Business risk management and insurance

Preventing theft in your business

Insurance cover can protect your business from the harmful effects of theft and fraud. But the best, most cost-effective strategy is to take measures to prevent it happening in the first place. This guide will show you how.

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Beware of inefficient systems

It’s important to be hands-on in your business, or to employ a competent and honest manager to control the day-to-day operations. The more closely you monitor your business, the more likely you are to detect theft or fraud before it becomes a serious problem. 

This is one strong argument for efficient systems. Businesses with inefficient systems offer the easiest pickings for thieves, for example:

  • When stock records are out of date or in such a shambles that missing stock could go unnoticed for a long time – or possibly never be picked up
  • The owner is too busy or 'can't be bothered' with core functions such as buying or keeping expenses under control (e.g. getting several quotes for supplies before ordering) and delegates these tasks to others
  • The books are in a mess because the owner is not interested in accounting
  • The owner does not set performance or sales targets.

Staff quickly pick up on attitudes. If they perceive the owner simply doesn't care about monitoring of stock or watching expenses, some may take advantage of the situation to help themselves, justifying their actions along the lines of: "Well, the owner doesn't care, so why should we?"

Even if they don't steal themselves, they may simply turn a blind eye to their colleagues' thefts. "Not my responsibility" is the common rationalisation.

It's not necessary for you to do the bookkeeping yourself.

But it's important you understand the basic principles behind small business bookkeeping so you can monitor and control what others do for you.

Put safeguards in place

Many thefts are committed by people who have direct access to cash, stock, or the company's records. It’s therefore a good idea to segregate as many responsibilities as possible among employees and establish good systems where your authorisation is required for some transactions, such as all purchases above a certain value or unusual purchases.

Hold snap in-house audits of all sales and purchases, cash receipts, record-keeping, and stock control. It's also sound policy to review all purchases and expenditure from time to time and to ask tough questions. You should know all your suppliers so you can spot fictitious ones. If staff know there’s surveillance of these areas, they’ll be less likely to take chances.

Treat workers fairly

As an employer, you have certain duties and responsibilities to your employees. But beyond fulfilling your legal requirements, it pays to treat staff well.

The retired owner of a department store offers this advice: "I've always felt that theft mostly results from disgruntled staff. If people feel downtrodden or exploited, they're going to take it out on you somehow, and theft is the easiest option – particularly in a department store! 

“I always treated my staff well and paid them above average rates. Compared to others in the industry I had very little problem with stock shrinkage. Of course, there are always basically dishonest people to contend with, but I found if you're firm but fair, staff will respect you and behave accordingly."

Other measures

Here are some other actions you can take to help prevent theft or fraud in your business.

Tighten your policies and procedures

Create procedures that require transactions to be recorded in a timely manner and follow an established process. 

Adopt a zero-shortage policy for things like stock and cash, and stress shortage control even if losses diminish.

An anonymous tip-off policy will help encourage employees to report suspicious behaviour.

When hiring new employees, be vigilant about checking the references. Few people who steal have a criminal record, so ask previous employers how honest the person was.

Make it difficult for thieves

Put appropriate computer and information technology safeguards in place, like using passwords to control access to different areas. For example, not everyone should be able to access the accounting software.

Limit pricing authority to a small group of employees, and rotate business duties to avoid employees gaining a monopoly over functions that are theft prone.

Having only one exit point for staff, in full view of other staff and management, can also make the job of would-be thieves much harder.

Communicate clearly

Clear communication means ignorance can’t be an excuse. Spell out clearly the business' policy on theft and fraud in employment agreements and operations manuals. Leave no one in any doubt as to what the rules are, what’s expected of them, and reiterate them on a regular basis (not just at inductions).

Make it clear to staff and customers that you'll prosecute thieves rather than settling for an apology. If staff sense you lack confidence in this area, they might take advantage.

You can also make staff feel like they’re directly responsible for theft control by explaining it affects the basic viability of the business, and therefore everyone's job depends upon stopping theft and fraud.

Build trust and respect

Remove incentives to steal by building trusting relationships with your staff and aim to pay them a fair market rate. While it’s true that even highly paid, highly trusted employees commit theft, making staff feel valued can help dampen their desire to be dishonest.

Include your staff in theft prevention schemes and get their input. Make them aware of your objectives and the measures you’re taking to prevent theft occurring.

Ensure all staff are subject to the same measures, regardless of their role.

I always treated my staff well and paid above average rates. Compared to others in the industry I had very little problem with stock shrinkage – retired department store owner

Try thinking like a thief

Finally, imagine yourself working in the various roles in your business.

  • How, when, and how often could you steal if you were in charge of certain functions?
  • Think about how you would go about escaping detection.

This exercise can be very productive in revealing some serious security gaps and loopholes in your business.

Tips for spotting theft

These measures will go a long way to helping your business avoid theft and fraud. But what should you do if you suspect it’s happening? Learn how to identify and deal with theft in your business with our guide.

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