Minimizing the Risk of Fraud

Loss prevention is a key piece of the retail grocery business. Co-op managers are aware of this at their level and manage against it every day, but everyone in the cooperative needs to pay attention to the possibility. Board members: don’t be complacent. 

There are myriad ways to steal from a grocery store: at the register, at the loading dock, at the safe, and at the computer. It’s important that directors of retail food co-ops educate themselves about the basics of loss prevention and implement basic best practices to ensure that their co-ops are not vulnerable to fraud. Chance favors the prepared mind: fraud can be extremely difficult to discover, and many frauds are discovered only by chance. There’s no way to actually make a business “fraud-proof”—but there are plenty of ways to limit the likelihood of it happening and to limit the impact if it does.

Be prepared!

Have a financial review or an audit every year. Have an audit every three years at minimum.

Regularly request and review information about the financial condition of your co-op. Ask questions until you understand the financial information presented to the board.

Educate yourself by asking the general manager for board training on grocery retail basics:

• cash handling practices at your co-op. 
• inventory practices at your co-op.

Verify financial information occasionally and when a trend develops. If the explanation for a trend references a sector-wide cause, ask for source data. 

Look for the following practices within the store:

• bonding for key employees
• criminal background check for key employees
• a realistic and practical whistleblower policy 
• an accounting manual that outlines the duties of people handling assets and how those assets are safeguarded

Be a good employer and a professional board—be worthy of respect. Use best practices in hiring your GM. Be timely and fair compensating your GM.

Listen to everyone: don’t overreact, but don’t ignore rumors either.

What if we suspect fraud?

Get expert assistance early. Consult your co-op’s attorney first. Forensic accountants specialize in detecting fraud.

What if it happens to us? Have a communication plan. Know what you can say and what you cannot say. Control information flow to protect confidential information. Practice answering owner questions.

Learn from the experience: institutionalize practices that will prevent a reoccurrence.