Mitigating employee theft and fraud in the workplace needs to be a top priority for any businesses, especially a lucrative one in the cannabis space. Research shows that up to” 75% of employees have at one point or the other stolen from their employers”. The same study also established that employee theft was responsible for 42.7%as opposed to shoplifting which came in at35.6%.
It is surprising that this happens more in smaller business, which accounted for 64% of the total theft by staff.
You might be asking yourself, why do employees steal?
Before we get started on the tips for mitigating employee theft, let’s first understand why they might steal in the first place:
- Motive: Greed, unexpected bills, unexpected bills, addictions
- Opportunity: Weak financial controls and cash management processes
- Rationalization: employees may justify theft based on how hard they work or how much the company is making from their efforts
How does this theft occur?
- Outright theft (larceny)
- Diverting business resources (‘skimming’)
- Tampering with expense reports and checks (fraud)
- Misuse of customer information and other business secrets (intellectual property theft)
Most employees theft is driven by opportunity, they will generally steal from you depending on the opportunity that presents itself. Here are some ways that employee theft happens:
- Time theft – Getting paid for hours they have not worked.
- Cash and stock theft – This could happen by failing to enter correct transactions, actual stealing of cash or whisking away product in their personal bags or on themselves.
- Fraud –which can happen through skimming, where transactions are not entered into the books, larceny or incorrect reporting of use of cash.
- Vendor theft – Setting-up of fraudulent vendor accounts from which checks are issued and cashed.
Now that we have covered why employees steal and commit fraud, let take a look at how to mitigate this.
Let’s get to it!
Pre-screen applicants- “Prevention is indeed better than cure”. Be stringent about your vetting and screening processes. These checks can include:
- Checking all references.
- Inquire why and how the applicant left previous employment.
- Carry out credit checks if legally allowed.
- Request applicants to have drug screening done.
- Conduct criminal searches.
Install Security Cameras (CCTV) and Alarm Systems- For most cannabis industry jurisdictions, video surveillance is legally required. What you should get is:
- The highest quality that both has good sound and adequate storage.
- An “intrusion alarm system” as your dispensary might not be occupied 24/7 so you should have your premises covered off hours too.
- Remote monitoring which integrate the video and alarm systems.
- Ability to review access logs in case of an incidence.
Access Control Systems
Though also a legal requirement in most jurisdictions, access control systems should be put in place to restrict and record movement in sensitive areas such as storage areas, vaults and safes. You could also hire a security company to enforce access to either the dispensary or controlled areas.
Loss and Prevention Guidelines and Procedures- This concept is very new in the cannabis industry. Loss prevention teams will not only help you identify theft and fraud leaks, they will also help you implement process improvement as well as operational efficiencies throughout your business.
Carry out impromptu inventory checks and audits- Spontaneous cash counts timed differently, and merchandise audit will keep your employees in check.
You could also hire an independent accountant to assess your important financial records. A third party who is qualified will be able to spot irregularities and bring them to your attention.
Employees are more likely to get away with committing workplace theft if they:
- Work in isolation.
- Are in control of too many aspects relating to any financial transaction.
- Do not have third party scrutiny.
Cultivate strong company culture: Good benefits, fair pay and treating workers respectfully while recognizing their efforts ensures workers feel valued and reduces incidences of theft.
When workers are ill paid and do not have a good working environment, you can expect to see elevated incidences of theft and fraud.
Lock it up: A lot of theft occurs from opportunity. Lock up what is not being used and keep a good inventory of how product is taken out of storage.
Invest in a vault: Not only is this a legal requirement in many states, it just makes sense. The value that most cannabis businesses hold are a great temptation for both employees and external threats, so lock it up.
No matter how trusted an employee is, temptation cannot be ignored.
Track transportation: The vulnerability of both cash and cannabis in transit is unquestionable. Installing cameras in transport vehicles both lets the employee’s know that they are being watched and provides evidence in case something does happen.
Protect your intellectual property: Cannabis secrets of the trade such as breeding classic strains and other formulae could be worth thousands of dollars. Employees should sign both non-compete and non-disclosure agreements when on-boarding.
Set-up a confidential whistleblowing line- A study found that the most common way for employers to be alerted of theft is from other employees tipping. Most employees are honest and do not condone theft, though they would not want to face any backlash from reporting their colleagues. Make if safe for them to do so by providing a confident and secure line, even consider outsourcing the secure line.
Spell out the punishment- Spelling out the repercussions of stealing, including prosecution may deter some thieves. Though this is easier to carry out for larger retailers, making an example of one incident may help in sending a message to the rest.
It’s important to note that you need to carry out thorough investigations before you accuse an employee of theft, even if you have good ground to believe that they are indeed stealing. False accusations or accusations you are unable to prove could lead to lawsuits that could end up costing you dearly. It is recommended that you always seek legal advice when dealing with an employee under suspicion.
Insure against employee theft and fraud- Insurance exists to mitigate your loss against employee theft called “Employee dishonesty coverage”. Your insurer will also be able to help you to identify and put measures in place to minimize the possibility of a loss occurring or reducing its severity.
This will make you sleep better at night, wont it?
The bottom Line
No particular security measure can completely mitigate against employee theft and fraud. However, technical measures such as cameras, alarms and vaults when used together with process measures such as solid hiring practices and robust standard operating procedures will go a long way towards prevention.
Multiple security layers are critical. Creating a sound security plan and investing in it could be one of the best decisions you’ll ever make for your business.