Employee theft is an issue plaguing retailers of all sizes across the United States. The consequences of employee theft can be devastating, leading to financial losses, damaged reputations, and even business closures.
The National Federation of Independent Business (NFIB) reports that employees are 15 times more likely than non-employees to steal from their employers, accounting for 44 percent of theft losses at retail stores.
Add to this that nearly a third of business failures can be attributed to employee theft or fraud (per the U.S. Department of Commerce), and you get a recipe for disaster.
As a smaller retailer, taking proactive steps can prevent employee theft. Here are ten effective strategies that you can implement to start safeguarding your business.
1. Know Your Employees
Getting to know your employees personally can be an invaluable preventative measure. Be vigilant for indicators of potential theft, such as:
Sudden, apparent devotion to work and working late: While dedication is commendable, sudden changes in behavior might indicate ulterior motives.
Lifestyles well above salary levels: Employees living beyond their means could be involved in theft.
Strong objections to procedural changes related to finances, inventory, or supplies: Resistance to changes may indicate an employee is trying to cover up illicit activities.
Substance abuse: Drug or alcohol problems can lead employees to theft.
Moonlighting with materials available at the business: Employees using company resources for personal gain should raise suspicions.
Compulsive gambling, persistent borrowing, or bad check writing: Financial troubles might motivate theft.
Conduct background checks on potential hires; a comprehensive background check is imperative for those handling money or financial records.
2. Supervise Closely
Studies have shown that lax supervision often increases theft and fraud rates. While it's not necessary to micromanage, ensure that you maintain consistent oversight. Regularly check on employees and have multiple individuals overseeing financial matters to minimize theft risk.
3. Use Purchase Orders
Separate the functions of payment, receipt, and preparation of purchase orders and assign these tasks to different individuals. Employ serially pre-numbered purchase orders and always verify incoming orders to detect discrepancies promptly.
4. Control Cash Receipts
Implement controls for cash receipts by using serially pre-numbered sales slips. Conduct weekly audits and ensure that someone other than a sales clerk balances sales slips and register receipts.
5. Perform Informal Audits
Regularly conduct unannounced internal audits and consider having an annual audit performed by an external firm. These audits can help uncover irregularities in your financial records.
6. Strengthen Computer Security
In today's digital age, protecting your business from online threats is essential. Understand your computer systems and software thoroughly, and be aware of how they can be used to divert money or inventory. Restrict access to computer terminals and records, change entry codes periodically, and regularly monitor security procedures.
7. Monitor Business Checks
Always use pre-numbered checks, with amounts and payees typed or written in permanent ink. Generate all checks from financial software like QuickBooks. Secure blank checks and any signature machine in a safe place to prevent unauthorized use.
8. Manage Inventory and Security Systems
Separate receiving, storekeeping, and shipping functions can reduce the risk of inventory theft. Conduct physical inventories annually and ensure those responsible for inventory records are not involved in handling the physical inventory. Consider installing security devices to monitor merchandise and inventory.
9. Be Cautious with Accounts Receivable
Make mail-opening and posting separate functions within your business. Record checks and cash in appropriate registers, and stamp checks for "deposit only" to prevent any diversion of funds.
10. Encourage Reporting
Create a way for employees to report theft or fraud by co-workers anonymously. This should be done carefully to avoid undermining trust among your staff. However, it can be a highly effective means of identifying and addressing internal issues when implemented correctly.
Employee theft is a significant problem but not insurmountable.
By implementing these ten strategies, you can significantly reduce the risk of employee theft in your business. Remember, vigilance and a proactive approach are vital to protecting your financial well-being and the future of your retail establishment.