4 Ways Managers Can Prevent Internal Inventory Fraud

retail inventory fraud prevention

In our last blog, we shared some tips for securing your workplace environment to avoid external inventory fraud.  Now we will shift our focus to an even more sensitive topic, preventing internal inventory fraud.

Managers do not like or want to think about employees committing any fraudulent activity. Managers spend a lot of time and resources hiring people they believe they can trust with not only their customers but also with their products.

Employees are a store's most valuable asset, but they can be faced with the temptation to steal inventory at some point during their employment.  Unfortunately, temptations prevail more often than you might think, so anything that can be done to discourage and prevent inventory fraud can significantly benefit the success of your business.

The good news is that there are some everyday actions that you can implement to discover and reduce unauthorized employee discounts.  Here are a few tips to reduce internal inventory fraud that are commonly used in the retail industry:

1) Check personal belongings before employees leave

When an employee leaves the store or office, another employee should check him or her out. If the employee has a bag, then the bag is checked to where you can see the bottom. Checking belongings only takes a few seconds to implement on a daily basis and since it is a store policy, no employee feels singled out.

2) Schedule multiple store openers and closers

When there are multiple store closers and openers, it is not only safer but also discourages internal fraud. Have two people that are accountable for the merchandise on the floor, opening or locking-up properly, and checking the other person’s belongings.

3) Require non-related cash-outs for family and friends

Simply put, family and friends are not allowed to be cashed out together. Have a non-related employee do the transaction or a manager supervise the transaction. This way there is no added peer pressure for a favor: an additional discount, marking an item at a lower price, or not ringing up the items.

4) Utilize an anonymous fraud reporting hotline

Having an anonymous hotline to report internal theft or concerns removes the employee’s fear of speaking up. When it comes to reporting internal inventory fraud, some employees are torn. Talking to their manager about a co-worker stealing puts the reporting employee between the manager and co-worker. Worse yet, if the employee speaks up and the theft cannot be proven or is denied, the employee that spoke up could be alienated or face retaliation.

Here is an actual example of how reporting employee fraud without anonymity can have negative effects.

In one company, a co-worker reported check fraud that the accused employee denied, and it went unproven. The reporting co-worker was retaliated against and left the company shortly after. Unfortunately, the check fraud was caught several months later. Now that company was out a loyal employee and lots of cash. A hotline is a great idea because it decreases inventory fraud and keeps the information completely anonymous, offering your employees additional comfort in reporting fraudulent activity.

Fraud Prevention Policies are Necessary

Securing employees is an extremely touchy subject, and no one wants to think poorly of another person. However, policies and procedures are necessary to discourage both internal and external fraud. When dealing with a company's most valuable assets, the Golden Rule applies: treat others as you want to be treated. With these tips in place, expect to see any internal inventory fraud in your business reduce significantly.

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