28 ways to prevent internal theft in your business

Internal theft events represent greater losses to businesses than external theft incidents. While many people don’t want to think about this, it makes sense that the biggest theft cases are internal. That’s because your employees and suppliers have the inside knowledge and time needed to steal from you.

It is more important than ever to focus your loss prevention on internal theft. Here are some ways you can prevent internal theft in your business.

To see how Solink can help you get a handle on internal theft, sign up for a demo today.

What is internal theft?

Internal theft is all theft or fraud that involves internal personnel. This includes employees, suppliers, service providers, and owners.

Internal theft vs. employee theft

Internal theft and employee theft are often used interchangeably. However, it is better to think of employee theft as one type of internal theft.

Employee theft is theft perpetrated by employees. Internal theft is theft perpetrated by people internal to an organization. This often means employees, but it can also mean owners, accountants, service providers, and suppliers.

Internal theft vs. external theft

Theft can be either internal or external. External theft is when people outside of an organization steal from it. Differently, internal theft is when someone inside of an organization steals from it.

While employees are the major perpetrators of internal theft, it also includes theft by owners, suppliers, service providers, and other people with intimate knowledge of the business and access to private information.

Sometimes the line between internal and external theft is blurred. For example, if an employee helps their friend shoplift, is that internal or external theft? Generally, if there is an inside person, it is considered internal theft regardless of who else is involved in the crime.

To reduce shrinkage as much as possible, your loss prevention system needs to cover both internal and external theft. Here’s a handy guide to internal theft vs. external theft:

Internal theft statistics

How big of a threat is internal theft? According to one analysis from Temple University, 90% of all major theft losses are due to internal theft. That’s because internal theft incidents tend to last a long time before businesses notice the loss and find the source.

According to the National Retail Foundation, internal theft accounted for approximately $27 billion in losses in 2021, representing 28.5% of all retail shrink.

In fact, one study by Ernst & Young showed that approximately 20 cents from every dollar earned in America is lost to some form of internal theft. On a positive note, the same study stated that 80% of employees would report a colleague for stealing if there were a way to do so anonymously.

Internal theft examples

Here are some examples of internal theft by different people within an organization.

• Employee theft: Your employee is allowing their friends and family to use their employee discount. This form of employee theft is often called discount abuse.
• Owner theft: The owner of a business embezzles cash from their failing business to prevent the money going to creditors during bankruptcy proceedings.
• Service provider theft: Your accountant uses their intimate knowledge of your business to misappropriate funds while doing the bookkeeping.
• Supplier theft: A merchandise supplier doesn’t deliver everything you ordered but gives you a complete manifest to cover up that they are stealing your product.

Types of internal theft

Internal theft can be broken down by the type of asset stolen:

• Cash theft: This is the most obvious type of internal theft and involves employees taking cash from the till or skimming from cash sales. For example, a server at a restaurant could accept cash for a bill and then later remove some items from the bill to pocket the difference.
• Inventory theft: Similar to shoplifting, internal actors could take merchandise off the shelf, from the backroom, or even short change a business when delivering new inventory. For example, a delivery person might hold back a box and get the store manager to sign the manifest thinking everything has been delivered.
• Service theft: This is when someone uses services available to employees for non-business reasons without permission. For example, someone might use a car service to run personal errands.
• Payroll theft: This is a form of fraud where someone in the HR department or managing the payroll functions for a business steals money through phony salary expenses. For example, the head of payroll could create “ghost employees” to steal an extra salary.
• Time theft: This is where employees aren’t working when they are paid to do so. Examples of time theft include long breaks, showing up late, and sleeping on the job.
• Data theft: This is the theft of valuable information. For example, an employee could steal trade secrets to sell to a competitor.
• Supplies theft: This is similar to inventory theft but involves stealing items that are meant for internal use. For example, a custodian could steal cleaning supplies for use at home.

To see how Solink can help prevent the internal theft of any type of asset, sign up for a demo today.

28 ways to prevent internal theft

Here are some things you can do today to reduce internal theft in your organization. If you want to go further, take a look at our list of the best loss prevention tips for more ways to reduce shrinkage in your business.

Here are 28 ways to prevent internal theft:

1. Install a cloud video surveillance system.
2. Be careful during hiring.
3. Train your employees.
4. Separate high-risk job functions.
5. Properly vet all new suppliers and service providers.
6. Take an interest in your employees.
7. Institute proper supervision.
8. Take extra care with cash purchases.
9. Perform regular formal and informal audits.
10. Implement computer security measures.
11. Record checks in a separate ledger.
12. Use an inventory management system.
13. Have an anonymous way for employees to report theft or fraud by co-workers.
14. Practice proper bookkeeping.
15. Monitor retail transactions.
16. Provide cash register training.
17. Actively participate in the business.
18. Take advantage of remote video monitoring.
19. Offer meals and discounts to keep your employees happy.
20. Connect your data sources to video.
21. Communicate the consequences of internal theft.
22. Schedule strategically.
23. Go as cashless as possible.
24. Offer higher pay.
25. Double check shipping manifests.
26. Have a manager sign off on all returns.
27. Put procurement controls in place.
28. Remember that almost anyone would steal from their workplace.

To see how Solink can reduce internal theft in your business, sign up for a demo today.

1. Install a cloud video surveillance system

A cloud video surveillance system connects your different systems together to improve the security of your business. From the POS to access controls, you are able to instantly see video of every event to confirm procedures are being followed and internal theft isn’t happening.

2. Be careful during hiring

The fact is that it is becoming harder to find the right employees for your business. With a tight labor market, you might be tempted to skip over some of the hiring best practices.

However, contacting references and performing a background check should never be skipped. This is especially true when a prospective employee will have access to cash or valuable data.

3. Train your employees

Loss prevention training is an important part of onboarding. There are obvious and less obvious parts of loss prevention training. You need to convey to your employees that you take internal theft seriously, employees stealing will be caught, and that the repercussions will be severe.

4. Separate high-risk job functions

If you have a single employee in charge of multiple key duties, then they could commit large-scale fraud without notice. While it is possible that several employees would collude to steal from their workplace together, it is far less likely.

For example, having the same employee create purchase orders, receive inventory, and perform bookkeeping duties is very risky. The employee could create bogus orders, sign off on delivery, and then cover up where the money is going when doing the bookkeeping.

5. Properly vet all new suppliers and service providers

Whenever possible, do research on potential suppliers and service providers. If you can speak to current customers, then you can use their reviews to judge whether the business is trustworthy.

6. Take an interest in your employees

Employees often exhibit clear signs before they make the decision to steal from their workplace. In fact, one study found that 40% of employees who stole from their work had previous HR red flags. If employees are suddenly acting differently, then it might be a sign that they are stealing.

Here are some common employee theft red flags:

• Evidence of gambling such as persistent borrowing, asking for salary advances, or regularly discussing their recent sports bets
• A lifestyle that goes well beyond their salary
• Indications of drugs and/or alcohol abuse
• Strong objections to any change to add oversight to financial, inventory, purchasing, or receiving procedures

Of course, there are many other reasons an employee might be acting differently. Taking an interest in your employees is a good management practice in general. Show your employees that you care about them, and then they’ll come to you when they need you.

7. Institute proper supervision

When employees aren’t properly supervised, they may feel like they could get away with theft. It might also give the impression that the business doesn’t care about a certain level of theft. For example, if management turns a blind eye to employees using their discount for friends or family, then they may wrongly believe this is acceptable.

8. Take extra care with cash purchases

9. Perform regular formal and informal audits

Accounting audits, inventory counts, and reviews of loss prevention and security procedures are all ways to confirm that no internal theft has occurred. In addition, loss prevention audits help reduce the threat of theft in the future.

First, regular, sometimes unannounced, audits make employees less confident they will get away with theft. Second, the security improvements made after a review of procedures makes it harder to steal from your business. Third, periodic audits help discover theft and fraud earlier, reducing the total loss from an event.

10. Implement computer security measures

Data theft is on the rise. You should take cybersecurity as seriously as physical security. Follow all cybersecurity best practices to protect your business from data theft by employees, ex-employees, and due to carelessness.

Solink recently completed SOC 2 Type II certification. We take cybersecurity very seriously. Keeping our clients’ data safe is a top priority.

To see all the ways Solink keeps you safe, sign up for a demo today.

11. Record checks in a separate ledger

Use sequential numbered checks and record the dates, amounts, and reasons for each check issued in a ledger. If you need to destroy a check due to error, be sure to also record those void checks in the ledger as well.

12. Use an inventory management system

13. Have an anonymous way for employees to report theft or fraud by co-workers

As mentioned above, according to a study conducted by Ernst & Young, 80% of employees would report co-workers stealing if they could do so anonymously. A tip line or email address will allow employees to tell management about suspected employee theft.

Consider adding incentives, such as online gift cards that can be accepted anonymously. If an employee is on the fence about reporting theft, the incentive might push them to act.

14. Practice proper bookkeeping

This combines a couple of the above best practices (such as “separate high-risk job functions” and “record checks in a separate ledger”) and goes even further. Proper bookkeeping is just as important as more formal accounting procedures to a business.

Without solid bookkeeping, you might not be able to keep track of who you owe and who owes you, when bills are due, or whether you are paying too much for certain services. While that’s a big problem by itself, the chaos caused by poor bookkeeping creates an opportunity for internal theft.

By keeping clean, well-organized books you reduce the opportunity for big dollar fraud by your employees or outside accountants.

15. Monitor retail transactions

While proper bookkeeping reduces the risk of major crimes, monitoring your retail transactions helps prevent repeated smaller crimes. You should make a practice of reviewing every high-risk transaction at the point of sale (POS), such as no-sale till opens, cash refunds, voids, and discounts over a certain dollar amount (e.g., $10 or $200, depending on the business).

By pairing video with every transaction on the POS, Solink makes it easy to search for your high-risk transactions and see what really happened.

To see how Solink helps with loss prevention audits, sign up for a demo today.

16. Provide cash register training

Cash register training involves a couple of key components. First, you need to make sure that your employees follow your cash handling procedures, such as counting cash before and after taking their cash drawer. In addition, you want employees to follow the rules on manager overrides for refunds. Finally, employees should understand that you take discount abuse and other POS theft seriously.

17. Actively participate in the business

The fact is that employees will be more honest and productive when their boss is nearby. It also humanizes theft, and many people find it easier to justify stealing from a faceless corporation than a real person.

18. Take advantage of remote video monitoring

19. Offer meals and discounts to keep your employees happy

Free employee meals at a restaurant or a discount on retail purchases is a good way to incentivize employees and build loyalty. Happy employees who value their job are less likely to steal from their workplace.

20. Connect your data sources to video

There are a lot of data sources in the average business. For example, most point of sale (POS) systems provide advanced reporting and searching capabilities. This information can give management inferences about the amount of theft that has occurred.

However, numbers don’t tell the whole story. That’s why Solink pairs video with data. Now, when you look at all your high-risk transactions, such as cash returns or manager discounts, you can watch a video of what happened.

To see how Solink pairs video with data, sign up for a demo today.

21. Communicate the consequences of internal theft

Talking to staff about theft is one of the easiest ways to reduce internal theft today. Here are some tips for improving your internal theft conversations with staff:

• Be persistent: Employee theft shouldn’t just be discussed as part of onboarding, but rather it should be a part of every staff meeting.
• Be clear: Explain exactly what is employee theft, including things like time theft and discount abuse, which some employees may not consider stealing.
• Be specific: Tell staff exactly what the consequences of internal theft are and how you have the tools and resources to prove when someone is stealing.

23. Go as cashless as possible

Using credit or debit cards is becoming more and more popular. If your business can lean into this trend and go cashless, then you eliminate the threat of cash theft. Even if your customers aren’t ready for a fully cashless experience, consider encouraging cashless transactions wherever possible.

24. Offer higher pay

If your business can afford raises, consider offering raises to tenured and trusted employees. For new employees, higher wages than what other similar businesses offer will help you recruit better staff. This can pay you back in reduced internal theft and employee turnover.

25. Double check shipping manifests

Whenever your business receives an order, have two people check that everything on the manifest has been delivered. This makes it harder for any one employee to work with suppliers to steal from you.

27. Put procurement controls in place

Bogus work or supply orders are common theft tactics. These types of internal fraud have the potential to go on for years and can end up costing thousands or even millions of dollars for large businesses.

Separating procurement and accounting functions makes it harder for a dishonest employee to make fraudulent purchase orders.

28. Remember that almost anyone would steal from their workplace

The 10-80-10 rule states that 10% of employees are actively looking to steal from their work, 80% would if the conditions were met, and 10% would never steal. The fact is that almost anyone would steal from their job if they thought they wouldn’t get caught.

While you shouldn’t accuse all of your employees of theft, you should build your internal theft plan considering every employee as a potential thief.

Solink can help you prevent internal theft

Internal theft incidents on average are bigger than external ones. That’s because a dishonest employee has the opportunity to repeatedly steal from their workplace. If you aren’t actively looking for employee theft incidents, then you are losing valuable margin.

To see the positive ROI Solink provides your loss prevention team, sign up for a demo today.