Each year, inventory shrinkage costs the U.S. retail industry over $45 billion. The largest contributors to this loss are shoplifting and other external theft (36 per cent) and internal theft and fraud (33 per cent).
Businesses need to take loss prevention measures in order to thrive. By making a few easy changes to your workplace, you can considerably reduce your risk of theft.
Case management software makes managing loss prevention much easier. Find out how in our free eBook.
Types of Loss
Loss prevention teams have a lot of ground to cover. A wide array of crimes fall under this category, including:
- Organized retail crime
- Larceny (outright theft of money or items)
- Skimming from the cash drawer
- Short-shipping by vendors
- Return fraud
- Sweethearting or undercharging
- Vendor substitution
Simply being aware that all of these crimes could be occurring can help companies prepare and protect themselves from theft and fraud.
Why do people steal? Whether it’s an employee or a customer, the reasons that people commit fraud and theft are the same. Reasons for theft fall into three main categories:
- Motive: The individual has a reason for wanting to steal aside from “just because.” This could include greed, seeking revenge on the company, a hard financial situation, unexpected expenses, or funding an addiction.
- Opportunity: The individual sees an opening to commit a crime without getting caught. Companies with weak financial controls or cash management processes are more likely to fall victim to these criminals.
- Rationalization: The individual feels they have an excuse for stealing. Their rationale could be “Other people do it,” “The company won’t notice or miss the money/item” or “I deserve it.”
Understanding the reasoning behind theft and fraud can help you develop a stronger loss prevention program.
Preventing Employee Theft and Fraud
Create and post policies outlining acceptable use of company property. This informs employees with good intentions and may deter those who might be tempted to commit theft or fraud. Make sure the policy plainly describes the disciplinary actions that will occur if an employee is caught stealing from the company.
CEOs and senior management should follow the same rules as the lowest-level employees at the company. If you don’t want people to steal money or supplies, don’t let the C-suite take things for free, either.
Installing security cameras is a good deterrent for employees who may be considering fraud and theft. Knowing they are being filmed makes these individuals less likely to steal. Set up the cameras in areas where thieves might commit their crimes, such as stockrooms, break rooms or storage areas. Be sure to avoid putting them in bathrooms, dressing rooms or other areas with reasonable expectations of privacy, as this is illegal. Review your CCTV footage regularly to spot unusual activity and boost loss prevention efforts.
Tips from other employees are the number-one way that employers find out about internal fraud and theft. Most employees are honest and loyal to their workplace and would not appreciate other employees committing theft or fraud.
Encourage tips by setting up a secure, private loss prevention hotline that offers employees a range of reporting options. Include a dedicated email address, phone number and webform and allow whistleblowers to remain anonymous. Emphasize that tips will be kept in confidence and that your company is committed to avoiding retaliation.
For anything higher in value than regular office supplies, installing inventory controls can boost your loss prevention efforts. Lock up cash, electronics and other expensive supplies and only give access as needed. Carefully monitor and track the inventory of these items. Industries that work with especially dangerous or pricey items, such as the technology and medical fields, should take extra precautions.
If you suspect employee theft is responsible for losses in your organization, download this cheat sheet. You’ll learn six things you need to do when you have reasonable grounds to suspect an employee of stealing.
A system of checks and balances keeps employees accountable and reduces the chance that they will successfully pull off fraud. Make sure that one employee is never tasked with sales and reconciling the till.
Conducting regularly scheduled audits can help you find anomalies in your books, but also give employees time to prepare. Carry out some random checks of financial records and supply inventory at different times of day on different days of the week. You may catch a fraud or theft scheme you never would have noticed.
Employers can show that they value their employees by paying them an adequate wage. Underpaid employees may turn to stealing to fill financial gaps or because they feel they deserve to be paid more. In fact, higher wages are actually tied to lower employee theft.
If raises aren’t an option, boost employee morale in other ways, such as recognizing achievements, offering workplace perks and providing mentoring and feedback. Employees who are happy at their jobs are less likely to risk losing them over criminal behavior.
One of the easiest forms of loss prevention is not hiring thieves in the first place. Pre-screen applicants when hiring by conducting criminal records checks, checking references and, if it’s legal in your state, performing credit checks. If any red flags pop up during this process, investigate further or take that applicant out of the pool.
Bring in an accountant from the outside to analyze your company’s financial records. A fresh set of eyes (and an objective perspective) may be able to catch inconsistencies an internal accountant missed. Have them examine bank statements, ledgers and checks, including verifying that vendor payments match inventory receipts.
Preventing Shoplifting and Return Fraud
Check incoming merchandise against invoices and outgoing products against shipping documents or other sales data. Doing this every day can boost your loss prevention efforts, as things gone missing won’t go undetected for long.
A poorly organized store makes it easy for thieves to make off with your merchandise. The store layout should force customers to pass the checkout in order to leave, making it harder for them to slip out with stolen products undetected. Eliminate blind spots by replacing tall displays, where thieves can hide, with lower fixtures.
Print out this loss prevention tips cheat sheet and hang it in the break room to remind employees to do their part to stop theft.
Another way to eliminate blind spots is to post staff members around the store, from the main aisles to dark corners. They should greet customers and offer help as well as keep an eye out for shady behavior. Not only will this improve your customer service, it may also deter potential thieves by reminding them that the store has eyes everywhere.
Losses due to return fraud, including returning stolen merchandise, merchandise purchased with counterfeit money or used merchandise, may creep up on you throughout the year. Require customers seeking a return for cash to produce a receipt for the item(s). If they don’t have a receipt, offer store credit or an exchange instead. Be sure to enforce this policy 100 per cent of the time to reduce return fraud.
A long-term method for loss prevention is to ask customers for a piece of identification when they make a return or exchange. This helps you spot patterns of frequent or unusual return behavior. You’re less likely to fall victim to a return fraud scheme and you can alert other locations of your store about suspicious individuals.
When scheduling employees, be strategic. Never let anyone work alone, especially those performing money-handling tasks including running the cash registers. Employees who are tempted to steal will have fewer opportunities to do it if someone else is there to hold them accountable. Potential shoplifters will also be under better surveillance if there are multiple employees in the store.
Security tools are some of the most common and effective loss prevention methods. Cameras, mirrors, security tags, sensors and guards both detect shoplifting and deter criminals. Lock up small, expensive or frequently stolen items. Lock dressing rooms and require large bags to be left at the checkout counter to obstruct common ways that thieves hide their stolen goods.
After installing security cameras, remind customers that they are being watched using signage throughout the store. Mention that you can and will prosecute shoplifters. These reminders may spark a fear of being caught strong enough to deter potential criminals.
Messy or cluttered shelves, displays and aisles make it harder to notice if merchandise is missing. Keep shelves well-stocked and pull items to the front, making a solid wall of product. The more organized your displays are, the easier it is to keep track of your inventory.
Using a case management system to track your loss prevention investigations and incidents helps you spot trends and hot spots. Create graphs and charts or overlay reports on maps to instantly visualize incident patterns. Whether you are experiencing issues with employee theft, fraud, shoplifting or supply chain losses, loss prevention software offers valuable insight into your company’s vulnerabilities so you can focus your program.
Find out more about how case management software can improve your loss prevention program here.