Employee Mistake Costs Company Rs 50,000: What Actions Should HR Consider?

Hi All,

I am an HR professional at an SME IT company in Pune. One employee placed a wrong order for a product, resulting in a company loss of Rs 50,000.

Now, what actions can be taken against the employee? What are the policies regarding this situation?

Thanks,
Sonal

Addressing Wrong Product Orders in IT Companies

Ordering the wrong product or accumulating excess inventory is a common problem in the manufacturing sector. Since you are from an IT company, where the purchase department is a service department, it is commendable that you are taking this issue seriously. If your approach were to be adopted in a manufacturing company, there might be disciplinary action taken against procurement professionals every month!

Given that you work in an IT company, the individual involved may not necessarily be from the purchase department.

Disciplinary Actions and Considerations

Regarding disciplinary action, consider conducting a domestic enquiry. Provide the employee with an opportunity to present their perspective, and if they are found guilty, you may impose suitable punishments such as demotion or withholding of annual increments. Termination should be considered as a last resort as it is an overly severe punishment.

There might be a temptation to impose penalties and recover losses from the employee. However, mistakes can happen to anyone. Singling out an employee and levying penalties to recoup losses, even partially, would reflect an anti-labour policy.

Personal Experience

I have previously trained procurement professionals at one of India's top IT companies. To my dismay, I discovered that the company had unnecessarily imported UPS batteries, resulting in a loss of INR 6 million! Who should be held accountable for such a substantial loss?

Thanks,

Dinesh Divekar

Hello Sir,

Thank you for the response. The employee is a Technical Support Executive and is in charge of placing orders for clients on web development and web hosting plans on the server. He was aware of the consequences but claims it was mistakenly placed.

Now, the director wants to know what the policies are in this case or if there is any punishment or charges as the company lost a significant amount of Rs. 50,000/-. Should I give a final warning to the employee and warn others?

Thanks,
Sonal

Dear Sonal,

Regarding punishment or recovery of losses, I have provided a response in my previous post. If you recover a percentage of losses, then do not deduct the amount from the employee's salary. Instruct the employee to deposit the amount to the Accounts Department. The Accounts Department should issue a receipt to the employee after the money has been deposited.

By directing the employee to make the deposit, you will be able to maintain the salary roll neatly and cleanly. Any deductions may attract the attention of labor officers during their inspections.

Thank you,

Dinesh Divekar

The company needs to have systems in place that will result in a cross-check of employees' work so that financial losses/wrong orders do not occur. It is also a systemic error that an order could be placed without verification or authentication before a transaction can proceed. Token recovery can be implemented to establish responsibility and awareness.

Can you please describe the purchase process in your company? Any company, whether small or large, involves more than one person in the purchasing or ordering process: Initiator, Department Head, and, if needed (depending on either the cost or the size of the company), the Big Boss. Previously, it used to be a paper trail, but now it's all on the system.

Now, don't tell me that an employee at the level of a Technical Support Executive can do ordering on their own without any authorizations or approvals. If this indeed is the case, then it's high time you changed the ordering processes within your company to ensure this doesn't repeat. The idea is not about being unable to trust the employee (though this surely is one of the unsaid reasons always); it's more about recognizing the fact that 'any person can make mistakes, and the mistakes have to be caught before they can do any damage.' Such multiple steps act as a vetting mechanism.

As far as what to do with this employee, I agree with Nathrao's suggestion regarding taking a 'token recovery'... At his level, 50K would surely be a big burden for this employee. For all you know, the move may boomerang if you ask him for 50K.

Just as one expects the employee to bear the flak and responsibility for this lapse, so too must the organization... as there's an element of systemic failure too in this.

Regards,
TS

Financial Management and HR Involvement

This incident should serve as a warning to all businesses that have purchasing functions. It is not strictly an HR matter, as these issues relate to the financial management of a company or business. Such discussions would be more appropriate on CiteFin. HR only gets involved when a mistake results in some form of "punishment" for an employee.

As Taj has pointed out, every organization should have a system of checks and balances in place regarding spending the company's money. This goes without saying. If you are aware that your organization lacks the necessary spending approval flow, then as an HR person responsible for the welfare of your employees, you should strongly recommend to management that they implement this immediately.

Spending Approval and Purchasing Guidelines

Simply put, discretionary spending by employees should be at a very low level, only for emergency purchases. Spending approvals for higher amounts should reside with senior management. Other than basic items like stationery and tea room supplies, no purchasing should occur without at least two written quotes from potential suppliers. All major purchases should be put out to competitive tender. All purchasing should have a clear, documented recommendation and approval paper trail before any action is taken.

A financial approval flow is typically in place to prevent fraud, though even that is not foolproof as crooks can be very ingenious and find ways to circumvent the system. The OP has not indicated whether this was a genuine mistake. As Dinesh has pointed out, an investigation should take place before any sanctions.

If this turns out to be a genuine mistake, then you have already subjected this employee to a great deal of distress, apart from his own remorse over the error.

Personal Experience in Purchasing Functions

Disclosure: Nearly all the jobs I have held in the last 40 years involved purchasing functions, including one job involving spending upwards of $65 million a year, so I have a very good knowledge of this, and I have never failed an audit of my work. However, I should point out that in many places, the staff disliked me because I never deviated from the rules and did everything by the book!

Further to my comments above.

In the overall scheme of things, is this really a big deal? I note that the loss to the company is INR 50,000, about $783 USD. According to the web, a 16GB iPhone 6 in India costs INR 53,000. I am not making light of the company's loss, just asking the question.

Aussie John,

The company has failed to put in place a flow chart of work where work done by someone gets automatically checked by another person. It is a procedural mistake that has resulted in the wrong purchase. Now, finding a scapegoat is not a good way to overcome mistakes that have resulted in a wasted purchase worth Rs. 50,000. It is better to put in place suitable systems.

I take your point, Taj. I was just trying to find some perspective on the amount, if you understand what I mean. But I fully understand the nexus between wages in India and the amount in question. It would be an enormous burden on the worker in question to repay the amount.

Agree wholeheartedly, Nathrao. Good governance and proper systems go a long way towards mitigating problems. Sadly, scapegoating will never go away, as there will always be unscrupulous and incompetent management seeking to find ways to cover their own shortcomings.