Internal fraud can hit your bottom line hard and crush profitability. Whether it’s theft of merchandise or funds, this misconduct can eat away at your margins and interrupt operations. How can business owners keep this behavior in check and maintain trust and accountability within their retail or e-commerce organization and externally? Keep reading to find out more about how you can protect your bottom line.

Internal Fraud: The Hidden Costs

Internal fraud comes in many shapes, such as manipulating returns or financial records, and employee theft of merchandise. This misconduct is behind the scenes and under the radar because employees know the systems used for accounting, cash management, and inventory control. 

Theft of product or merchandise is often referred to as ‘shrinkage,’ because it can cost businesses significantly. Merchandise theft runs the gamut from warehouse theft, forging inventory or stock records, or giving deep discounts to themselves or their cohorts. E-commerce businesses experience similar theft issues, including falsified refunds and order fulfillment fraud. 

Inventory theft, sometimes referred to as “shrinkage” is a particularly costly issue. Whether it’s merchandise taken from warehouses, falsified stock records, or unauthorized discounts, these losses accumulate quickly. For e-commerce businesses, the problem may also include fulfillment fraud or unauthorized refunds.

The Hidden Secret

Because employees are so discreet with their misconduct, it’s difficult to catch the offenders. Coworkers often hesitate to report inappropriate behavior because there isn’t a safe way to do so, and trust and morale are at a minimum. This lack of oversight further enables unethical activity, creating an endless cycle of theft and loss.

Create a Strong Defense

Internal fraud and inventory theft can be addressed and stopped, but it requires a multifaceted approach.

1. Beef up internal controls to divide the processes among staff. Ensure no one in the organization has complete control over critical aspects of the operation.
2. Technology is your strongest ally, and that technology arrives in the form of an ethics hotline. This safe, secure method of reporting enables staff to report their concerns confidentially but also be part of the investigative process.
3. Leadership sets the standard for ethical behavior within the company, exhibits compassionate management, models integrity, and establishes accountability. Employees will quickly see that the ethics hotline works, and their concerns are taken seriously.
4. Regularly auditing your system and processes can spot weak spots or recurring problems that may need to have closer scrutiny. Fraudulent behavior is exposed quickly during the audit, thus decreasing inappropriate behavior.

Turning Risk into Resilience

Taking a stance against internal theft and fraud could be framed as strong internal controls, advanced technology, and a safe way to communicate concerns, such as an ethics hotline. These efforts will substantially reduce your organization’s exposure to theft and internal fraud.

Your retail or e-commerce business needs its employees to be up front and honest, and protecting your margins naturally falls into place when you’ve got trust and accountability. An ethics hotline fosters a safe, secure environment, helping your business remain competitive and profitable. If this caught your attention and you want to know how to scale your operation with confidence, call us today!