SMEs must wake up to loss prevention

It appears the Small and Medium Enterprises sector has a lot to learn from the bankers in regard to risk management. While the bankers have expanded their risk control and management dragnet to cover every imaginable risk, including damage to their reputation, SMEs are still on the defensive against risk. In other words they just react to events of risk rather than take serious steps to prevent them. Don’t get me wrong on the effectiveness of the risk management efforts of our banks. I admit a lot is yet to be done going by the level of non-performing loans in that sector. We continue our discussion of some risks-facing SMEs in Nigeria on the general well-being of the sector. The risk of pilfering and the need for a decisive response to it has become even more critical.

Clearly, the challenge of low level dishonesty evidenced by pilfering in no way constitutes the most important hole draining resources from the operators. Its impact has however become bigger than many others. The sector can no longer continue to accept the hardship imposed on it by dishonest staff stealing everything except those nailed into the floor or chained to the nearby iroko trees and electric poles. In-house stealing of cash, raw materials, spare parts and equipment have become very serious and endemic. And from the comments of stakeholders, operators need to be supported with more risk awareness and management efforts from all of us. We need enduring solutions that would be both pragmatic and proactive. Knee-jerk reaction to the risk of fraud whenever it occurs has left many entrepreneurs hapless and hopeless. There is need for a national focus on this challenge.

What one finds at the moment is that many SMEs are not even aware of some of the major risks they face until they crystallise. To a large extent, this should be understandable given the history and nature of the sector, particularly the way they come into existence and their challenge of initial capital. Besides, as organizations differ, so do their internal chemistry, including staffing, culture and leadership. Entrepreneurs face different risk matrices, which may vary in degree and composition, from one enterprise to another. Accordingly, there may be as many divergent strategies as there are companies. However, what is indubitable is that we are not dealing with low-level dishonesty in the SME sector with the commitment it deserves. Granted the informal sector has its own challenges of identity, integrity and such, there appears not to be any coordinated or sector–driven effortto effectively confront this problem.

Meanwhile, it may be useful to take a cursory look at some time-tested strategies that have helped organizations to combat fraud of all kinds among employees. The first approach is based on the old adage, “prevention is better than cure”. We believe it is better to avoid trouble than to invite it and then go ahead to fight it with a sledge or any hammer at all. To prevent the entry of employees with questionable backgrounds to the company is the first law of fraud prevention. In this regard, it is essential to ensure that every employee is double-checked for good conduct before they are hired. This is an ideal approach, which also requires that companies have effective working systems established and made truly functional. Unfortunately, the “Nigerian Factor” seems to have come heavily against this settled truth and taken the upper hand. That Nigerian factor is that even in companies with established procedures (which many SMEs don’t have) that require proper screening; it is not diligently followed through. At best the system works at the initial stages when it was emplaced and then subsequently sidestepped, often by those whose duty it is to ensure its religious implementation.

There was a case of an oil service company that has a proper procedure for screening diesel supplied by contractors. After a while those charged with the screening started accepting diesel without screening and taking them straight to site where manual screening by touch and feel was used to extort money from suppliers. Somehow strangely senior management knew of it and did nothing.

Why would this happen when virtually everyone knows the dangerous implication of such an act? It is simple: Most SMEs employ members of their immediate and extended families, and friends and associates of the owners of the companies. There is also nothing wrong in this since they are often a family reaction against unemployment. However, this makes it difficult to implement very impersonal system driven rules of management if not well handled. At the end of the day, these organizations end up with people who neither contribute optimally to the growth of the company nor imbibe its good culture. It is essential therefore that while trying to fulfil their obligations to their primary stakeholders – family, SMEs must promote cultures that advance their ultimate objective of developing into successful companies in the future.

Many SMEs have rightly embraced the culture of security surveillance through technology. In fact the rate at which these surveillance systems are being implemented in SMEs is very encouraging. However, a number of gaps still yawn for filling. The use of this equipment suffers from both internal and external abuses, which have diminished its value, even for the money the users spend. For example, one internal problem is their inability to effectively utilize the equipment. Many of those who have CCTVs do not operate them efficiently. Most of the cameras are not properly set in the right direction and maintenance is poor. This has made it possible for things to be stolen where cameras are pointing. Improper placement of the cameras has made it difficult to combat theft in many places. And this is not a domestic problem of the Nigerian SMEs alone.

On a trip to London a few years back, my brief case was stolen at the lobby of a hotel on Trafalgar Square as I tried to check-in. The hotel sadly happens to be a branch of a famous international hotel chain. I arrived via a taxi from Heathrow and waited for my turn to sigh in. Once I moved closer to the receptionist who called me over to sign the papers, someone made away with my brief case in a matter of seconds. Well, he was unlucky I had no money to launder. He got my lap though. Again sadly for him, it was my research laptop, the contents of which had been clowned away to safety before I left Nigeria.

The hotel authorities were not forthcoming with the camera footage. They did not produce it until the next day and lo and behold it did not capture the thief. We only saw a hand that flashed away with the bag. No human face was captured. I still wonder if the footage was not photo shopped. I have also witnessed this kind of ineffective camera in an office in Lagos. A thief came into the company as a consultant and waited at the reception for a while and then proceeded upstairs under some uncertain circumstances without proper clearance from the receptionist. He had told the receptionist that he had been asked to come up. He went into the Board Room and picked up someone’s laptop and escaped. Apart from the error of the receptionist, the cameras in the reception did not capture his face.

This particular case raises the further question of the level of security training we give to those who man sensitive positions. The receptionist, without any doubt, was incompetent. Those entrusted with it should review the footage of the cameras on a timely basis to see what it captures and assess its coverage.

Another strategy is to have a proper connection with staff members to be better able to tell the kind of problems they are dealing with and also their lifestyles. With recession, inflation and all the troubles plaguing today’s workers, that strategy may not add much value. It is very hard to find many people who are not having financial problems among the SME staff today. It therefore becomes harder to keep an eye on anyone simply because they appear to have financial problems.

Meanwhile, the idea of moles and double controls in cash areas remains useful. Under no circumstances should staff which were meant to work in pairs or groups be allowed to breach such control. The funny but somewhat disgusting story of how a staff of a printing press leaked an examination question paper and caused the cancellation of his employer’s contract with the examination body was most intriguing. They worked in groups in that sensitive room. The criminal minded staff, according to his alleged confession ate so many eggs the day before and came to work farting mercilessly and consistently fouling the airtight room. One by one his colleagues bailed out to safety in self-preservation. They forgot the rule that there must be at least two people at any time in the room. By the time they felt safe enough to return, he had taken one of the questions and leaked it.

Sensitive places like this particular printing room must be equipped with relevant technology to improve efficiency and eliminate human error. Above all, the importance of proper training and orientation for people with special responsibilities cannot be overemphasized.

 

Emeka Osuji

 

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