Hackers get headlines. So do terrorists and people caught engaging in questionabl e accounting practices. But in many ways, internal theft committed quietly behind the scenes poses just as real a threat to corporate profitability. In fact, nearly 25 percent of the respondents to a survey taken by a national accounting firm reported that employee theft had cost their companies more than $1 million.
When it comes to inventory shrinkage, the victims tend to have something in common: They've usually committed one or more of what I refer to as The Seven Deadly Sins of Distribution Center Security. What follows is a look at these costly mistakes:
1. Relying on alarms, guards and cameras. Ask most executives how they protect their inventory and they'll assure you they've installed alarms, employed guards and set up closed-circuit television systems. But if these controls work, why do so many companies that have them in place report losses?
Alarms are designed to p rotect against break-ins, not theft committed by insiders—which is how inven tory loss usually occurs. Most uniformed guards aren't adequately trained to recognize or respond to theft and collusion. Closed-circuit television is only effective if i t's been strategically designed and consistently monitored … and that's rarely the case.
2.Getting lax about dock supervision. Because they don't know how to prevent internal theft,many distribution managers inadvertently make it too easy for drivers to make shady deals with people who routinely work on the dock—shippers, receivers, checkers and loaders. These theft schemes are silent—no alarms will go off—but they can cost a small fortune.
3. Reacting to problems (rather than preventing them). A large percentage of companies that report shrinkage have done little to prevent theft in the first place. By the time they wise up and decide to act, they've already suffered a substantial loss.
It's been repeatedly proven that preventing loss is far less expensive than reacting to it.
4. Soliciting tips in-house. A confidential hotline can be an invaluable tool for gathering tips on individual theft, collusion, fraud, workplace substance abuse, arson, product tampering, harassment or discrimination. But it has to be truly confidential. Too many companies continue to rely on open—door policies or inhouse tip lines and then wonder why employees who become aware of unethical or illegal activity remain silent.
In our experience, outsourced tip-line programs are far more successful because they allow workers to speak to people who won't recognize their voices. Employees are more likely to confide in someone outside their company, rather than using an inhouse system.
Equally important, callers should never have to provide their names.The best response comes when you offer complete anonymity. For example, our Danbee Hotline, which has collected information that's exposed millions of dollars of losses for our clients over the last several years, provides every caller with a code number.
5 . Failing to check your checkers. Too many companies have made the mistake of not keeping their checkers accountable. Unfortunately, without rigorous oversight, a percentage of checkers drift into negligence or dishonest behavior overtime, and that's when companies can rack up substantial losses. One effective way to monitor the accuracy and integrity of your checkers is by performing regular loss prevention audits. There are a number of ways to do this: One might be to arrange for a security representative to arrive (wi thout advance warning) during the time your trucks are being loaded, select one (or several) and audit the product found on the vehicles vs. the shipping manifest(s).
Another technique would be to arrange for surprise audits to be performed on your trucks as drivers begin their route deliveries. We refer to these as non-covert surveillances. By having an investigator meet a driver at his or her first stop and list each piece delivered throughout the course of the day, you will uncover product that's been over-loaded.
Both of these security techniques are excellent ways to not only detect collusion or negligence, but also to prevent it from taking place.When workers know there is a high risk of being exposed,they'll be far less likely to steal.
6. Allowing substance abusers to remain on the payroll. Nearly 90 percent of all employee drug users either deal or steal to support their addiction. As many distribution executives have learned,if you have a drug problem inside your company, you can expect to have a theft problem as well.
Two of the best ways to identify drug users and distributors on your payroll is through the use of a tip-line program or by inserting an undercover investigator into your operation.
7. Failure to provide the right training. All too often, losses occur because managers and supervisors are not educated on how to recognize the subtle, ingenious ways that theft takes place in a distribution center. Simply put, if your key people don't know what they're looking for, they probably won't see it.
If you're not sending your managers and supervisors to conferences or arranging to hold in-house security seminars that teach techniques for detecting and preventing various types of theft, you're not giving them the tools they need to protect your assets.