FORT WORTH, Texas — No warehouse manager wants to believe employees can steal from the company that provides their paycheck. It's an unfortunate reality that costs millions in losses each year and happens every day. With access to product, trust from managers and influence over peers, employees are generally the No. 1 culprit in company thefts.

"Employee theft today is a very, very significant problem. The government estimates that it exceeds $30 billion a year in losses just in the United States alone," said Barry Brandman, president of Danbee Investigations and guest speaker at WERC's 40th Annual Conference on May 1.

Employee theft is responsible for nearly 1 out of every 3 companies that go belly up, Brandman noted. It's become more widespread since the downturn of the economy, which caused a lack of loyalty from employees.

What can be done to prevent and reduce internal theft? Brandman identified common mistakes companies make and provided proven safeguards logistics managers can incorporate into their theft-prevention strategies.

Common mistakes

Ninety percent of companies that have safeguards like CCTV, security officers and alarms are still victimized by internal theft. Why is this?

One reason is because it's too easy for dock personnel to work in collusion with drivers. In fact, 46 percent of drivers said they had been repeatedly propositioned. Collusion is especially difficult to detect.

"Once the product leaves your warehouse, there’s a 95 percent chance they'll never get arrested," Brandman said.

Another mistake is companies don't make it easy enough for workers to come forward. They may not be participating in the theft, but there's always someone who knows what's going on. Nine times out of 10 they remain silent for fear of their identities being leaked.

Proactive vs. reactive

As in most life situations, it's better to be prepared than scrambling for solutions after the fact. To better understand employee theft, know the 10-80-10 principle:

  • 10 percent of employees are fully honest
  • 80 percent of employees are "fence sitters" — mostly honest, but vulnerable and susceptible to persuasion
  • 10 percent of employees are completely dishonest, exploiting the company's downfalls in theft protection

While you may quickly focus on the dishonest 10 percent, it's the "fence sitters" you need to give close attention to. A lack of overtime pay, talks of layoffs or other "injustices" can sway a usually honest employee to hop over the wrong side of the fence. Employees think, "Let me do it to them before they do it to me."

Security system audits

Security cameras, guards and alarms are expensive. Get the most value from them by auditing these systems to confirm they're functional.

Brandman stated that, in his investigations, more than 50 percent of alarm systems tested didn't work. Check the functionality of security systems by bringing in an objective individual with a fresh pair of eyes to test weaknesses.

Security cameras can't be installed then left alone. These types of systems have to be maintained, and employees know managers don't have time to watch multiple hours of video, therefore creating opportunity for thieves.

Security guards are the human element to security strategies, and they're paid to provide protection of employees and property. However, "20 percent of the time we find in the investigations guards were directly involved with the theft or paid to look the other way," Brandman said.

Background checks aren't strictly for the warehouse workers. They'll provide red flags and can save you from hiring a dishonest guard from the get-go.

Creating ways for employees to come forward

Witnesses to employee theft are put in a terrible position. The theft participants may be their friends, and maybe they were asked to participate themselves. Regardless, coming forward is not an easy decision to make.

Hotlines are a popular choice, but they have to be positioned correctly. Roll them out by stating the company is committed to a safe work environment and that employees are not required to use the hotline, but that it's available and anonymity is guaranteed. Rewards are also an effective way to encourage employees to come forward. It's rare someone will turn down a check.

Maybe you've tried a hotline already, and it didn't work out well. In this case, consider outsourcing.

"Every study I've read shows that outsourced hotlines always get better responses than in-house hotlines," Brandman said. "If they have the opportunity to disconnect from their company and go outside, that protects them."

Regular promotion of the hotline will also increase effectiveness.

Proactive logistics executives can go undercover to discover why their numbers are skewed and uncover quality or morale issues. They come away with an honest assessment of what's going on inside their company from the people who are in the trenches every day vs. seeing it from the top.

In undercover operations, guidelines should be set in place, such as keeping the loop as small as possible. The more people involved, the more likely the operation will be leaked.

Internal theft is difficult to detect, easy for an employee to get involved with and costs companies dearly. Check security systems frequently for function, give employees multiple outlets to inform you about unethical behavior, and realize even if you're not distributing high-end products, you're still at risk.

By taking action against thieves, you set the company's tone for nontolerance, therefore reducing the chance of internal theft.