In the retail sector, internal theft is the cause of more than 40 per cent of shrinkage costs incurred, according to Russell Zimmerman, Executive Director at the Australian Retailers Association (ARA).
“Internal theft tends to be more sophisticated, has a greater financial impact per incident, and is more difficult to detect than external theft,” Zimmerman says.
As with any business problem, the solution to employee theft involves people, processes and technology.
The best way to prevent internal theft is to do your best to recruit and retain reliable staff.
“If retailers recruit staff with a history of theft because they have not taken the time to interview comprehensively or do reference checks, they have no one to blame but themselves,” says Zimmerman.
This will involve a bit of legwork and homework to begin with, but the pay-off will be worth it.
At a bare minimum, make sure you conduct background and comprehensive reference checks. You should also look for signs of criminal history involving violence, theft and fraud, civil court action involving debt collections, and don't forget to check with their previous employer as to why they left the business.
Treating your staff well can also help reduce theft. In fact, academic research shows that there is a link between employee dissatisfaction and theft.
“Treating staff with respect, consideration and trust can at a very human level reduce the likelihood of revenge as a motivation, while increasing the likelihood of staff feeling guilty at the thought of taking advantage of an employer who trusts them,” Zimmerman adds.
“Internal theft tends to be more sophisticated, has a greater financial impact per incident, and is more difficult to detect than external theft”
If your business processes are poor, employees may exploit opportunities to steal – and they're likely to get away with it too.
But by tightening up your processes, you can make it harder for theft to occur right under your nose.
According to Dun and Bradstreet (now called Illion), the most common types of employee embezzlement are:
- Asset theft: skimming from cash registers, stealing stock or transferring company funds to a personal account.
- Vendor fraud: creating a fictitious invoice or inflating legitimate charges, then transferring payments to a personal account.
- False reimbursements: disguising personal spending as a business expense or exaggerating genuine expenses.
- Payroll fraud: paying people who don’t work for the company, then collecting the cash.
Processes you can implement to combat these kinds of theft include dividing payroll and billing responsibilities among multiple employees, performing regular audits, establishing an anonymous reporting system, and monitoring business credit cards, D&B recommends.
When it comes to information and intellectual property theft, businesses should draw up comprehensive employment contracts, implement good IT controls and enforce strict handover protocols.
If you suspect someone has been stealing from your business, there are steps you can take to catch them in the act.
Obvious technological solutions include video monitoring of locations such as points of sale, staff common rooms and garbage disposal areas.
Point of sale software and accounting software can also provide highly valuable data, as well as the analytics that will provide insights and alerts.
Increasingly sophisticated solutions will flag suspicious transactions and retrieve the associated video footage or other information, or use radio frequency identification chips to provide real-time inventory monitoring data.
Transferring the risk
Sadly, no matter how robust your people, process and technology solutions, there is always a risk that your business will harbour an enemy within.
But you don't have to bear the burden of that risk. It can be transferred to the insurance market through various specialist business insurance products.
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