Inside Job

Many food distributors find themselves victimized by internal theft. Most are guilty of committing at least one of the Seven Sins of Distribution Center Security.

It’s estimated that the cost of business crime now exceeds $100 billion a year and is responsible for nearly one-third of all business failures. In a survey taken by a national accounting firm, nearly 25 percent of the respondents reported employee theft-related losses in excess of $1 million.

After more than 25 years of experience working with food distributors throughout the country, we’ve found that most that find themselves victimized by internal theft share a common denominator: They have usually committed one or more of what I refer to as The Seven Deadly Sins of Distribution Center Security.

Is your company guilty of making any of these costly mistakes?

1. Are you relying on safeguards that simply don’t work?

Ask most executives how they protect their inventory and they’ll answer “alarms, guards and closed-circuit television.” If these security solutions are effective, why is it that so many food distributors that sustain losses have these controls in place?

Alarms are designed to protect against break-in and entry, not theft committed by insiders, which is how inventory loss almost always occurs. Most uniformed guards are not adequately trained to recognize internal theft and collusion. Closed-circuit television will only be effective if it has been strategically designed and consistently monitored, which is typically not the case with most distributors.

2. Do you make it easy for dock personnel to work in collusion with truckers and others?

Because they don’t know how to prevent internal theft, many distribution managers inadvertently make it much too easy for drivers to work in unison with shippers, receivers, checkers and loaders. These theft schemes are silent, with no bells or whistles going off to alert anyone that they are taking place, which is why they typically cost companies a small fortune.

Additionally, some distribution managers don’t prioritize asset protection. They become so focused on operational issues that loss prevention controls are often ignored, which creates opportunities for internal theft.

3. Is your company too reactive?

A large percentage of companies that incur shrinkage do little to prevent it from happening in the first place. By the time they decide to take action, they’ve already incurred a substantial loss and the missing inventory is never recovered.

It has been repeatedly proven that preventing loss is far less expensive then reacting to it. It is important to keep in mind the value of meat, seafood, tuna and other products you ship, receive and inventory. It is extremely easy to convert food into cash at many diners, privately held grocery stores and flea markets.

4. Do you have an efficient way for employees to report security problems that they observe?

A confidential hotline can be an invaluable tool to learn about individual theft, collusion and fraud. Yet, many companies still rely on methods of communication that don’t work for sensitive issues like these, such as open-door policies or in-house tiplines. As a result, employees who become aware of unethical or illegal activities remain silent.

In order for a tipline program to be successful it should be outsourced so workers can speak to people who won’t recognize their voices. Employees are more likely to confide in someone outside their company, rather than using an in-house system for tips.

Equally important, callers should never have to provide their names. The best response comes when you offer workers complete anonymity.

5. Are you checking your checkers?

Too many companies have made the mistake of not keeping their checkers accountable. Because of this lack of oversight in the shipping, receiving, returns, customer will-calls and transfer functions, a percentage of checkers become dishonest over time. That’s when companies can rack up substantial losses.

One recent investigation, for example, resulted in the discovery and apprehension of a theft ring that consisted of company drivers and loaders who were routinely stealing more than $3,000 a week.

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