Internal Theft Prevention

All businesses suffer from some form of internal theft. It is estimated that 75-80% of all theft that occurs in a business is employee theft. The remainder of the loss comes from shoplifting. This statistic shows that a higher concentration of prevention should go towards internal theft.

Methods of Internal Theft
There are several different ways to commit the crime of internal theft. Below is only a short list of examples of different methods.
  • Employees may hide merchandise or goods either on their person or in a handbag, lunch box, backpack, or briefcase and take it out of the business during a break in their shift or at the end of shift.
  • Employees may remove equipment or merchandise from the building in the trash and retrieve it later.
  • Employees may give employee discounts to friends or family members.
  • The employee may overcharge customers and pocket the extra money.
  • Checks may be issued and cashed for returned merchandise not actually returned.
Prevention Strategies
A business should put together policies and procedures to lower the possibility of internal theft. Below is list of prevention strategies for internal theft.
  • Develop a purchase policy that specifies how employee purchases are to be processed. Do not allow employees to process their own sales.
  • Provide lockers for employees and develop a policy stating that employees may not take personal articles such as purses, backpacks, lunch boxes, and briefcases into merchandise areas.
  • Restrict employees, in non-emergency situations, to a single monitored exit.
  • Number refunds and keep control over refund books.
  • Develop a policy regarding trash removal. Use transparent trash bags. Flatten all trash cartons and boxes. Spot check trash containers.
  • Perform random checks of employees and employee areas.
  • Do not permit truck drivers to load their own vehicles without inspection or supervision.
  • Develop strong audit controls by outside auditors and inventory all supplies, equipment, and merchandise regularly and often.
  • Develop and maintain an effective access management policy for all keys.
  • Have returned merchandise inspected by someone other than the person that made the sale.
  • Limit the amount of cash allowed to accumulate in a cash register and make unannounced counts on registers.
  • Bookkeepers should not be responsible for shipping and receiving merchandise. Purchasing should not be involved in any aspect of accounts receivable or the receipt of merchandise.
  • All cashbook entries should be checked against cash on hand at the end of each day.
  • Perform audits of blank checks, order forms, payment authorizations, vouchers, receipt forms, and all other forms which authorize or verify transactions.
  • Employees responsible for preparing payroll should not be involved in its distribution.
  • Require that all customers receive a receipt.
  • All prospective employees should have a criminal and prior-employment background check done on them.
  • All inventory shortages should be immediately and aggressively investigated.
Keep in mind that over three fourths of inventory shrinkage comes from employee theft. Spend your time and resources on combating the larger part of the problem for inventory shrinkage. While shoplifting is a common and large problem, do not forget about the employees that work for the business and the potential for internal theft.