WSA Services, Inc.
Loss prevention strategies focus on prevention, detection and appropriate response.
What’s the trend for losses due to shrinkage?
Recent national retail security survey data (2009) show that retail operations experienced average annual shrinkage losses of 1.44%. This is down from the previous year, which showed an overall 1.51% shrinkage rate equaling $36.3 billion. When you consider the dollar value of the latest loss figures at somewhere near $33.5 billion, we are talking about a significant hit to your bottom line! Depending on your specific type of retail business, actual shrink losses may be much higher than the national average. In smaller operations, losses may reach as high as 20% and threaten the very survival of these businesses.
Of the five main categories of shrink, employee theft (43%) and shoplifting (35%) account for the bulk of the losses — an astonishing $26 billion. While nearly 60% of surveyed retail firms employ uniformed guards, an adequate and effective loss prevention (LP) strategy demands more than simply having a security officer at the entrance of your store. It requires a multi-layered approach that focuses not just on security, but on loss prevention, asset protection and customer service as well. A contract security partner, who carefully and strategically engages in ongoing development for their own staff, ensures that both your internal and partner contract personnel are credits to your business.
Security professionals agree that the very best strategy is based on preventing crimes. In a The forensics department of accounting giant KPMG stated, “The chief executive officer is ideally positioned to influence employee actions through his or her executive leadership, specifically by setting the ethical tone of the organization and playing a crucial role in fostering a culture of high ethics and integrity.” A focus on LP begins at the top. When the leader of an organization demonstrates a high regard for ethics and integrity, along with employing LP strategies and initiatives, it follows that the rest of the organization will be fully engaged as well.
Once the tone is set by your CEO, you start by hiring the right people, including contract security partners with whom you link arms to prevent loss. Since employee theft is by far the greatest contributor to shrinkage loss, pre-employment screening and testing is paramount to LP success. Before you look at a resume or hold an interview, conduct a fraud or misconduct risk assessment for each position. You might consider the following as non-negotiable, required items for your pre-employment checklist – and you will want to be sure that your contract security partner utilizes the same (or better) processes in its own hiring practices:
• Check on criminal convictions: This is one of the first things most retailers do and probably the most important. What isn’t done as frequently is a related search for “wants and warrants.”
• Verify past employment history: When an applicant “fudges” here, you have to question overall integrity.
• Conduct multiple interviews — with multiple interviewers: Having multiple perspectives on an applicant assures a wiser and better-informed decision.
• Check personal references: This is one more layer of checking on an applicant’s integrity.
Many firms engage in honesty and integrity testing beyond the above “must-haves.” Depending on the outcome of your risk assessment for the positions being hired, other relevant tests may be important. Those discretionary tests include drug testing, credit checks, driving history, education verification, etc. In many instances your contract security partner can even provide many of the background checks described above.
Communication and Ongoing Training
Having made the decision to hire an applicant or engage a professional outside resource, training and communication take the next highest priority. When employees or contract partners are fully informed of your intentions and standards, they will have the greatest opportunity to perform to your expectations. Training is an ongoing exercise, with development programs for LP and security personnel under constant review. The bad guys are constantly sharpening their skills; our security and LP professionals must do the same! Look for online training programs and interactive CD options that are updated and offered regularly. Confirm that your security partner utilizes ongoing development programs. It will be money well-invested.
An employee code of conduct, written well and explained adequately is a priceless component as a new employee integrates into the culture and personality of your company. Keep in mind that if you do have a code of conduct, it has to be lived by — and enforced.
Detection requires a significant amount of ongoing training for your LP/security personnel. Crime and theft is increasing in its sophistication, and our detection strategies must keep pace. We’re now faced with issues like card skimming, where thieves capture sensitive credit information during legitimate transactions. While this may not directly affect your bottom line, it will definitely impact customers’ desire to return to your business.
Where possible, it is best to engage electronic POS controls that perform exception reporting, barcode scanning of inventories and checking account verification. Nonetheless, there are other procedures that will both detect and discourage employee theft and shoplifting.
• Consider encrypting data obtained from card scanners via appropriate backend systems.
• Consider RFID tags that monitor the movement of high-value merchandise: Security/LP officers can be alerted immediately when an item is moving where it shouldn’t be.
Organized retail crime, which can net more than $40,000 daily, is on the rise. Criminals will be less likely to target stores where your security officer appears to be alert, efficient, reliable and well-presented.
• Concentrate on self checkouts: They are weak spots where sales associates are monitoring four to six locations and can easily be distracted.
• Carefully screen your entrance security: Well trained and groomed security officers ‘conspicuously at the entrance’ greeting customers are a reminder that security is in place, attentive and on-duty.
• Check employee packages: With employee theft ranking first in losses, this is a must.
• Verify customer receipts: Well-trained associates can make this painless for customers.
• Monitor cashiers: Prevent “sweethearting” or under-ringing where a cashier works directly with a thief or organized ring of thieves.
• Initiate a hotline: An effective hotline program has multiple components:
– It is confidential where transfer of the information is to only those absolutely required to have it.
– Callers can remain anonymous.
– It is readily available — even from remote or international locations and includes translators if required.
– Hotline operators are well-trained in the information collection process, documenting the call effectively.
– It includes follow-up to insure there is no retaliation.
– It is well-publicized throughout the organization.
Trained to observe behavior and deter shoplifting, it is clear that well-trained security officers contribute significantly to your overall loss prevention initiatives. In addition, partner security officers working with your in-house technology can instantly respond to emergencies or CCTV reports sent to their PDAs or cell phones, helping to resolve issues before they become losses.
There must be sanctions and discipline for both managers and those they supervise, when theft or misconduct occurs. When these sanctions are applied uniformly, fairly and consistently, it trumpets throughout the organization that illegal activity will not be tolerated. This program or process will be part of the new hire training and presented as part of the organization’s culture. The disciplinary process should be defined by:
• A response commensurate to the offense: This may include demotion, pay reduction or termination.
• Absolute fairness that will be applied consistently throughout the organization without regard to the position of the offender.
• Application to managers who direct or influence their subordinates to violate the law or company standards for any reason.
• Application to managers who are inconsistent in enforcing standards or fail to adequately train and equip their employees.
Instant Action by Management
Depending on the scope of an infraction, the company may need to publicize the issue in an effort to stem negative publicity. In the case of individual misconduct or theft, there are several steps that ought to be part of normal response:
• Immediate discipline for the one(s) who acted illegally.
• Immediate discipline for the supervisor(s) who failed to prevent the action.
• Investigation of the processes and procedures which allowed the action to occur.
• Initiate a remedy as quickly as possible to ensure the same activity will not reoccur.
Because of the economics of operating a business, we’ve seen resources and people available for LP operations decrease. Technology can span some of that gap, but some things remain that we simply dare not do without. The numbers — and the criminals — justify an ongoing commitment to LP, which must be evidenced in the overall budget and commitment of resources in terms of partner security organizations, internal LP personnel and finances.
Dr. Richard C. Hollinger, P. (2010). University of Florida 2009 National Retail Security Survey. Retrieved June 1, 2011, from University of Florida Department of Sociology and Criminology and Law: http://soccrim.clas.ufl.edu/criminology/srp/finalreport_2009.pdf
KPMG. (2006). Fraud Risk Management. KPMG Forensic.
— Martin Benom is president of WSA Services, Inc., “We Service America,” a Los Angeles-based provider of both in-house and associated professional, bonded and insured personnel who provide an entire range of facility services necessary to support retail clients and enable them to focus their energies on their primary goals and priorities. The author may be reached at firstname.lastname@example.org.