by Barry Brandman

While it’s tempting to become impressed with state-of-the-art asset protection technology, it can prove costly to be lulled into a false sense of security. With internal theft and cargo crime spiking, the last thing that any company can afford is to be blindsided by a six or seven figure loss. However, that’s exactly what’s been happening to companies throughout the country that have placed too much confidence in the security technology they’ve acquired.

Security technology can certainly be beneficial, however there are also weaknesses in these systems that are being exploited by dishonest employees. Here are some examples:

CCTV – Although some overzealous sales people would like you to believe that the existence of a few dozen cameras throughout your facility will virtually guarantee a theft-free environment, this is simply not true. In fact, more than 90% of the companies contacting us to investigate significant theft-related loss already have video systems in place. If closed circuit television effectively deterred dishonesty, these companies wouldn’t be missing large quantities of their inventory.

Why doesn’t CCTV prevent or expose insider theft? One of the primary reasons is that fraud and collusion look exactly like standard operating procedure. There are no bells or whistles going off when employees steal product through the shipping, receiving, customer pick-up, transfer or return functions – and these are the areas where large scale theft regularly occurs in the typical distribution center.

Another reason why video systems oftentimes fail to protect companies from theft is because few executives have the time, patience or inclination to watch live or archived activity. Unfortunately, dishonest workers are well aware of this fact. In this respect, a video system is no different than a piece of exercise equipment. Simply purchasing it won’t provide any benefit. Unless it’s regularly used, it provides little or no return on your investment.

RFID – A recent DC Velocity article referenced a survey of companies using radio frequency identification systems, where nearly half of the respondents had problems, such as signal disruptions, integration issues and unit failure.

Beyond the technical glitches, it’s important to keep in mind that RFID was never intended to protect against internal theft. Designed as an operational tracking tool, it is not immune from manipulation by employees who have access to the devices. Dishonest workers intent on concealing their theft activity can defeat RFID tags and readers a number of ways, at which point the tracking capability is completely neutralized.

Bar code scanning– The forerunner of RFID is still used by many companies today. Like RFID, it provides many operational benefits. However, it won’t stop internal theft.

If, for example, a devious selector or loader wants to place four extra cases of inventory onto the truck of a driver he’s working in collusion with, he simply won’t scan the extra boxes. It’s that simple.

A similar scenario can also take place in the receiving function. We’ve caught  receivers who were paid thousands of dollars from dishonest drivers because they allowed the truckers to keep a percentage of the product they were supposed to deliver. The receivers concealed their theft by scanning the same cases multiple times, which was possible because many manufacturers don’t assign personalized bar codes for the same SKU’s.

GPS– Many companies initially invested in global positioning satellite technology when it was introduced because they thought they would be able to put a stop to trucker theft. Although GPS has been effective at exposing drivers who extend their breaks, it has been repeatedly defeated by dishonest drivers selling product off their trucks.

Dishonest drivers can have their trucks overloaded with product by warehouse personnel working in unison with them, thereby creating extra inventory that can be subsequently sold for cash.

Drivers can also prey on customers that don’t carefully check in their shipments and deliberately short them on their deliveries, which results in extra cases that could then be illegally sold.

In order to avoid detection via GPS tracking when they illegally transact the product for cash, dishonest drivers will meet  their accomplices and offload the stolen product during their authorized break periods at diners or rest stops, rather than going off route. In other cases, drivers will stay under the radar by selling the hot goods in proximity of their authorized delivery locations, claiming they were waiting for an available door to make their delivery. Consequently, drivers looking to profit at their employer’s expense are not intimated by having GPS in their vehicles.

Technology can add significant value to a loss prevention program. However, it’s not a cure-all. Carefully selecting and integrating the right technology with Best Security Practices, has provento be the most effective way to protect against internal theft.

It’s estimated that the cost of business crime in the United States now exceeds $100 billion a year and is responsible for nearly 1/3 of all corporate bankruptcies. In a survey taken by a national accounting firm, nearly 25% of the respondents reported that theft related losses in their respective firms exceeded $1 million.

 Most wholesalers, consolidators, freight forwarders and distributors that find themselves victimized by internal theft share a common denominator: They have usually committed one or more of what I refer to as The 7 Deadly Sins of Logistics Security.

 Is your company guilty of making any of these costly mistakes?

 1.  Are you relying on safeguards that simply don’t work?

 Ask most executives how they protect their inventory and they’ll answer “alarms, guards and closed circuit television.” If these security solutions are effective, then why is it that so many companies that sustain loss have these controls in place?

 Alarms are designed to protect against break and entry, not theft committed by insiders – which is how inventory loss usually occurs. Most uniformed guards are not adequately trained to recognize internal theft and collusion. Closed circuit television will only be effective if it has been strategically designed and consistently monitored, which is typically not the case.

 2.  Do you make it easy for dock personnel to work in collusion with truckers?

 Because they don’t know how to prevent internal theft, many companies inadvertently make it too easy for drivers to work in unison with shippers, receivers, checkers and loaders. These theft schemes are silent, with no bells or whistles going off to alert anyone that they are taking place, which is why they oftentimes add up to a small fortune.

 3.  Is your company too reactive?

 A large percentage of companies that incur shrinkage do little to prevent it from happening in the first place. By the time they decide to take action, they’ve already incurred a substantial loss and the missing inventory is never recovered.

 It’s been repeatedly proven that preventing loss is far less expensive then reacting to it.

 4.  Do you have an efficient way for concerned employees to report security problems?

 A confidential hotline can be an invaluable tool to learn about individual theft, collusion, fraud, workplace substance abuse, arson, product tampering, harassment or discrimination. Yet, many companies still rely on methods of communication that don’t work for security sensitive issues like these, such as open door policies or in-house tiplines. As a result, employees who become aware of unethical or illegal activity tend to remain silent.

In order for a tipline program to be successful it should be outsourced so workers can speak to people who won’t recognize their voices. Employees are more likely to confide in someone outside their company, rather than using an in-house system for tips.

 Equally important, callers should never have to provide their name. The best response comes when you offer complete anonymity. The way we accomplish this with the Danbee Hotline for example, is to provide every caller with a code number, which is one reason why we’ve received information that has exposed millions of dollars of losses.

 5.  Are you  checking your checkers?

 Too many companies have made the mistake of not keeping their checkers accountable. Because of this lack of oversight, a percentage of checkers become negligent or dishonest over time, and that’s when companies can rack up substantial losses.

 One effective way to control the accuracy and integrity of your checkers is by having loss prevention audits regularly performed. These can be done numerous ways.

 One method would be to have a security representative arrive (without any advance notification) during the time your trucks are being loaded, select one (or several) and reconcile the product found on the trucks to the shipping manifests.

 Another technique would be having surprise audits performed on your trucks as drivers begin their route deliveries. We refer to these as non-covert surveillances. By having an investigator meet a driver at their first stop and performing a verification of each piece delivered throughout the course of the day, you will uncover product that has been over-loaded.

 Both of these security techniques are excellent ways to not only detect collusion or gross negligence, but they will also prevent it from taking place. 

 6.  Does your company effectively weed out on-the-job substance abusers and distributors?

 Nearly 90% of all employee drug users either deal or steal to support their addiction. As many distribution executives have learned, if you have a drug problem inside your company, you can expect to have a theft problem as well.

 Two of the best ways to identify drug users and distributors on your payroll is through the use of a tipline program or by inserting an undercover investigator into your operation.

7.  Do you provide meaningful training for your key personnel?

 All too often, losses occur because managers and supervisors are not educated on how to recognize the subtle, ingenious ways that theft takes place in a distribution center. Keep in mind that much of this theft and collusion looks exactly like standard operating procedure. The reality is that if your key people don’t know what they’re looking for, they probably won’t see it.