Theft Of Stock By Employee

The dishonest owner of a waste paper company approached two employees of a paper mill, offering cash backhanders. The two employees, both fork lift truck drivers, placed valuable reel ends of white paper into skips, which were left by the waste paper merchant on site for the collection of waste brown paper. The white reels of paper were then covered either by brown paper or tarpaulins by the waste paper merchant, before being removed undetected from the site. There was no weighbridge on site, so the waste paper merchant simply sent the Insured self-billing invoices for, say, 5 tonnes of brown paper at £6 per tonne. He then sold on the valuable white paper to the trade at over £100 per tonne.

In this way he misappropriated stock valued in the order of £1 million at cost. The two employees received, at most, £5,000 each for their co-operation. The Insured only came to realise that there was a problem when unexplained stock shortfalls and depressed productivity became material issues in the accounts.

The Insured company and the loss adjuster were fortunate to trace to whom the white paper had been sold, enabling them to determine the volume of white paper involved. Without this information they would have had enormous difficulties in supporting the amount of loss flowing directly from theft by employee, which would otherwise have appeared as unexplained stock shortfalls.