DETECTING INSIDER THEFT!

How to stop employees stealing company resources – by Dr. Muneer Muhamed

Employee pilferage or theft from within is a troubling challenge for businesses worldwide. This situation is especially prominent in SMEs where resources and budgets for security measures are limited.

While larger corporates can invest in advanced surveillance systems and extensive oversight, SMEs frequently struggle to implement the same level of protection. This vulnerability makes pilferage a financial drain and trust issue, which in turn affects workplace culture and morale.

A World Bank survey notes that businesses could lose around 1.8 percent of their annual revenue due to pilferage. Although this data is from 2011, it’s likely that these losses have increased due to the complexity of theft prevention in today’s digital and interconnected world.

Pilferage affects the survival of SMEs. One study found that pilfering and thieving account for nearly 25 percent of business losses in India. In sectors where profit margins are tight, losses of this scale can prevent companies from reinvesting in growth, innovation or simply covering operational expenses.

In Sri Lanka, the situation is similarly concerning.

When SMEs can’t afford to invest in serious controls due to the lack of funds or people, it’s easy for employees to take advantage of lax controls, informal workflows or busy peak periods, to siphon off inventories or funds.

A textile manufacturer faced substantial financial losses when employees began pilfering both raw materials and finished goods. The company eventually discovered that many items never reached the factory floor due to manipulation in supply chain transactions, which included tactics such as over or under invoicing.

Similarly, a retail store suffered when employees manipulated sales transactions to pocket cash. This reduced the store’s profitability and undermined customer trust when discrepancies emerged.

Despite such challenges, there are numerous strategies that SMEs can adopt to protect themselves against pilferage.

INVENTORY Walmart uses a sophisticated inventory management system that triggers alerts when stock levels deviate un­expectedly. By investing in even a basic inventory management tool, SMEs can track inventory more accurately, conduct regular reconciliations and detect discrepancies early.

SURVEILLANCE Companies such as Apple employ biometric authentication and CCTV monitoring to limit access to sensitive areas. Although advanced systems may be beyond the reach of many SMEs, basic measures such as lockable storage for valuable goods combined with CCTV in high-risk areas can deter theft.

ETHICAL CULTURE Promoting an ethical culture is key. Tata Group companies, known for their ethical values, conduct regular training on topics such as data security, asset management and values. Reminders about the importance of ethical behaviour can help build a culture of integrity.

WHISTLEBLOWERS Siemens has adopted an anonymous hotline to enable employees to report unethical behaviour. SMEs can establish a similar mechanism for employees to report on suspicious activities without fear of retaliation. This proactive approach can help detect issues early and discourage misconduct.

REGULAR AUDITS Periodic audits enable companies to catch irregularities before they escalate. SMEs may not need an extensive audit division but can engage third party auditors for an annual review.

Furthermore, having clear written policies on asset management, cash handling and ethical behaviour will reduce ambiguity, and ensure that everyone understands the consequences of theft.

LEADERSHIP This plays an essential role in setting standards for behaviour. Johnson & Johnson’s credo, in place since 1943, demands ethical standards across all levels.

Leaders who visibly adhere to certain standards inspire similar behaviour from employees and reduce the occurrence of pilferage.

The consequences of employee theft extend beyond immediate financial losses. Pilferage affects workplace morale, as honest employees may feel disillusioned if they see others getting away with theft. This negativity can erode team cohesion and trust in management.

Furthermore, a company’s reputation in the market may suffer if customers or clients become aware of internal theft issues, and potentially impacting business relationships and loyalty.

While pilferage remains a persistent challenge, it’s not insurmountable. By learning from the best practices listed above, small businesses can take incremental but effective steps to reduce vulnerability to employee theft.

Ultimately, combatting pilferage requires a commitment to integrity and vigilance. By consistently enforcing these principles, SMEs can protect their assets, and also build a workplace culture that values honesty, responsibility and trust.

A culture of vigilance and integrity is not simply a safeguard; it is the foundation for sustainable growth and trust in every step of the journey.

Pilferage affects the survival of SMEs