Warehouse Security Threats: Part I – Theft

On a daily basis, thousands of items are shipped in and out of 3PLs and warehouses all over the world. As a fast-paced hub of people, products, and money, distribution facilities are critical to the performance of the global supply chain. Daily business responsibilities are plentiful and can sometimes overshadow the need for protecting your company against potential security threats. As a warehouse professional, spotting possible cracks in your current security practices is key to protecting your business’s future. This multi-part series will cover a variety of potential threats and tips for making your company more secure.

Theft

Because theft is defined as the taking of another person’s property or services without that person’s permission or consent with the intent to deprive the rightful owner of it, your distribution center can be a prime target for thieves. Unfortunately, employees are usually the main culprits. We’ve all heard the phrase, “Where there’s smoke, there’s fire.” While this expression may not be entirely accurate in every situation, it’s certainly true when it comes to theft. Most employees are honest and hardworking people who would never dream of stealing from their employers. However, some might be tempted by the prospect of making a quick buck or two. Learn to spot the warning signs to protect your warehouse against theft.

1. Company-owned Property

What items are most often stolen from a business? Believe it or not, it is company-owned property taken by employees. It can range far beyond a box of paper clips or pens to high-dollar tools or sensitive company information. Once again, most employees are trustworthy, however, there are some bad eggs out there who could cost your warehouse hundreds to thousands of dollars in property loss over time.

Commonly Stolen Items

Office supplies. According to an article by FastCompany, the most common items stolen from work are pens, pencils, paper clips, sticky notes, paper, notepads, and highlighters, which are commonly taken from large companies. But 11-14% have stolen food, coffee, and soda, mostly from smaller companies. It all adds up over time.

Cleaning and sanitary supplies. Yes, even paper towels and plates, toilet paper, cleaners, hand sanitizer, and soap can walk out the door.

Tools and equipment. Can’t find the wrenches you always need, or tape guns keep disappearing? Concealable tools and equipment are often taken by employees to ‘borrow’ but rarely make it back to your warehouse. Keep an eye on your hammers, screwdrivers, drills, safety supplies, and measuring devices too.

Tech supplies and equipment. Do you have employees that keep misplacing their computer accessories or losing their company-issued phones? Keep a close eye on them. Technological equipment and gadgets are expensive to begin with and can be even more expensive to replace, including laptops, printers, scanners, and headsets.

Company documents and data. You have worked hard for the success of your 3PL or warehouse. Don’t let important sales and data be subjugated to theft and end up in the hands of your competition thanks to an untrustworthy employee. Protect your company from this scenario by securing all sensitive information and documents.

Here are a number of ways you can prevent theft:

• Equipment and tool cages. All items stored in tool cages should have serial numbers affixed in the form of barcoded asset tags that are recorded by your warehouse system. This gives you an accurate record of who has checked out each item. At the same time, it helps ensure that no one takes home something that’s not theirs by mistake.
• Supply oversight. Designate an employee(s) to oversee often ordered supplies and approve all supply purchase requisitions. This will aid in monitoring your supply costs. The supply manager should also conduct a weekly inventory that could uncover any discrepancies.
• Track all technology. Employees are often assigned cell phones, laptops, keyboards, or scanners. Keep an eye on all your technological equipment by logging model and serial numbers into a trackable system to avoid warehouse theft. This aids not only in theft identification, but helps to monitor distribution, obsolete or broken equipment, and the need for necessary upgrades.
• Documentation protection. The best way to protect your business against an informational breach is to only provide limited, password-protected access to sensitive documents and data to employees that need the information to perform their jobs. Two-factor authentication, policies on sharing company data, and non-disclosure agreements should also be considered. All departing employees should be removed from system access immediately.

2. Customer Inventory

Customers rely on 3PLs and warehouses to protect their inventory investment. It is your responsibility to reduce the risk of inventory theft by establishing policies and systems to secure and track your investment. In the case where theft occurs, your warehouse should be able to pinpoint when, where, and how it happened and resolve it immediately.

Inventory Theft Red Flags

The numbers don’t match up. Typically, sales orders are entered based upon inventory levels indicated by your 3PL warehousing software (WMS). If your pickers find that the product doesn’t exist or shelf counts don’t match the system, you may have a thief.

Patterns in inventory discrepancies. Let’s say that you have been made aware of inaccurate inventory to WMS matchups. It isn’t happening every day but occurs only when certain employees are on the clock. Someone may have a habit of helping themselves to your customer’s products.

Theft rumors. If you hear through the grapevine that employee thefts may be happening, look into the rumors right away. Whether true or false, you may find a case where it is, in fact, true and should take quick action.

Missing paperwork. Finding out that a shipment, whether large or small, has no record of being received or shipped is a clear indicator of a potential crime.

Products near exits. Inventory only needs to be located near an exit if it is in receiving or shipping. Finding products in these locations randomly without appropriate paperwork is a key indicator that someone may be planning to grab the items on their way out.

Theft Prevention Practices

• Employee background checks. Conducting background checks on new employees is a very common practice in the hiring process anymore. Having trustworthy employees is important and these checks can help eliminate the potential for theft in your warehouse.
• Set ethics and work conduct procedures. Train all new employees in your company’s ethics and conduct policies and have them sign an acknowledgment form. Add the signed forms to their personnel files. Highlight your policies against theft and conduct at least quarterly via company meetings or newsletters. Always enforce your stance on policy adherence and take necessary action when needed.
• Limit access to inventory. To be honest, you can’t lock up all of your inventory and still operate efficiently. However, restricting access to products that may be in high demand or often stolen can reduce the potential for product theft.
• Conduct cycle counts. Regular stock cycle counts are a great way to monitor inventory levels for any discrepancies against data and reports from your WMS for 3PL. The use of mobile scanners on the warehouse floor can make this a quick task, not a cumbersome one.
• Be seen. It may seem like common sense, but it’s true: having managers on the floor regularly discourages an employee from taking products for themselves. Add security cameras. Everything is being recorded nowadays, as should your warehouse’s daily operations. Not only are they good for deterring theft, but cameras are also a useful tool for safety and overall facility security.

3. Company Finances

Whether it is through prying eyes or just plain greed, some employees will always succumb to the temptation of stealing from their employers. This could take several forms, but two of the more popular ways are to steal petty cash and embezzle funds.

Financial Theft Methods

Fake Supplier(s). One of the most common ways embezzlement can occur is when an employee creates a fake supplier that they control. The employee may create this “ghost supplier” by opening a P.O. Box or even creating a fake website for their fake business. They then make payments to this ghost supplier and cash checks from your company that are made out to them.

Fraudulent Refunds. An unauthorized refund can be issued to a non-existent customer or ghost supplier, with the money going right into the pocket of the thieving employee.

Undercharging Customers. Undercharging occurs because it is often hard for some employees to put a value on the services your company provides. Although this mostly happens in a retail environment, an employee could underbill one or more of your customers for just about any service you offer. While the employee may not necessarily benefit financially, it is still stealing profits from your company.

Fictitious Bad Debt. This occurs when an employee deposits a customer’s payment into their own bank account and then records the receivable as a bad debt that is eventually written off by the company. This can be tricky because it’s hard to detect without careful monitoring of transactions and employee behavior.

Payroll Fraud. Payroll fraud can be a very dangerous type of financial theft because it can involve adding fictitious employees and their salaries to the company payroll. Some bad actors may even have an existing bank account that they use to funnel money from the company into their own personal accounts. This type of theft can be difficult to detect without close monitoring and often involves long-term planning by the employee.

Embezzlement Warning Signs

While that was a great deal of information to absorb, it is important that your 3PL or warehouse can spot the red flags pertaining to employees who commit financial crimes in your company.

• They rarely take a vacation. If a perpetrator isn’t always there to protect their scheme, another employee could uncover their unscrupulous plans. That’s the last thing a fraudulent employee wants to happen.
• They always work overtime and after hours. Warehouse office personnel rarely work past their typical quitting time, except for special cases. If you encounter an employee who constantly needs to work after hours to catch up on their work or who volunteers to complete extra tasks, take a closer look at their performance and what work is being completed after hours. Some scheming workers appear to be extra committed to their job while pocketing your money.
• They are suddenly spending more. If you notice an employee making out-of-character purchases, check it out. If the employee begins dressing in designer clothing, sporting expensive jewelry, or driving a new car, unless they have won the lottery it should definitely send a warning sign to you that something may be awry with your finances.
• Petty cash is always low. Petty cash should always be a set standard amount weekly. If you find that the money is continuously running out before the week’s end, you could incur higher weekly expenses or have a thief. Look into the situation.
• A single vendor gets most of their attention. In a distribution environment, vendor communication is always necessary. But if you find that someone is always focusing on one vendor the majority of their time, take a closer look at why. Believe it or not, that employee could be conspiring with the vendor to scam your company out of some serious cash.

Financial Protection

Your warehouse or 3PL cannot operate with all of your money locked in a vault, nor can you go around suspecting that all of your employees want to steal from you. Fortunately, there are ways to protect your company’s finances.

• Always have policies and conduct federal background checks. Any new employees should always undergo a background check prior to their starting date, but it is even more vital with new hires that will be handling your finances. Be sure your HR department has new hires review and sign an ethics and conduct policy specifically for company finances and provide annual updates.
• Split-up financial tasks throughout the department. Having a few people in finance responsible for accounting duties rather than one reduces the risk of embezzlement and other financial crimes through a system of checks and balances. If something does become suspicious, you will easily be able to identify the culprit and lower your theft risk.
• Secure all payment methods. Other than petty cash, distribution centers rarely deal in cash, therefore other forms of payment should be secured. It is your responsibility as a company to protect customer and supplier banking information, checks, and credit cards from unauthorized use. Make deposits daily or as needed.
• Always update security access. It is important to remove former employees from all security access and require new security logins on a regular basis. Two-factor authentication adds an extra layer of protection to your financial information.
• Protect petty cash. Always have the drawer and cash box locked during working hours and require receipts for all purchases. Place the cash box in a secure safe at day’s end.
• Keep your eyes peeled. Show up regularly — and unexpectedly– throughout the accounting department. Be alert to notice any furtive actions like minimizing monitor windows or quickly covering up printed material. Install cameras with remote backup to use as evidence if a crime does occur.

The Importance of Insurance

Prevention provides the best protection against theft. As an added precaution, make sure your business has the right insurance coverage to protect against losses. Your customers will require you to provide proof of property and financial protection when entering into a partnership with your warehouse or 3PL.

The types of business insurance policies are plentiful. Consult your insurance agent for a full list of options available for protection against all types of theft. For example, IRMI defines a commercial crime policy as one that provides several different types of crime coverage, including dishonest employees; forgery or alterations; computer fraud; funds transfer fraud; kidnap, ransom, or extortion; money and securities; and money orders and counterfeit money.

Theft is a serious problem, and it needs to be addressed in order for you, your company, and your customers to remain safe. No matter what security measures you use, it’s always good to have a preventative action plan in place for any potential thefts. To follow this series and for more informative blog posts from Argos Software, a solution provider for 3PL warehousing, agribusiness, transportation, and other business areas, subscribe now.