Internal theft: The hidden cost of poor cash management

Jan Prickett TellermateDoes your business have a cash loss problem? No? If you did, you’d be doing something about it right? Perhaps you operate zero-tolerance policies or meticulous investigation procedures to address losses at a corporate level. But if the source and extent of cash loss is being “covered-up” at a store level (which is often the case); how can you address a problem that you may not even know exists? Worse still, those well-meaning staff who make up cash drawer discrepancies from their own pockets – could actually be disguising a serious internal theft issue in your business.

And it’s not just your employees that could be skewing your cash loss metrics. Bad cash management, lax procedures and unclear processes could all be adding to the issue. So, with poor cash management and cash handling practices potentially masking the real extent of cash loss in your stores; the true picture of internal theft in your business may not be as clear as you think…

According to a recent study, the biggest cause of shrink in a retail environment is now internal theft. More worryingly, the majority of these instances of internal theft actually occur at the point of sale. This means that employee theft is most prevalent not in your warehouses, but in your cash drawers.
Slush fund and internal theft ebook

Why is it then, that the majority of Loss Prevention professionals I speak to still maintain that they do not have a cash loss problem? Perhaps it’s a reluctance to talk about the issue in hand. But more likely, it’s because their metrics are actually skewed by the existence of a “cover-up” culture in their business.

A cover-up culture

Internal theft and poor cash managementWhen cash drawers are reconciled, there are often discrepancies between the balance according to the POS and the cash that is actually in the drawer. Businesses develop strategies to address this very situation – such as cash loss investigation procedures and zero-tolerance policies. But in many organizations these blanket strategies for dealing with cash loss can often have some unintended consequences.

Local strategies are developed by stores to meet corporate targets and ensure cash losses aren’t recorded. In some cases these strategies even include asking staff to reimburse losses.
But when staff are asked (or even expected) to pay back cash drawer shortfalls from their own pockets, they will often use a number of different “tricks” to help compensate – further concealing the problem from view. One such solution is the creation of a slush fund.

The slush fund

A slush fund is a store of excess cash that is kept aside deliberately to be used when a cash drawer is short. The slush fund can be built up in a variety of different ways, through drawers that were “over” previously, to customers telling cashiers to “keep the change”. And while the notion of using this “excess” cash to make up shortfalls from cash drawers may seem like a good strategy for addressing losses; it actually covers up the real cause and extent of the problem.

Losses go un-investigated, internal theft goes un-reported and perpetrators go un-noticed.

So what?

While it may not seem as though the bottom line is affected when a cash loss problem is obscured from view – this is simply not the case. A cover-up culture will inevitably take its toll on the most important aspect of your business – your employees.

Those employees who are paid the minimum wage, or close to it, could find their earnings falling below that threshold when they feel that they have to make up discrepancies from their own pockets. This leaves your business open to the possibility of litigation or legal expenses – directly impacting your bottom line.

Plus, if this happens often, you could find that your business becomes susceptible to high staff turnover, low morale and higher sickness rates – again, not good for your balance sheet.

The solution

Ensuring that your business operates best practice cash management strategies then is key to safeguarding against internal theft and cash loss. Make sure that losses aren’t “covered-up” by well-meaning staff, and that slush funds are discouraged. Plus, make sure that corporate strategies are easy to follow for each and every outlet; that managers are on board, and that staff are briefed on the correct procedure should they discover a discrepancy.

Lastly, consider implementing cash-counting or intelligent cash drawer technology to help identify, audit or resolve losses in real-time, at source. That way, when the business says that there isn’t a cash loss problem, it’s because there really isn’t one.

Learn how to tackle poor cash management practices and combat cash loss in your business. Download the Ebook: The Slush Fund and Other Ways Internal Theft Goes Under the Radar…

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