You may find that shrinkage — the variance between physical inventory counts and amounts recorded in your company books — can often be a primary cause in declining profits. This is especially true if your inventory has perceived value and is easily resold. The good news is that a little preventative work can reduce the temptation of having a problem in the first place.

Here are a few steps that your company can take to mitigate the risk of shrinkage by controlling potential theft:

Make Sure Everyone Knows You Have Controls.

Establish and communicate written control policies. Guidelines might include prohibiting taking backpacks into merchandise areas and duplicating access keys. Also, use time clocks to record when employees are present in warehouse and retail spaces, and require unique login IDs for inventory control systems so you can track transactions by user.

Use Structure to Reduce the Risk.

Remember, theft is not just taking physical product. It is often the process of faking invoices, overpaying for product, and creating non-existent vendors! Keep receiving, warehousing and shipping functions independent. Separate the purchasing department from accounts receivable and the receipt of merchandise. By maintaining a discrete distance between accounting and inventory handling functions, you’ll reduce the risk of theft. When warranted, take swift disciplinary action against employees found stealing and/or falsifying records.

Use Security Cameras When Appropriate.

Consider installing cameras in employee and customer areas, including stock and break rooms. From an employee perspective, the cameras also provide for their safety. Periodically review video footage. And let everyone know that the cameras are active and being monitored.

Restrict Access to Highly Desired Items.

Ensure that only authorized individuals are allowed to handle inventory that is most vulnerable to theft. Keep high-value products and tools in a cage within the warehouse and provide keys to supervisors only. Consider locked cabinets for expensive items.

Monitor Trash and Recycling Bins.

Dishonest workers sometimes throw inventory items in dumpsters and return later to pick up the goods. Stop this scheme by requiring all cartons and boxes be flattened before they’re trashed or recycled. Use transparent garbage bags and randomly check trash containers. And let employees know that trash receptacles aren’t exempt from monitoring.

Check and Recheck.

In addition to performing an annual inventory count, spot check merchandise throughout the year against purchase orders, shipping receipts, packing lists and online inventory records. If you suspect widespread thievery or embezzlement, consider hiring an independent firm to conduct forensic audit procedures.