Welcome to the first in a three-part series on Warehouse Security Protection. In this series, you will find information on how to identify areas of your company most likely at risk for security threats like theft, physical intervention (intentional or unintentional), and cybercrimes, plus helpful prevention methods against common security risks.
While it can be difficult to think about 3PL or warehouse security threats, it's important to remember that they can happen when
you least expect them. One such threat to your business that can greatly affect your bottom line is theft. It is always better to be aware of your vulnerabilities rather than being complacent or ignoring the risks when it comes to theft of company-owned equipment or tools, customer inventory, or your finances.
Warehouse Security Protection Against Theft
While many warehouses have security measures in place to prevent theft from outside sources, your distribution center is actually more at risk for internal theft. Consider that on any given day, employees, insiders, and contractors all have access to your facility, and could take advantage of an opportunity to steal from you. By identifying your risk areas and putting effective security measures in place, you can avoid having to suspect every employee or guest of a potential crime.
Stealing company-owned property ranks among the highest kind of theft that can happen to a business and it is usually internal. When people think about the theft of company property, paper clips, post-it notes, and pens typically come to mind. It can be much more than that, especially in a warehouse. While the majority of people in your facility will not steal from you, the risk still exists.
|Office supplies. In addition to paper clips and pens, people also like to take staplers, batteries, first-aid items, coffee, and cleaning products.|
|Paper products. Copy paper, post-it notes, paper towels and plates, toilet paper, and notepads are most likely to be (or most often) stolen.|
|Computerized tech and accessories. Items may include laptops, cell phones, chargers, extra cables, tablets, printers, scanners, and headsets.|
|Work tools. Typically, any tool that is easily concealable is fair game to a thief. Items like wrenches, hammers, drills, tape guns, safety equipment, and measuring tools are all vulnerable.|
|Documents and data. Sensitive information in printed or digital form is also at risk. It is never ideal for competitive bid proposals, banking information, or customer lists to end up in the wrong hands – especially those of your competitor!|
Follow these tips to prevent or minimize theft of company property:
- Tag your tools. Tool and equipment can be tracked by attaching tracking tags or serial numbers in the form of barcoded or RFID asset tags, and by keeping a log of assignments in your warehouse system.
- Tool and equipment cribs. These are a great way to limit access to company equipment and for tracking the daily check-in and check-out of tools. All items should have tracking tags (see above) that allow the equipment to be scanned out in the morning and back in at the end of the shift. Scanning a barcoded employee ID badge at the same time easily connects the tool with the person who had it last, and records it in your warehouse system.
- Designate a supply supervisor. Have one employee manage all paper and office supplies for your business. Perform weekly inventories and consider implementing a requisitioning system for larger-than-normal supply needs.
- Track your tech. All computerized equipment and accessories should be tracked through your IT department or by your office manager. Logs should include model and serial numbers, the person assigned the equipment, date of the assignment and/or return, item health, and any new tech requests. This will help track missing items and aid in spotting any abnormalities.
- Document and data protection. All departing employees should be removed from system and equipment access. Password-protect important documents and only allow limited access to assigned employees. Most importantly, establish policies that address the ethics of sharing company-owned information and require signed, non-disclosure agreements where applicable.
Customer InventoryAll distribution centers take responsibility for protecting their customers’ products as part of a warehouse/client partnership. Therefore, a warehouse should have protocols and systems in place to ensure that the inventory is safe through warehouse management system (WMS) software that provides real-time inventory tracking and access control to reduce the risk of theft. However, if inventory shrinkage does occur, a warehouse should be able to identify when, where, and how it happened as well as resolve the problem immediately.
|Warning Signs of Potential Inventory Theft|
|Stock levels don’t match what is in the system. If you uncover multiple instances where your WMS software inventory levels and reports do not match what’s actually on the shelves, you could have a thief.|
|Inventory discrepancies happen on certain days. So maybe you’ve noticed a problem with inventory shrinkage, but not every day. Or that the discrepancies only happen when certain employees are working. That is a sure warning sign worth looking into through your inventory management system.|
|Staff rumors of theft. Whether you call it shop talk or office gossip, every warehouse has its internal grapevine of information. If you hear employee rumors of theft happening, investigate immediately.|
|Important documents are missing or duplicated. If backup receiving or shipping documents are missing or have been duplicated, this could be a red flag that someone is trying to cover up potential thievery or is a security threat.|
|Inventory is regularly found near exits. Does inventory belong near exits? Not if it isn’t being received or shipped out. If you regularly encounter random products sitting around near entry points or loading dock areas without corresponding labeling or documentation, someone could be placing them there to be casually picked up and walked out the door later.|
Theft Prevention Methods
-Conduct warehouse employee background checks. Whether or not you have had previous issues with internal theft of any kind, conduct background checks on all new hires. That way you can avoid employing people that have a history of stealing.
- Ensure awareness of policies and procedures. Every warehouse should have a standard set of policies and procedures when it comes to ethics and handling customer products. Raise awareness for policy adherence and, when applicable, enforce termination due to theft.
- Limit inventory access. Access control to inventory is not an easy task for any warehouse as it can disrupt daily operations. However, if you are able to add security cages or restrict access to products that typically are considered ‘high-demand, high-theft' potential to only certain individuals per shift coupled with an inventory management system, it reduces your risk of inventory shrinkage by warehouse employees.
- Conduct regular cycle counts. To keep an eye on your customers’ inventory, conduct stock cycle counts regularly. These can be performed randomly or weekly with the use of your WMS software and connected mobile devices to scan what is in stock.
- Maximize managerial visibility. There’s a common saying, “When eyes are on the floor, nothing goes out the door.” Management visibility reduces an employee’s opportunity to steal and thus is a great way to reduce warehouse inventory shrinkage.
- Utilize security cameras. It’s a proven fact that security cameras help deter crime as well as document issues. Let your employees know that cameras are in the facility for their safety as well as for overall warehouse security.
Embezzlement and stealing petty cash are the usual forms of monetary theft in a company. While it may take a great deal of legwork to supervise your finances, if you don’t take the time to care about where your money is going it could destroy your business.
|Be on the lookout for these types of monetary crimes:|
|Phantom Supplier. Phantom (or Ghost) suppliers are fake accounts created by a dishonest employee (who is the same employee in reality). These accounts are used to create a paper trail of false transactions to the fake supplier. This type of embezzlement allows the employee to make legitimate-seeming payments to the ghost account, re-directing (and stealing) your hard-earned money.|
|Fraudulent Refunds. An untrustworthy employee can also create unauthorized refunds to a non-existent customer. In these cases, the funds are actually issued to the perpetrator.|
|Customer discounts. This occurs when a dishonest employee undercharges a customer for your services in the books but actually charges them full price -- allowing the employee to pocket the difference. They can also discount vendors, friends, and family directly, then split the difference, which also affects your bottom line.|
|Wrongful Bad Debt. Watch out for this scheme! Bad debt is typically written off by a company as common practice. In this case, the thief deposits customers’ payments into their own bank account, knowing that your business will eventually write it off.|
|Payroll Scam. Believe it or not, some bad employees can even set up fake employees on the company payroll and funnel the money directly to themselves under their fictitious identities.|
How to Spot the Warning Signs of Embezzlement
- They seem ‘attached’ to a certain vendor. Accounting department employees typically do not spend a large amount of time communicating with vendors. However, if an employee’s role does not require constant contact, yet they are always talking to a vendor, it might be worth looking into. Unfortunately, financial crimes can occur with an employee and vendor partnering to scam your company and split the bounty.
- Their personal purchase habits change. Usually, each employee has a personal budget and corresponding style based on their pay structure. If you notice that their personal spending habits and choices are more flamboyant than before, and they didn't win the lottery, it might be worth investigating.
- They like to work when no one else is around. An accounting department’s day usually ends at 5:00 p.m. unless end-of-quarter financials or special projects require extra hours. If an employee always seems to need more hours to get their job done, they may be working on their scams to cheat you out of your hard-earned dollars.
- They don’t use their vacation time. If a scheming employee were to take a vacation, an employee temporarily filling their role may uncover evidence of their crimes and report it, thus ending their reign of theft.
- Petty cash doesn’t balance with receipts. It could be one dollar or 20 dollars that may go missing every once in a while, but over time it can add up and hurt your wallet.
Here are a number of ways to protect your company against embezzlement:
- Split accounting responsibilities. The best-case scenario for any company is to cross-train your accounting department employees in all jobs and then split up the duties. All responsibilities and financial tasks should never fall on just one individual as a form of security checks and balances. Consider adding in an extra layer of security in which only upper management can authorize large transactions to lower your risk of fraud.
- Do thorough background checks before hiring. To reduce your risk of employing a potential thief, always conduct extensive background checks on new hires in your accounting department (or all departments for that matter, including warehouse employees) as one simple security solution. Review financial policies and procedures on a regular basis with all applicable employees as well.
- Update logins and authorization often. More companies are taking this route in the digital age for added protection of their finances, information, and operational structure. Consider adding multi-factor authentication on a regular basis if your company does not already do so.
- Protect all payment methods. Whether it is cash, customer or supplier banking details, credit cards, or checks, ensure that all payment methods are secure from unauthorized access by employees.
- Restrict access to petty cash. Always require receipts for disbursements, limit who can access it, and keep it under lock and key at all times.
- Show your presence. Being seen is a great form of financial protection. Simply walk around your accounting department to check on the day’s progress. Security cameras are an excellent option for those with limited time or staff. People are less likely to steal from you if someone is always watching.
Insurance is Key to Protection
The best protection against these crimes is always by preventing theft, but so is commercial security insurance in case of theft. If your company does experience a financial crime, having the right protection can help your warehouse recover any losses. As a matter of fact, most customers will require your 3PL or warehouse to provide certificates of insurance prior to entering the partnership.
Consider undergoing a security assessment and a commercial crime policy as part of your security solution to protect your company’s finances. Ask your insurance provider for an all-encompassing list of coverage options available to you. IRMI defines a crime insurance policy as one that covers different types of crimes: employee dishonesty; forgery or alterations; computer fraud; funds transfer fraud; kidnap, ransom, or extortion; money and securities; and money orders and counterfeit money.
Identify the warning signs, be aware of your company’s risk potential, and take preventative measures for the best protection from theft and inventory shrinkage in the warehouse. Watch for Logimax’s next post - Part Two, Physical Security – or subscribe to our blog now to be immediately notified of this and additional information that can help make your warehouse or 3PL more secure.