUAL ACTIVITIES

A.

Many businesses are purchasing specialequipment and fixtures to combat crime.Read the following business descriptioncarefully. For each of the following areas,list equipment or fixtures that could be usedin crime prevention by Johnny Ames.

Shoplifting

Robbery

Burglary

Internal Theft

Johnny Ames is planning to open a jewelrystore in a large shopping mall in a city ofapproximately 185,000 people. The storewill open from 10:00 a.m. until 9:00 p.m.6 days a week. The store contains sellingspace of 1,200 square feet with an additional200 square feet of storage space. The storefront faces the mall court, and there is aback door that opens to the parking lot. Thestore accepts cash, checks, Visa, Mastercard,and American Express for purchases.

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B.

Entrepreneurs must be able to handle acci-dents that occur at their businesses. Afterreading the following situation, answer thequestions which follow.

You are the owner of "Saveway Shoes."You have just sold a pair of shoes to Mrs.Anderson, a regular customer at your store.After paying for the purchase, she indicatesthat she is late for an appointment and walksaway quickly. She turns the corner for theexit and fails. The sound of falling metaland breaking glass lets you know that itcould be a serious fall. You run to Mrs.Anderson and see her lying unconscious onthe floor. She has tripped over some displayprops near the exit. Mrs. Anderson has asmall cut on her head but no other injuriesare immediately observed.

1. What should you do now? Describe thesteps that you would take.

2. Should you immediately take Mrs. And-erson to an area of the store where shewill be away from other customers?Why or why not?

3. When Mrs. Anderson regains conscious-ness, what would be wrong with sayingto her "Don't worry, our insurancecompany will take care of any medicalbills."

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GROUP ACTIVITY

Work in teams of four to six. Have eachteam investigate one of the following risksor crimes that businesses face:

Shoplifting

Burglary

Robbery

Lawsuits from Liability Claims

Natural Disasters (tornados, floods,hurricanes, fires, etc.)

Each group is tasked with locating newsarticles concerning the occurrence of eachrisk or crime in their community.

Team members should compile their findingsand develop a report about the impact of therisk/crime in their community. Have themmake suggestions as to how the lossesreported could have been reduced oreliminated.

4:5

CASE STUDY

Jake has opened a new business to sellmen's clothing. His policies include thefollowing:

1. No checks will be accepted.

2. No employee will be issued keys to thestore.

3. Employees will not be hired before theirreferences are checked.

DISCUSSION QUESTIONS

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4. Vendors will be checked in only beforeopening hours.

He has also decided to purchase thefollowing equipment to deter crime:

1. An alarm system

2. Convex mirrors to be used throughoutthe store

3. Electronic price tags on garments

1. Describe both the positive and negative impact of each policy and equipment purchase,

2. Would you suggest any changes? if so, describe them.

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ASSESSMENT

Read the following questions to check your knowledge of the topics presented in this unit.When you feel prepared, ask your instructor to assess your competency on them.

1. What is risk management?

2. Why are many small business owners reluctant to prosecute shoplifters?

3. What methods can be used to prevent "ticket switching" by customers?

4. What are the causes of`.shrinkage?

5. What do the initials NSF mean? Generally, how are such checks handled by businessowners?

6. How can check verification services reduce the risk of bad check losses?

7. What is vendor theft?

8. Why would a business purchase fidelity bonds?

9. Under what situation would business continuation life insurance most likely be purchased?

REFERENCES

Griffith, Luther T. "Risk Management Requires Diverse Skills." Small Business Reports, August1989, 38-41.

J. K. Lasser Tax Institute. How to Run a Small Business, 6th Ed. McGraw-Hill Book Co., 1989.

Lane, M. J. Legal Handbook for Small Business. Anacom, 1989.

McDonough, Thomas. "Risk Management for Small Business." Security Management, October1992, 74-76.

"Nine Ways To Reduce Lawsuits against Your Company." Stores, May 1993, 91.

Perry, Phillip M. "How to Prevent Slips and Falls." Stores, June 1993, 48-49.

"Retail Shrinkage." Stores, March 1993, 15.

Robbins, Gary. "Disaster Recovery Programs: Plan Ahead for Catastrophic Disruptions."Stores, October 1992, 29-34.

Slom, Stanley H. "Check Fraud: Verification Firms Help Cut $2.9 Billion Loss." Stores,February 1992, 31-32.

Turner, Augustino. "Risk Retention." Small Business Reports, April 1989, 83-88.

Level 2

PACE

Unit 1. Your Potential as An Entrepreneur

Unit 2. The Nature of the Small Business

Unit 3. Business Opportunities

Unit 4. Global Markets

Unit 5. The Business Plan

Unit 6. Help for the Entrepreneur

Unit 7. Types of Ownership

Unit 8. Marketing Analysis

Unit 9. Location

Unit 10. Pricing Strategy

Unit 11. Financing the Business

Unit 12. Legal Issues

Unit 13. Business Management

Unit 14. Human Resources

Unit 15. Promotion

Unit 16. Selling

Unit 17. Record Keeping

Unit 18. Financial Analysis

Unit 19. Customer Credit

14> Unit 20. Risk Management

Unit 21. Operations

Resource Guide

Instructor's Guide

Units on the above entrepreneurship topics are available at the following levels:

Level 1 helps you understand the creation and operation of a businessLevel 2 prepares you to plan for a business in your futureLevel 3 guides you in starting and managing your own business

J