How to Reduce Inventory Theft

Across the economy, theft of inventory due to both internal and external sources is rising. Clients in retail, construction, and industry report that thieves are becoming more aggressive and persistent. Industry benchmarking reports confirm the general trend. 

So what can business owners and managers do to counteract this and protect their materials and margins? Here are some key tools and techniques to consider. 

BASICS

First, make sure the basics are covered. Whether you have a problem yet or not, there are some simple things that every business should do to make sure they aren’t soft target. 

Lock inventory after-hours. Bulk or high-value inventory should be stored in cages or dedicated stock rooms. Either site should be appropriately lit. Install an alarm system with visual & audible sirens. Install security cameras at key locations, such as entries and exits. Our security camera planning guide for our recommendations on minimum and enhanced camera coverage. Plan for Level I coverage. Fix any problems with locks, alarms, and cameras promptly - they may not be happenstance. 

Set expectations with employees. Write a simply policy stating that taking inventory - even cheap or damaged inventory - is not allowed and that it may be punished or even prosecuted. Share it clearly with staff. While it sounds painfully obvious that stealing is not allowed, setting expectations proactively reduces the excuses for edge cases, like: 

• “It was damaged, so I didn’t think it would be a big deal.” 

• “It was only worth a couple bucks.” 

• “I thought we were going to throw it away.” 

Allowing behavior like this often opens larger vulnerabilities that will be copied or repeated at larger scale in the future. 

These basic steps may be enough for companies in high-trust areas and/or with products that are unattractive to thieves. If additional countermeasures are needed, consider the following additions to your program. 

ORGANIZATION

Work toward a culture of integrity. Management should reiterate company values and theft policies regularly and model honest behavior. Employees should be rewarded for identifying problems. 

Separate recording and operational responsibilities. If the same person oversees physical product movement and its recording in inventory and accounting systems, the opportunity for falsification is much higher. Require employees to cross-train and use their vacations. Fraudulent behavior is much easier to conceal when it does not have to be explained to another employee. 

Require multiple approvers for large transactions, such as checks written over a certain amount, refunds, cash transactions, or receipt of large amounts of inventory. 

Consider whether your company should adopt background checks and related requirements for hiring. There are upsides and downsides to this. A consultation with your attorney is recommended. 

PHYSICAL SECURITY

Assign keys intentionally. Use separate keys for dumpsters, emergency doors, and stock rooms. These keys should be held by management. Replace the locks when a key holder leaves the company, even if all keys are returned. 

Ensure doors are locked and are not propped open after hours. A basic alarm system with door contacts will detect this as long as bad actors have not bypassed a target zone. Use a different code for managers to ensure that most staff cannot tamper with the system. 

For retailers, ensure a loss prevention program is in place. Consider electronic article surveillance (EAS) tags for high-value product. 

COMPUTER SYSTEMS

Do not share passwords for software. Require that every employee who needs access to a system has his or her own credentials. This may increase seat costs, but will ensure that abuse of a system can be traced to the perpetrator. Use off-boarding checklists to ensure that access to company systems is revoked promptly when employees leave the company. 

Audit software logs occasionally. Ask questions about suspicious transactions. Key systems to audit include point-of-sale (POS), inventory, time-keeping, and accounting systems. If you have a computerized access control system, consider reviewing access logs as well. Vendors for these systems should provide exception-based reporting; ask them about their capabilities. They may also provide configuration services. 

Ensure that surveillance video is recorded at a secure location. On-site storage should be in a locked cabinet or closet. Keys to that space should be controlled. Off-site redundancy, such as cloud storage or backup, can improve the resilience of the system and may be critical for some use cases. 

Use a cloud security system (or other internet-connected system) to provide proactive reporting for camera outages, camera tampering, unlocked doors, and off-hours entries and exits. Ask questions about unusual behavior, even if the behavior is benign. Knowledge that the system is actively being monitored and used can enhance its deterrent effect. 

SURVEILLANCE

Expand your camera coverage as described in our guide from Level I to Level II. Augment that model with cameras for any trouble areas, which might include hot inventory, trash disposal, stock-breaking rooms, time clocks, materials yards, or dressing rooms/bathrooms (don’t surveil inside).

Add alarm monitoring. Consider adding active monitoring services such as talk downs or video confirmation services to increase deterrence and help law enforcement prioritize responding to your alarms. 

INVESTIGATIONS

For continued problems, evaluate whether the services of a private investigator might be useful. These can be expensive engagements, but allowing shrinkage problems to fester and grow can often be more expensive in the long-run. Note that the better your systems are before hiring a PI, the more the investigator will have to work with. The investigation will likely be shorter (and therefore less expensive) with good surveillance video, access logs, software logs, key policies, etc. 

If you are having shrinkage or inventory theft issues, it is important to tackle the problem aggressively. Unmanaged or unaddressed shrinkage tends to grow over time, as thieves become more comfortable and scale up their efforts. They may increase their own activities or convince other employees (or even additional outside actors) to join them. Being known as a soft target can quickly spiral into large losses. 

Luckily, attention to the small number of systems above can help reduce the costs to manageable levels and position you as proactive and difficult to steal from. 

If you would like help with cameras and alarm systems, we provide free estimates and site planning for most clients. If you need help with facilities or investigative services, we would be happy to introduce you to providers in our network. Please get in touch - we look forward to serving you!