The distributor's inventory variances had historically fallen within acceptable levels. So it came as a shock when the latest report revealed that over the past six months, inventory "shrinkage" had increased by upwards of 400 percent.
Unable to find an operational explanation, the company's managers hired a security firm to conduct a confidential investigation. The undercover operation revealed that a group of long-term employees had been stealing inventory on a weekly basis. When apprehended, the workers admitted to the thefts, telling investigators that the economic downturn had left them desperate for extra cash. After weighing the alternatives, they had decided this was an easy, low-risk way to supplement their income.
This is not an isolated case. Business publications have been full of stories lately about the rise in workplace crime. The timing is no coincidence. There is a direct correlation between rising criminal activity and the economic crisis.
Part of it is simple financial need. With tens of thousands of companies slashing expenses, the grim reality is that workers face wage freezes, pay and benefit cuts, reduced overtime, and in the worst case, layoffs. Even if cutbacks haven't yet taken place, many workers believe that it's just a matter of time and will start casting around for an alternative means of income.
Unfortunately, many workers see stealing from their employer as one of those means.
Making matters worse, some of those employees have convinced themselves that they're simply taking what they're entitled to. One supervisor caught defrauding his employer tried to justify his actions this way: "I've worked hard for this company for a long time, and I didn't see the owners making sacrifices like they expected us to." Another distribution center employee, when identified as a member of a theft ring, told investigators that he was "just doing it to them before they did it to me."
Protecting your bottom line
While there is no way to make your company bulletproof, there are several steps that can dramatically reduce your risk. Here are four proven strategies:
1. Maintain open communication with your workforce. If layoffs or cutbacks are pending, don't announce it through impersonal e-mails or postings; arrange to have the news personally delivered to the staff. The direct approach can keep simmering resentment from boiling over into full-blown retaliation.
2. Share the pain. If you're forced to make cutbacks, make it clear to everyone that the sacrifices are being made across the board. If they don't see senior managers tightening their belts too, workers are unlikely to believe that the reductions are really necessary.
3. Make sure you have proactive safeguards in all essential areas of your business. Certain distribution activities are particularly vulnerable to collusion and, therefore, merit special attention. These include shipping, receiving, returns, driver deliveries, pickups ("will calls"), and transfers. We exposed one scheme in which a delivery driver and one of his customers were netting nearly $1,500 a week by deliberately overloading trucks. Inventory loss can easily spike if you don't have effective methods of monitoring the personnel responsible for these activities.
4. Establish an effective way for workers to report illegal activity. Many times, employees are aware of blue- or white-collar crime but are reluctant to blow the whistle because they're afraid of putting themselves at risk. To encourage workers to report theft-related activity, give them an absolutely safe, risk-free way to communicate. One of the most effective methods is to set up an anonymous tip line.
Making a hotline available will not only increase the odds of learning about internal theft, but will also serve as a deterrent. If an employee knows that coworkers can easily (and anonymously) report him, he'll be far less likely to yield to temptation in the first place.