Some answers and comments on the situation:
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Steve199: ".did the store owner break any laws himself by not reporting this up the line?"
This is an excellent question. Actually, there is nothing in Canadian law that forces a person to report a crime. There is a moral obligation to do so, however, but that is all.
Actually, where the store owner could conceivably have a slight problem has to do with his agreement with the Post Office. Upon review, however, all we can see is an obligation to report any shortages in regard to stock or revenues from stock. There is also a statement to the effect that the Franchisee is responsible for the employees he hires to work in his Franchise, but that is somewhat vague. There is nothing that specifically mentions perceived theft of mail by an employee, nor is there anything mentioned in the way of a procedure to follow in such a case.
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Echizento: "You have a kind heart, he got off lucky."
We were all for getting the cops involved until the kid mentioned that he still had all the items in question, especially when he said he hadn't even opened any of them. Such an action showed us that the kid wasn't a thief at heart - he was just caught in the process of being stupid, if nothing else.
It would have been a shame to ruin the kid's future over something so stupid, this is true, but the other thing we had to weigh was the fact that the justice system probably wouldn't have taken the matter nearly as seriously as it would have once upon a time. The kid didn't know this, though, and he was somewhat terrified about what would happen if we did report it. He definitely feels that he got off lucky, but in the reality of it all, we probably saved the taxpayer at least $3000 by not involving the cops. Look at all the time that would have had to be covered by the system - for the cops, the Crown Attorney, the Judge, maybe even a Legal Aid lawyer. Even if he went through all the steps, at the end of it all, considering no criminal record, the most he would likely have gotten would have been less than a year's probation, or a small fine, or some form of restitution, but that's all. There may have even been a suspended sentence. He would have emerged with a criminal record, which is definitely not something one deserves for being stupid. On top of that, those who were victimized would continue to be victimized because their stuff would have had to be held for evidence. This way, it was all released back to the owners.
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SHAFTA9a: "I think he should have got busted, but then again..his mother......"
His mother was less than impressed; if anything, she looked ashamed and embarrassed. She was very apologetic about the situation, mentioning that he did know the difference between right and wrong. I don't think she is going to let him live it down.
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Moe145: "I can't believe the loser hadn't opened any of the mail!"
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Siuol: "Why did he steal them then not do anything with them?"
We found it strange, too. I even had a list with me of the contents of the mailings I had sent out that apparently hadn't been received, in case I had to identify which were mine out of a bunch of loose coin, but it wasn't necessary. This was somewhat fortunate, actually. Maybe he felt that actually opening it was worse than just merely waylaying it, because to open it would have been clear intention to steal - it definitely would have meant crossing the point of no return.
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thai-vic: "The kid was punished but didn't end up with a criminal record which would have made his life a lot harder."
Precisely; losing his job was definitely a punishment, because it could have led to a position with the Post Office (the "real" one), where they're making about $25.00/hour and benefits. You can bet all of the other Postal Franchisees will know about the situation, and they won't hire him, either.
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Dylan's Dad: "Maybe I'm just cynical, but to me this only shows him that it's easy to "get off clean."
We considered this also, but the same message would have been shown him if the authorities chose not to get involved, especially since all of the items were retrievable. The Court system here is so backlogged that it likely would have been a year before he got in front of a Judge, and as a result, the cops are very picky about the cases they decide to prosecute.
If you could have seen the kid, I doubt you would have thought he was acting terrified. Add to this his mother's reaction, and I doubt he will be thinking that it's easy to get off when you get caught.
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Agosos: "Was the ring tone a cop siren,or the Inspector Gadget theme song?"

Too funny. I wish I had thought of that!
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turtleoverhead: ".I still think that two broken hands would help him to remember not to steal "
Agreed. I miss the days when corporal punishment was the norm, too.
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Parklane64: "think you handled this 'youthful indiscretion' at the appropriate level for all concerned. Great method and follow up. Kudos. "
Thanks! In some ways, it wasn't easy to decide what to do, but we had to look at all the angles before we decided. I think that the way we did proceed addressed most of our concerns satisfactorily and solved the problem, but even there, the way we ultimately dealt with the situation depended upon what we discovered in the investigation stage. The fact that he appeared to just be stockpiling the packets and wasn't opening them showed us that he had no intention of being a hardened criminal. I have to admit that I was surprised at this, because it would have been so easy for him to sell the contents in Craigslist or something.