What is vendor theft? How it happens and ways to prevent it

A busy store or restaurant is a positive thing: it’s a sign that your business is booming. But the hustle and bustle of deliveries, customers coming in and out, and employees changing shifts can create opportunities for mistakes and even intentional theft. Learn more about vendor theft and how to address it through loss prevention solutions.

Understanding Vendor Fraud

Whether you own a restaurant, convenience store, or retail business, you likely have existing relationships with multiple vendors. These outside partners may provide a service, such as trash removal, or they may provide a product, such as bottled beverages. Strong vendor relationships help you meet your customers’ needs so that you can run your business efficiently.

Vendor fraud happens when a third-party supplier steals from your business. Fraud may be unintentional: for example, a vendor might accidentally deliver fewer items than they were contracted to provide. Whether it’s deliberate or an honest mistake, vendor theft can hurt your profits, interrupt your operations, and negatively affect your customer relationships.

Types of Vendor Theft

Vendor fraud can occur in many different forms. These include:

Invoice Alteration

A vendor may engage in an overbilling scheme to increase their profits. This type of theft occurs when a vendor changes an invoice: they may add items that were never delivered or charge higher rates than what was agreed upon. Suppliers may be able to get away with this if they have frequent deliveries or complicated invoices. This type of theft can add up quickly: Forbes reports that invoice fraud can cost a middle-market business about $280,000 a year.

Duplicate Charges or Payments

Occasionally, duplicate payments happen inadvertently: a reminder invoice and a check get crossed in the mail, and your accounts payable team makes a mistake. But vendor fraud can also happen with the help of bad internal actors.

A staff member may work with a vendor to issue a second fraudulent payment, pocketing the extra money. Or a vendor may charge your business twice for a service that was rendered just once. If someone on your team approves the charge, your business loses money – and the vendor knows they can get away with theft again.

Bid Rigging

This fraud scheme is a type of illegal collusion. When a restaurant or retail chain needs a new vendor, they may issue a bid to collect proposals from different companies. This allows the business to compare and contrast its options and choose the vendor that best meets its needs.

Bid rigging is an illegal attempt to influence the outcome of the bid process. A vendor may offer kickbacks or favors to an internal employee in exchange for helping them secure a vendor contract.

Price Fixing

Price fixing is another type of collusion – but instead of a vendor and an employee working together, this type of fraud is organized by a group of suppliers. Two or more vendors will work together to agree to set the price of goods or services above market rates. Whoever wins a contract gets to take advantage of these artificially inflated prices.

Vendor Fraud Prevention: Best Practices

Stopping vendor theft is an important part of a comprehensive loss-prevention strategy. Take these steps to reduce your external and internal losses:

Centralize Vendor Information

Using different procedures for different vendors creates opportunities for payment and billing errors. Maintaining one centralized system for all vendor information and transactions makes tracking each supplier and the staff members interacting with them easier.

Use Digital Payments

It’s best to use a software-based bookkeeping system, which creates a digital paper trail of all vendor invoices and payments. This helps prevent check tampering, in which an employee changes the payee or amount on a check to divert funds fraudulently.

Implement Internal Controls

Having just one or two staff members who interact with vendors creates opportunities for collusion. Make sure to establish internal accounting controls. For example, if one employee approves an invoice, a different employee should complete the invoice payment.

Monitor Delivery Areas

Your suppliers are likely to use a loading dock or back door. Unfortunately, staffing these areas is not always feasible, so be sure to use a smart video system that can flag any suspicious activity. Otherwise, employees or vendors could steal items off the truck when a delivery arrives.

Educate Your Staff

Provide robust staff training so that employees know how to recognize and prevent fraud. Consider offering a way for team members to report fraudulent activity anonymously.

Inspect All Deliveries

Make sure that each delivery matches your vendor agreement. This may require manual inventory or video monitoring with analytics that can send an alert if unusual activity happens.

Having good business practices is important even if you trust your current vendors. Hopefully, your business continues to grow, meaning you’ll be taking on new third-party partners and additional internal staff. That’s why it’s critical to regularly review your loss prevention practices and provide ongoing staff training and refreshers.

Prevent Fraud with DTiQ

Don’t let internal or external theft affect your bottom line: choose a trusted loss prevention partner. At DTiQ, we offer custom vendor fraud prevention solutions for the retail and restaurant industries. With more than 45,000 clients, DTiQ knows how to enhance your business operations with smart video systems, audit tools, and advanced analytics.

LPI by DTiQ is the preeminent loss prevention solution on the market today, protecting trillions of dollars of assets worldwide. We provide:

• Exception-based reporting
• Audit Programs
• Staff monitoring and training
• Investigative support
• Industry benchmarking and reporting

With both onsite and video-based auditing services, DTiQ can help you gain powerful insights into your operations and take steps to protect your profits. To learn more about how DTiQ can help your business, book a demo today.