Identifying the warning signs of internal theft

Dave Lunn TellermateFraud is now a big problem for global businesses. A new report from the Association of Certified Fraud Examiners (CFE) suggests that the typical organization loses around 5% of its annual revenue to fraud. And, with asset misappropriation now the most common type of fraud; it’s internal theft, not external threats, that’s the greater risk to your profits. So, how can you spot internal theft in your stores? And more importantly, how can you address it?

For retailers in particular, internal theft is a growing problem. In 2014/15 the Global Retail Theft Barometer reported that employee fraud overtook shoplifting as the biggest cause of shrinkage for global retailers.

Warning signs of internal theftAccording to those who took part in the survey – the majority of this internal theft occurred at the point of sale. This means that it’s your cash that’s at biggest risk of being stolen by your employees, not your inventory. There are a number of complex explanations for this. But, more than likely, your employees are targeting your cash because it’s easier to conceal, harder to trace and simple to offload.

But, if you’re not sure about the true extent of the cash loss problem in your business, or even that you have a problem at all – it could be that you’re simply struggling to spot the warning signs.

The warning signs

Take a look at the below to understand the red flags indicative of a cash loss problem in your business and how to act on them.

  1. Cash drawers are “under”. Let’s start with the obvious. We all know that the biggest indicator of a cash loss problem in your business is when registers are “under” (where the actual cash in the drawer is less than there should be). The best way to combat this is to ensure that staff are up-to-speed on both your cash registers and your cash handling procedures. Refresh this training periodically to encourage best practice. By doing this, you can eliminate non-intentional cash loss and home in on those losses that aren’t just honest mistakes.
  2. Cash drawers are “over” or always correct. Yes, you read that right. Cash drawers that are “over” or always correct could also be a big indicator of a cash loss problem in your business. That’s because the most common types of cash theft all have one thing in common – building the bank. This means that dishonest employees intentionally short change or make fraudulent transactions with the aim of adding surplus cash to your registers. This “extra” cash isn’t visible to the PoS and as such can then be removed at a later time, without a trace. If your cash drawers are “over” by a significant amount it could be indicative of an employee building the bank.
    Almost counter-intuitively, if your cash drawers are always correct this too could be a sign of employees storing excess cash. Because, even your best employees will make the odd cash handling error every once in a while – that’s just human nature. Tills that are spot-on every time could be a sign of a dishonest employee building the bank and then taking just the right amount of cash to ensure that the cash drawer and the PoS reconcile. To combat this, ensure that you pay close attention to instances of surplus cash – or those employees with an unblemished reconciliation record. The average cashier should have a varied record with an equal amount of “unders” and “overs” but with only minor deviances from the expected total. Anything that varies wildly could suggest dishonesty.
  3. Constant and consistent errors. We’re human, and we all make mistakes. But, the majority of us use these as an opportunity to learn. Is there one employee who constantly makes mistakes at the register despite having worked there for a good amount of time? Are their transactions full of refunds and corrections? If so, this could actually be an indicator that they are stealing. Dishonest employees could be generating these errors on purpose in an attempt to cover-up fraudulent behaviour. Take note of those employees who repeatedly make mistakes and offer them extra cash handling training. If they don’t improve, it may be an indicator of something more sinister.
  4. No-sale transactions. How often are your employees generating no-sale transactions? If your employees have a high level of no-sale transactions it could suggest that their hands are in the till when they shouldn’t be – and that’s never good. Enforce strict and rigorous procedures around no-sale transactions in your stores to ensure that your cash is kept safe.
  5. Trends. Is your cash loss intermittent? Look for trends or patterns in your instances of cash loss to help identify the cause. This is especially important if you have a number of employees that share cash drawers throughout the day, making it difficult to identify exactly which employee is responsible for the losses. Instead, look at the bigger picture and focus on the following: Does your cash loss only occur at certain times throughout the day? Or when certain employees are on shift? Does cash loss go down every time certain members of staff take holidays? Use exception-based reporting systems to help identify anything that differs from the norm; including average cash loss per cashier, average errors or any other metrics that could indicate fraudulent activity.

The solution

So, with a little more due diligence, better visibility into your cash transactions, and a good understanding of the warning signs above, you should be able not just to identify if your business has an internal theft problem, but also the true source of this problem.

Of course, keeping a closer eye on your cashiers’ transactions is easier said than done. If you’re struggling to get this visibility into your cash transactions, or you want to reduce the manual effort required to monitor your cash drawers; consider implementing cash management technology that helps monitor your cash levels on a transaction by transaction basis. Intelligent cash drawers can transmit alerts when employees are short-changing customers, when employees are building the bank, and which are removing cash from the till – all in real time. They’re a pretty handy tool when it comes to reducing the level of cash loss in your business.

But lastly, remember that for every dishonest employee, there are countless others that are committed to the success of your business. Be sure to provide robust cash handling procedures that provide a supportive structure for these staff to operate in. These can limit opportunities for error and reduce stress; helping to retain those honest staff that your business needs to keep.

Want to learn more about eliminating cash loss? Download our “Cover Your Assets” Ebook to learn more about protecting the cash in your business.

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