Tips for Business Owners to Prevent Internal Theft

It is estimated that dishonest employees account two-thirds of retail theft and shoplifting for the remaining third. This information is intended to help reduce internal theft. The most effective means are internal controls and audits that are strictly followed. The source of this information is the U.S. Small Business Administration publication "Curtailing Crime - Inside and Out". For additional information visit their Web site at www.sba.gov/advo/research.

EMPLOYEE THEFT

Rules That Can Help Eliminate Employee Dishonesty

  • Prosecute employees who are caught stealing 
  • Rotate security guards. Rotation prevents monotony from reducing the alertness of guards 
  • Price items by machine or rubber stamp, not by handwriting 
  • Permit only authorized employees to set prices and mark merchandise 
  • In cases of returns and refunds, insist on a merchandise inspection and approval by someone other than the person who made the sale 
  • Pay special attention to cashiers when clusters of people surround them 
  • Be alert to the use of over ring slips to cover up shortages 
  • Make a dependable second check of incoming materials to rule out the possibility of collusive theft between drivers and receiving personnel. Do not allow a truck to approach the loading platform until it is ready to load or unload 
  • Do not allow drivers behind the receiving fence. Discourage drivers from taking goods or materials from the platform by the following devices: install heavy gauge wire fencing between bays, with the mesh too fine to provide a toehold; mount closed circuit television cameras overhead that will sweep the entire platform; and locate the receiving supervisor's desk or office to give him or her an unobstructed view of the entire platform 
  • At the loading platform, do not permit drivers to load their own trucks, especially by taking goods from stock 
  • Make sure every lunchbox, toolbox, bag or package is inspected be a supervisor or guard as employees leave the plant 
  • Insist that all padlocks be snapped shut on hasps when not in use to prevent switching of locks 
  • Control keys to padlocks. Never leave the key hanging on a nail near the lock where a worker can borrow it and have a duplicate made while he or she is away from work 
  • Do not allow trash to accumulate in, or be picked up from, an area near storage sites of valuable materials or finished goods 
  • Supervise trash pickups and inspect disposal locations and rubbish trucks at irregular intervals for the presence of merchandise when you have the slightest reason to suspect collusion between employees and trash collectors
  • Control receiving reports and shipping orders (preferably by sequential numbering) to prevent duplicate or fraudulent payment of invoices or padding or destruction of shipping orders 
  • Make sure that receiving reports are prepared immediately upon receipt of shipment. 
  • Delay in making out such reports can be an invitation to theft or, at best, result in record keeping errors 

 EMBEZZLEMENT

SIGNS OF POSSIBLE EMBEZZLEMENT

  • Increase in overall sales returns could be caused by defective merchandise -- or it might represent concealed accounts receivable payments. 
  • Unusual bad debt write offs can be due to a number of business reasons -- or could be covering up a fraudulent scheme. 
  • A decline or unusually small increase in cash or credit sales might mean that business has not been good -- or it could mean that some sales are not being recorded. 
  • Inventory shortage can be caused by error or mismanagement -- or could indicate fictitious purchases, unrecorded sales or employee theft. 
  • Profit declines and/or increases in expenses can be entirely legitimate -- or could be a sign that cash is being siphoned off illegitimately. 
  • Slow collections can be caused by business conditions -- or can be a device to mask embezzlement.

PREVENTING EMBEZZLEMENT

  • Check the background of prospective employees 
  • Know your employees 
  • Control your payroll 
  • Have the company mail addressed to a post office box rather that your place of business 
  • Supervise daily cash deposits 
  • Bank Statement Reconciliation 
  • Examine transaction documents 
  • Bond your employees 
  • Spot check records 
  • Control outgoing funds 
  • Control invoices 
  • Examine checking account items 

COMPUTER CRIMES

Minimize Computer Risks 

  • Establish information security as a management priority 
  • Identify information resources and determining your vulnerability to and the potential impact of losses
  • Select and implement administrative controls to reduce potential losses covering all computer equipment, information, and data, as well as software development and acquisition. 
  • Monitor results