By Jon Jenkins
Theft is a constant risk faced by every retailer. Cash-based businesses are particularly vulnerable to fraud. There are numerous ways for an employee to commit theft, and many of these thefts will go undetected without the proper controls in place. To reduce theft, owners should focus their efforts on the most cost-effective control mechanisms by creating an ethical environment, reducing opportunities to steal, and establishing effective monitoring procedures. Below are suggestions for enhancing controls to minimize the risk of fraud in your organization.
Tone At The Top
Establish a written policy that clearly outlines an expectation of integrity and ethics. Make sure this policy is well-known throughout the company and set a strong example by modeling the behavior that is expected from employees.
Feedback from employees should be openly encouraged and can often help owners see things they might miss when they are not present. A signed copy of the ethics policy should be filed in an employee’s personnel file.
A written company policy manual is an important management tool communicating your expectations for your employees. Personnel problems are avoided because ideas of conduct, job performance and general policies are spelled out in writing. Employees respond well to an environment in which company policies are well-defined and equitably and consistently enforced.
Policies to consider include prohibitions against drinking and drug use on the job, performance reviews, how much money to keep in the cash register, the use of an armored guard to collect the daily cash, policies for returns and exchanges, hours of operation, shoplifting policy and procedures, and what to do in the event of a power failure.
To be effective, the company’s policy manual must be continuously updated, be consistently enforced and supported by top management.
Well-thought-out job descriptions should be used for all employees. They provide the basis for interviewing and hiring new employees and the foundation for making sure your employees are doing their job as it should be done. Job descriptions should clearly communicate roles and responsibilities for their assigned work and the level of accountability and responsibility.
Management should verify a prospective employee’s education, employment history, personal references, criminal background and other requested specific information. It is important to thoroughly investigate prospective employee statements on job applications and to comply with state and federal laws.
Employers may hire consultants to investigate the background of prospective employees in order to comply with state and federal employment laws.
Point-Of-Sale or Cash Register
High-volume retail establishments are most vulnerable to employee theft at the point of sale. Whether the company decides to use the traditional electronic cash register or a computerized point-of-sale system, every store needs a machine to process sales. When the doors open, the cash register or POS system is more than a safe place to store money, it also processes customer transactions and accurately keeps records.
Point-of-sale systems provide more detailed reports including better inventory tracking, improved accuracy, and they can easily grow with your business. Cash registers have lower start-up cost, ease of use, fewer components and basic functions and reporting. If electing to implement the use of cash register, models with cumulative totals and multi-part cash register tapes provide better information and controls.
Segregation of duties is one of the most important ways to fight and detect fraud in a small business. Related duties should be assigned to different people to cross-check each other for accuracy, completeness and reliability.
Access to cash and information, including the accounting system, should be restricted and carefully controlled. For example, an owner or manager should keep custody of the key to the cash register tape compartment, use cash registers that require a manager override key for voids and sales returns, and perform periodic readings of the register and compare the readings with the contents of the cash register. Accountability and responsibility can be improved by maintaining separate register drawers for each cashier.