Prevention and Control
Compiled and written by Pamela Horovitz In consultation with Read Hayes, CPP And the NARM Loss Prevention Committee
Internal Theft
The Impact of Theft
Retailers in the United States lose approximately $25 billion in merchandise annually to theft. Of this, over $11 billion is attributable to employees. Employee theft,
like all crimes, has its victims. The most obvious victim is the retailer: the loss of merchandise lessens the availability of product to the consumer. The loss of cash impacts the capital available for refurbishing, expansion, or promotion while making the analysis of the company’s true performance more difficult. Time and manpower are diverted from other company projects trying to figure out why inventories are off, or why cash registers don’t balance. The store’s employees suffer in the form of reduced benefits and opportunities, deteriorating morale, or even by the loss of a job if the company goes \under as a result.
There are other less obvious victims of retail theft. Vendors lose sales because stolen merchandise is harder to replenish. The consumer pays higher prices or receives less service as a result of retail losses. The government loses tax revenues.
Everybody stands to gain if employee theft can be prevented or controlled.
Identifying the Problem
Retail loss and shrinkage comes from four areas: shoplifting, employee or vendor theft, and administrative errors. Shoplifting is the kind of theft most retailers are familiar with. But employee theft is just as important to the bottom line. No company wants to believe their own employees could be stealing from the company—and the good news is that the vast majority don’t. But the small percentage of employees who are dishonest affect the livelihood and well-being of the entire company.
Why Do People Steal?
The causes of dishonesty are not widely understood and there is no one theory which best explains why employees steal. Most research indicates that deviant acts are “caused” by a combination of personal and situational factors. These variables simultaneously contribute to theft behavior. The three major conditions that need to be present according to one popular theory are motive, opportunity and lack of risk.
Motive: A motive can be real (“I need this extra money for my child’s surgery”)
or imagined (“After the way this company has treated me, they’re getting what they deserve!”). Motives may form quickly or over time. Real economic pressure is rarely there, nor is significant peer pressure from other dishonest employees. Contributing to motivation are such variables as a view of the company as an impersonal entity which won’t be harmed by a theft (“This amount is so small nobody will even notice”). Another contributing factor is the level of job satisfaction: dissatisfied employees steal more.
There are a variety of thought processes designed to neutralize guilt: “If they leave stuff unguarded, it’s not my fault things get stolen” or “I’ve done a lot for this company and never gotten any credit for it.” A good understanding of motives can help understand the reasons for internal theft.
Opportunity: The probability of a theft attempt is directly related to the level of security and/or ease of access to the asset. Employees normally have physical access to goods, cash, or both. Opportunity also includes having the requisite “skill” to execute a theft: sensing when the time is right, keeping cool under pressure, knowing what to do. But you can’t steal something if you never have the chance.
Perception of Risk: A critical factor influencing an individual’s decision to steal is whether or not they believe they will be caught and what the consequences of getting caught are. If an employee believes they can beat the system, or sees that nothing significant ever happens to those who do, there is little to deter the impulse to steal.
Establishing Goals and Tracking Losses from Theft
Before a company can launch any sort of loss prevention effort, it has to identify the problems areas, and know what the scope of dollars and of involved personnel are. This first step is critical to benchmarking the success or failure of any loss control efforts.
Step 1: You must first know what your overall loss is. If you’re not already tracking shrinkage and loss at your company, you need to start. A reputable accounting firm with retail experience can help you get your books set up to track inventory shrink as well as theft of cash, assets, information, and time. Most retailers express inventory shrinkage as a percentage of retail sales. The University of Florida, which publishes an annual study of retail loss prevention and security activities, cites the average shrinkage for the recorded music and video industry in 2000 at 1.73%, just below the national average of 1.74%.
Step 2: Next you need to attribute your losses to shoplifting, employee theft, vendor fraud, or administrative error. This is not an exact science, and in most cases you will be estimating or making educated guesses based on a sometimes imprecise audit trail. The University of Florida reported in 2000 that retail security executives attributed 44.2% of annual shrinkage to employee theft, making it the most significant source of financial loss. (Shoplifting ranked second with 33.5%, administrative error contributed 17.2%, and vendor fraud was 5.1%.) The important thing is to start tracking your losses in order to assess the size of your problem, and to continue tracking losses in order to benchmark your progress.
Basic Principles of Loss Prevention
No single loss prevention program can be expected to work as well as several in combination. Good loss prevention programs use five primary strategies: deterrence, control, detection, investigation, and disciplinary action/recovery.
Deterrence
Deterrence programs provide employees with motivation for keeping company shrink low and instill employees with the belief that there is a high probability of detection and apprehension plus the certainty of appropriate punishment. Deterrence frequently can result in displacement: the theft attempt is shifted to a different time, location, or technique. A program’s ultimate goal should be to eventually displace crime away from the company altogether.
Control Strategies
These procedures are designed to reduce the likelihood of theft by either limiting access to high-risk assets or by requiring certain activities, like refunds or taking out the trash, be recorded or verified by a supervisor.
Detection Strategies
These may include security systems, employee hot-lines, shopping services, or other programs designed to alert company management to the possibility of deviant behavior by employees. Good detection is also an important part of deterrence.
Investigation
Investigation is the necessary step between detection of a problem and the ultimate resolution of that problem. There can be no disciplinary action without proper verification of who, what, when, why, where, and how.
Disciplinary Action/Civil Recovery
The logical conclusion to a finding of employee theft or violation of policy should be some sort of disciplinary action that serves to put teeth in the company’s policies. Recovery, while not always possible, serves to lessen the bite employee theft takes out of the company’s bottom line, and also serves as part of the deterrence program.
Prevention and Deterrence
The key to reducing employee deviance is to maintain a strong “culture of honesty and integrity.” Every employee in the company should be formally notified of the company’s code of conduct. The culture develops when employees observe their leaders and their peers following the rules and those who don’t. The following practices will help establish and support a culture of honesty in your business.
Pre-Employment Screening
The logical place to begin deterring employee theft is by hiring good employees. The pre-employment application and interview process should include information that will help an employer identify those individuals most likely to steal. (See addendum.) Make sure the application is completely filled out and follow up on any gaps in employment or questionable responses. Check references and verify jobs and education. (The rule of thumb is to go back at least 3 years.) There are services an employer can use to conduct background checks on applicants that include information on criminal convictions, credit histories, worker’s compensation claims, and driving records.
In the interview, open-ended questions will allow the applicant to be truthful or deceptive: “What would you do if you saw a co-worker using drugs while on the job?”
or “What kind of mistakes could you have been fired for on your last job?” Be aware that polygraph tests are no longer allowed in most states as a screening tool. However, many states allow the use of “pencil-and-paper” tests to determine honesty. (See Resource Directory.) Many companies have instituted pre-employment drug testing, which should only be carried out by a professional. Handwriting analysis is widely used in Europe, and is starting to be used more frequently in the United States. Check with legal counsel first
if you’re considering it.
Policy and Procedure Manuals
Employees need direction and guidance. The establishment of sound procedures and policies instructs employees on how to conduct themselves while on the job. It says in clear language what is acceptable (“You may offer an employee discount to your immediate family”) and what is not (“You may not offer an employee discount to friends”). A good policy should have a specific objective and should state what the company will do if the policy is disregarded (“Consumption of illegal drugs while on company property is grounds for immediate termination”). Policies and procedures should be easy to understand and widely communicated to employees. The enforcement of policies should be fair, consistent, and documented. A good employee manual provides useful protection to the employer by denying the dishonest employee the opportunity to claim they had no knowledge that what they were doing was a violation of company policy. Have your policies and procedures manual reviewed by your legal counsel to ensure you’re in compliance with the law.
There are a number of policies that companies should consider including in a policy manual as part of the internal loss prevention effort:
1. Conflict of Interest: Determine the company’s position with respect to outside employment and business relationships with vendors. Ask key employees, like buyers,
to sign conflict of interest pledges.
2. Honesty Policy/Code of Conduct: Define acceptable and unacceptable behavior.
3. Expenses: Define your accepted business expenses and establish expenditure limits.
4. Pre-employment Screening: Establish criteria which applicants must meet prior to being hired for any position.
5. Press: Restrict public statements regarding company activities to authorized individuals.
6. Prosecution and Termination: Clarify the company’s stance on the detection and handling of suspected theft, including termination of employment, civil action and/or criminal prosecution.
Store Location and Design
Store location and design can affect the likelihood of both internal as well as external theft.
Do appropriate research before you decide on a location. Ask other merchants in the area what their experience is both with shoplifting and employee theft. Find out what the availability of security support services are from the landlord and check what the experience of neighboring merchants with the service are. Stop by the local police department and inquire about neighborhood crime patterns.
When hiring a design firm, ask about their capabilities and views on security issues. Many can balance store aesthetics with security concerns in a way that meets the needs of a particular location. The ideal store design should factor in a variety of security issues, including those relating to employee theft. Stores can be laid out not only to influence shopping behavior, but also to discourage pilferage and theft. For example, a raised cash-and-wrap area not only assists the store employee in seeing customer activity within the store, but signals to the employee that cash register theft would be difficult to execute from such a visible location. Conversely, displays and fixtures which block the view of part of the store provide the opportunity for both shoplifting and employee theft. Lighting systems can be used both to highlight featured products and to eliminate dark areas where a thief might try to conceal goods. Consider the need for surveillance aids, like mirrors or closed circuit TV, in the store design.
Ensure that the exterior of the building and parking areas are well lit and readily observable from inside. Fence off potential problem areas.
In warehouses, the shipping and receiving areas should be in full view of supervisory personnel at all times. Offices with one-way mirrors serve to provide privacy to the supervisors while allowing constant vigilance of the warehouse.
Employee Awareness Programs
The commitment to loss prevention must start at the top of the company. If the owners and senior managers don’t believe that controlling losses is important to the overall health of the company, lower level employees won’t believe it either. Once loss prevention and control is established as a company priority, every department should be asked to contribute to the success of the program.
Begin by letting employees know how employee theft affects them. Bonuses, benefits packages, opportunities for promotion can all suffer if losses become severe.
Make sure every employee is familiar with company policies and procedures. Stress that good training and the following of correct procedures can help reduce company losses by reducing administrative error. Following company policies also makes for a safer workplace.
Next, teach all employees how to recognize instances of theft. Set up a structure for reporting suspected theft or dishonesty in the workplace. Some companies offer incentives for reports. If the company is large, you may want to create a toll-free hotline to the loss prevention department. If it’s small you may simply need to create an atmosphere that makes it comfortable for employees to report suspicious activity directly to owners or managers. Assure employees that their reports are confidential and let them know what will happen as a result of a report getting filed.
How you handle spreading the word is up to you. Some companies may call a meeting of all employees for breakfast. Others may set up a series of workshops region by region. Professional presenters may be employed or videos on the topic might be shown. No matter how you approach the subject, make sure that your employees are encouraged to ask questions and provide feedback. Involvement from the start will ensure greater commitment and follow-through.
Be prepared to reinforce the various messages of loss prevention on a regular basis. You might want to have posters on bulletin boards, in break areas or backrooms. You may want to use paycheck stuffers. If you have a company newsletter, you may want to run progress reports. If you have a company convention, consider giving loss prevention some time in your agenda. And don’t forget that new hires need to have loss prevention training as part of their orientation program. (See Resource Directory for references.)
Be realistic in your expectations. Loss prevention is competing with messages about new releases, sales programs, promotions, human resources, and operations. Don’t hold employees accountable for problems outside their control. Remember that the biggest part of loss prevention is simply keeping the majority of your employees honest and creating an atmosphere in which deviant behavior will be kept to a minimum.
Lastly, check your progress regularly. This should help you determine where your efforts are paying off and where you still have problems. A program that initially seemed too expensive may now be justified. Conversely, a program that has significantly reduced a problem could be curtailed. Don’t be afraid to adjust course in response to your analysis.
Human Resources Programs
The effects of employee pay, benefit programs, promotion policies, and profit sharing plans all affect employee loyalty, turnover, and shrinkage. Data exists which suggests that there is linkage between store pay levels and retail shrink with slightly lower shrinkage occurring at companies paying more than the competition. There is also evidence that companies which offer profit sharing plans to employees and which promote from within experience lower incidences of shrinkage. Lastly, companies which experience lower employee turnover also frequently experience smaller shrink.
Asset Control
The methods employees use to steal are varied, numerous, and often creative. Different kinds of theft require different kinds of prevention and control. Most thefts have common elements which are best deterred by a unified and integrated approach to loss prevention. Loss prevention ideally involves virtually every department of a company.
This chapter will outline some of the common ways that employees steal and will provide some suggestions for control. Bear in mind that every company is different, and loss prevention programs that are feasible for some companies may not be appropriate for yours. Review the list of options with an eye toward the scope of your problem.
Merchandise Theft
Employees, working alone or with others, can steal substantial amounts of product. Here are just a few of the ways:
· Merchandise can be hidden in lockers, purses, trash containers, or other concealed areas for removal from the store or warehouse during breaks,
or at the end of a shift.
· Unpaid-for merchandise can be passed to friends or accomplices during what appears to be a routine sale or exchange.
· Stolen merchandise can be swapped with employees in other departments or stores.
· Merchandise can be stolen after hours by maintenance or security personnel.
· Merchandise can be stolen from unattended delivery vehicles or in collusion with delivery personnel.
· Merchandise can be shipped from the warehouse with a fake bill of lading
or purchase order.
· Merchandise can be stolen by professional thieves working in conjunction
with store personnel who get cut in on the take.
Controlling Merchandise Theft
· Try to have a management presence on the sales floor throughout the day.
· Offer employee discounts to facilitate legitimate purchases by your staff. Keep
a record of the purchases and provide a central place for keeping them until they are taken home. Verify purchases on a random basis.
· Discourage employees from bringing purses, packages, or back-packs onto the selling floor or into the warehouse. Provide a coat room or lockers if possible. Lockers with clear doors will deter using the lockers as a “stash.” Post your policy regarding theft and pilferage prominently in this area.
· Try to have a manager observe and document all deliveries to the store; management should try to do the same in the warehouse. Keep receiving doors secured when not in use. If you have roll-up doors, make sure they’re locked at the bottom on both sides and not at the pull chains (merchandise can still slide through the gap).
· If you have a designated employee entrance, require employees to use it and have it monitored by a security guard or by management personnel. If you don’t have a separate employee entrance, managers need to monitor employees as they leave the workplace. Consider a policy which allows management or security personnel to check employee purses and packages. Post it prominently and apply it consistently.
· Try to have two people open and close the store together. Try not to have just one employee working a shift.
· Keep stockroom and warehouse merchandise in neat stacks so that it is easy to spot missing items. Bad housekeeping may be a tip-off to an impending theft.
· Try to have managers observe the emptying of trash. Periodically check trash containers for concealed merchandise.
· Periodically conduct unannounced store audits. Piece counts on selected merchandise will both verify inventory counts and deter potential employee theft.
· Keep good records on returns and segregate returned product in a separate area.
· EAS tags can deter employee theft as well as shoplifters if activation and deactivation are well monitored.
· Closed circuit TV and roaming security agents are expensive solutions whose application is usually primarily shoplifting, but can play a role in employee theft as well.
· If you have burglar alarms, make sure they are working and are used. Consider giving codes only to managers and supervisors. Periodically change all codes, passwords, and keys.
Cash Theft
· An employee can fail to ring up a sale or open the cash register with a “no sale” and pocket the cash. Sometimes the cash will be put into the register at the time of the sale and removed later in the day.
· An employee can enter less than the full sale amount (“under-ringing”) or more than the full amount (“over charging”) in the cash register and pocket the difference.
· A cashier can deliberately short customer change and pocket the difference.
· A transaction can be voided after the customer leaves the store and the cash pocketed. Portions of a transaction can be voided and the price “corrected”
for one or more items of a transaction with the difference pocketed.
· An employee purchase may be refunded at full value with the discount difference being pocketed. The purchase can be voided, but the merchandise kept.
· Fraudulent refunds can be issued to accomplices and the cash pocketed.
· Fraudulent gift certificates can be issued to accomplices who redeem them
for cash or merchandise.
· Credit card information from store customers can be fraudulently used by employees to make purchases or customer credit card payments may be credited to a friend’s account.
· In stores that accept “lay-aways,” employees can fraudulently cancel or alter
the deposit slip and pocket the cash.
· Bills can be stolen from currency bundles.
· Errors can deliberately be created in bank deposits in order to pocket
the difference.
· Fraudulent receipts can be submitted to “petty cash” for reimbursement.
· Accounting department employees can issue duplicate checks for the same invoice and embezzle the funds with an accomplice from the company issuing the invoice.
· Invoices can be falsified with an employee pocketing the cash from the payment.
· Payroll records can be altered to include fictitious names with the fraudulent paychecks going to the dishonest employee or an accomplice.
· Employees who are authorized to travel may pad expenses or submit fictitious receipts.
Controlling Cash Theft
· Try not to assign too many employees to the same cash register. Try to have each transaction identified by employee (either by initial or by an employee number).
· Have sales associates log out and keep their own till drawers during breaks.
· Tell customers to expect a receipt with your signage. Ask them to count their change.
· Prepare bank deposits daily. Establish detailed procedures for the counting
and reconciling of cash and credit card receipts. Keep good records.
· Retain the cash register and adding machine tapes and secure them to bank deposit slips. Use adding machines with a “non-add” capability to include the date, register number and money counts by denomination for each deposit.
· Require money counts, receipt of checks, cash payments, money orders,
and bank deposits to be supervised by a manager.
· Establish detailed procedures for handling voids. Consider having all voids initialed in ink by a supervisor. Consider having all post-transaction voids handled only by supervisors. Deface all charge slips which are voided.
· Establish firm policies regarding returns and refunds accompanied by detailed procedures on handling return transactions. Use numbered refund slips. If you accept returns without a receipt, obtain the customer’s name, address, phone number, and signature as part of the return transaction. Keep a refund log on “no receipt” transactions and periodically verify the refund transactions. Consider having supervisors approve all refunds over $25.00.
· Price-variance reports are an excellent tool for spotting under-rings and over-rings. The report is a spot-check of prices on the product compared to prices actually rung up.
· Exception reports help to identify stores and employees with inordinately high percentages of certain kinds of transactions. Most retailers typically track cash over-ages and shortages, voids, cash refunds, bad checks, and price overrides. Computer programmers can enable most POS systems to generate such reports.
· Bond key employees for theft.
· All company checks should be approved by management. Use pre-numbered checks and periodically inspect the middle and back of the book to make sure there are no missing checks. Try to separate the authorization of payment from the preparation of checks. Have separation of preparation from mailing of checks as well, if possible. Paid invoices should be marked “Paid” and segregated from current invoices. Never approve checks made out to “cash.”
· Keep accounting and personnel files and records in a secure place.
· Place spending limits on authorized employees and create lists of authorized vendors.
· Payroll should be verified by a supervisor. Bank statements and canceled checks should be examined by management.
· Match expense reports to employee travel schedules. Management should approve all submissions and periodically verify expenses.
· Conduct periodic audits which are unannounced.
Loss of Other Assets
· All kinds of company supplies can be appropriated for personal use:
pens, paper, diskettes, toilet paper, coffee, etc.
· Employees can steal all kinds of company equipment (from calculators to computers), sometimes simply by asking to borrow it without intending
to return it.
· Personal mail and packages can be sent through the postage meter of the company.
· Company data (including sales records, personnel files, customer mailing lists, or future plans) can sometimes easily be stolen from the company or destroyed.
· Employees who conduct personal affairs while at work are stealing company time.
· Disgruntled former employees may return to commit vandalism or harass current employees.
· Most companies have some employees who could be offered bribes or
kickbacks from vendors.
· Abuse of employee discount privileges.
· Long distance or “900” number call abuse.
Controlling Asset Loss
· Restrict access to supplies to authorized employees or consider having employees log in all supplies that they take.
· Conduct frequent inventories of supplies and have them conducted by members of another department or store.
· Clearly mark company equipment with the company’s name and location. Maintain good records of the equipment on all company property.
· Develop policies regarding personal use of copy machines, phones, postage meters, and other company equipment.
· Escort guests to their appointments at your offices.
· Restrict access to sensitive company files, both physically and in your computer systems. Require authorized personnel to log access to sensitive information.
· Periodically review phone and postage bills for excessive charges.
· Have a code of conduct that describes what gifts from vendors are acceptable. Make sure both employees and vendors are aware of the policy. If necessary, ask employees in your purchasing department to file periodic reports on gifts received from vendors.
· Require competitive bids for products and services whenever possible.
· Keep a log of employee purchases, and spot check purchases. Suspend the privilege for employees who abuse it.
Handling the Dishonest Employee
Despite a company’s best efforts, some employees will steal or otherwise violate company policies. When you’re made aware of an alleged deviant act, an investigation is called for. The primary purpose of the investigation is to determine the validity of the allegations, confirm who’s involved and over what period of time, and estimate the financial loss.
There are usually very few instances where an employee is actually “caught in the act” of stealing from the company. Usually retailers uncover employee dishonesty from a co-worker tip-off, unannounced audits and through variance reports. Since you’ll almost never have a “smoking gun,” a suspected theft will have to be investigated. While there’s no guarantee that you can successfully uncover the truth in every situation, consider that if you don’t follow up on reported infractions, you risk an erosion of employee morale. True employee dishonesty is rarely concealed from fellow employees for long. Loyal associates will be offended by company apathy and your company culture will eventually no longer support loss prevention as a priority.
Conducting an internal investigation will be made a lot easier if you have first established and published a company policy regarding the conduct of investigations. A fair and consistently executed policy will assist in getting at the truth while simultaneously protecting the rights of employees. Your policy should state the circumstances under which an investigation will be launched, should specify who is authorized to conduct an investigation, what conduct the investigative authority is permitted (i.e. access to personnel files, hiring of special investigators, installation of video cameras), what the duration of an investigation will be, who will be made aware of the investigation, and what records will be kept of its outcome. Have your policy reviewed by legal counsel before it’s published or implemented.
Before launching a formal investigation, ask a few important questions: How strong is the existing evidence? How credible is the source of the evidence? Is the suspected act actually a violation of company policy or the law? Is the infraction serious enough to warrant a formal investigation? If the answer to most of the questions is negative, you may want to just wait and watch.
The conduct of any investigation should follow some basic principles:
1. Draw Up a Plan for the investigation that details the following: what and who is being investigated and why; who will conduct the investigation; and what budget (if any) is authorized in conjunction with the investigation.
2. Collect and Review the Paperwork. The paper trail will help you determine if you are dealing with an administrative error or employee theft. Start a file of the appropriate documents: register tapes, canceled checks, void slips, refund authorizations, work schedules, store alarm printouts, charge slips, deposit slips, handwritten notes, computer printouts, audit reports. Remember that if the allegations are verified, the documents in this file become evidence which you may choose to use in court. So keep the file in a secure place not liable to tampering.
3. Conduct Interviews. Talk to witnesses, suspects, and other relevant and knowledgeable individuals. A preliminary investigation will warrant that interviews be informal and involve a few questions by company personnel during work hours. Later, you may need a more formal interview conducted in a private setting, with examples of incriminating evidence available, with an observer sitting in, and with notes being taken. Make sure interviews are conducted in a professional manner consistent with the law and the policies of your company. Remember, employees are innocent until proven guilty, too! There are several companies that offer courses on the proper conduct of employee interviews as well as several books on the topic. (See Resource Directory.)
4. Observe and Record. Sometimes further observation of employees is necessary to confirm dishonest activity. Observation can be conducted by company personnel involved in the investigation, by out-sourced staff (i.e. professional shoppers), or by technological surveillance (photographs, video, CCTV). The cost of the various approaches varies tremendously. Pick one commensurate with the problem. No matter which approach you employ, be vigilant that you don’t violate people’s rights or endanger company personnel. A casual observation conducted by company personnel should be followed up by note-taking of the behavior observed. These notes should become part of your data file. (See Resource Directory for lists of companies that can assist you with outsourced observation.)
5. Form a Hypothesis and Test It. You have your facts and your hypothesis.
Do they fit? If not, you need to do more digging. If they do, you need to determine what course of action on the part of the company is an appropriate response to the situation.
6. Disciplinary Action. There are a wide range of options available to companies who have confirmed employee misbehavior. Make sure that you thoroughly review your options with both legal and human resource professionals. Depending on the seriousness of the act you may choose to:
· verbally reprimand the employee.
· submit a written reprimand or warning to the employee’s personnel file.
· temporarily suspend the employee from the workforce.
· terminate the individual as an employee.
· initiate civil or criminal action against the employee.
7. Recovery. If you have insurance coverage for loss from theft, you may wish to file a claim. Lastly, state and federal tax laws allow deductions for many types of losses incurred by retail chains, including losses involving employees. In some instances, you (or your insurance carrier) may choose to demand restitution of the loss by instituting a claim in civil court.
Establishing a Loss Prevention Department
As companies grow, loss prevention needs inevitably grow. It frequently becomes necessary to assign one individual the responsibility for administering the loss prevention function. Eventually the company may require a loss prevention department. Some loss prevention programs are easily administered in-house, and others are more logically jobbed out. This chapter lists some common options for handling the various loss prevention responsibilities.
Head of Loss Prevention
This individual has primary responsibility for implementing and managing company loss prevention programs. In a small company this function is often handled by the CEO or by a senior level executive in the area of operations, administration, or finance. In a larger company, there may be a director or vice-president of loss prevention who reports to the CEO or to a senior level manager in the area of operations, administration, or finance. The head of loss prevention is responsible for ensuring that loss prevention goals mesh with overall corporate goals and strategies. This person should assess problems, determine appropriate strategies and budgets, and oversee the implementation of LP programs.
Loss Prevention Committee
Companies both large and small sometimes employ loss prevention committees to review company priorities, budgets, and strategies. The committee ideally involves representatives from a variety of departments: operations, human resources, finance, and communications. This is a good technique for ensuring that loss prevention is well integrated into both corporate goals and department plans. An upcoming inventory, for example, will be useful not only to the financial executives of the company, but also to the loss prevention personnel. If a pay raise is under consideration for entry level store personnel, loss prevention has an opportunity to note that there is a correlation between higher pay rates and lower employee theft. If a new warehouse is being planned, it may present an opportunity for incorporating improved security measures into the design.
Each store, district or region may also have a Loss Prevention Committee.
Loss Prevention Department
Larger companies may need fully staffed departments to adequately track shrinkage, review audit reports, assist in pre-employment screenings, maintain employee awareness programs, and conduct investigations. The size of the department will vary with the size of the company, the nature of the problems, and the geographic spread of the stores.
Regional Managers
Mid-to large-size chains generally incorporate loss prevention duties into the job description of district and regional managers. Frequently these individuals will have the responsibility for ensuring that loss prevention programs get implemented at the store level: that posters get up in the back room, that policies and procedures are getting followed.
If there is no loss prevention department, they will likely have the responsibility for conducting pre-employment screenings, reviewing audits, and conducting investigations.
Store Managers
The priorities and culture of a given store are frequently heavily influenced by the store manager. Therefore, if loss prevention is important to a store manager it will also
be important to his staff. In the small companies, the store manager will have primary responsibility for implementing loss prevention programs in the store. The store manager
is generally the first to suspect incidents of employee theft because of supervisory responsibility for daily bank deposits, deliveries, trash removal, etc. Store managers frequently respond well to incentive programs designed to reduce store shrink and theft.
It is the store manager who should be accountable for the shrinkage results at their respective stores.
Store/Warehouse Employees
This group of employees are the company’s first line of defense against theft and loss. If these people are trained and motivated to recognize and report loss incidents within the company, they can frequently be the cause of tremendous savings. Poorly trained and poorly motivated employees can do the reverse and encourage a culture which promotes employee theft.
There are a number of loss prevention functions which are typically outsourced
by retailers:
Uniformed Guards
Some companies employ uniformed guards at the exits of stores or distribution centers to both deter shoplifting and employee theft, and to handle incidents of attempted theft.
Auditors
Outside firms are sometimes engaged to conduct inventories and audits. The audits may be routine to determine compliance with company procedures and regulations, or part of an investigation into a specific incident.
Shopping Services/Investigators
There are firms which send out investigators posing as shoppers who submit reports on the cleanliness of the store and the service provided by the store personnel. These shoppers can also be used to investigate suspected incidents of employee theft by reporting on correct change and whether or not they got a receipt. These services can also be used to conduct a covert surveillance of store, warehouse or home office employees.
Consultants
There are a number of companies which specialize in analyzing a company’s loss prevention programs and will provide assistance in designing programs targeted to a specific problem. These companies also will help a company design orientation programs and will conduct seminars on employee theft for retail clients.
Security Systems
Virtually all retailers outsource their security system requirements, from burglar alarms, to EAS systems, to CCTV, or limited access cards.
JOB APPLICATION ELEMENTS
Personal Data
Name and address
Other names used in prior employment
Verification that candidate is at least 18 years old
Verification that candidate is authorized to work in the United States
Driver’s license number (if needed to verify driving record)
General Data
Position being applied for
Salary requirement
Objection to shift or overtime work
Referral source, if applicable
Nature of prior convictions, if any
Nature of prior involuntary discharge from previous employers, if any
Employment Data
List of all prior employers (perhaps with a 10-year limitation)
Addresses and telephone numbers of previous employers
Job titles and dates of employment (with explanations of employment gaps)
Duties and responsibilities
Salary history
Name of immediate supervisor
Reason for termination
Permission to verify employment data with each previous employer
Education Data
List of all schools attended
Degrees earned and course specialization
Special Skills Data
Skills acquired on-the-job
Honors received relevant to the position being sought
Proficiency on various types of equipment/machinery
Microcomputer literacy and specific software familiarity
Health Data
Agreement to take a pre-employment drug test
Agreement to take a post-employment physical examination
An indication about whether the candidate smokes
Personal References
Names, addresses, telephone numbers
Relationships to other employees, if any
Certification (to be read, signed and dated by applicant)
Language similar to the following should be included on the employment application:
“All applicants for employment are judged on the basis of qualifications and ability without regard to age, sex, race, creed, color, national origin, marital status or disability. I understand and agree that employment may be contingent upon reference checks.
I understand that the Company follows an employment-at-will policy, in that I or the Company may terminate my employment at any time, or for any reason consistent with applicable state or federal law. I understand that this application is not a contract of employment. I understand that to be employed I must be lawfully authorized to work in the United States, and I must show the employer documents that will prove this.
I authorize an inquiry to investigate my work and personal history and verify data given on this application, or on related papers, and in interviews. I authorize all individuals, schools, and firms named therein, except my current employer if so noted, to provide any information requested about me, and I release them from all liability for damage in providing this information.
I certify that all the statements herein are true and understand that any falsification or willful omission shall be sufficient cause for dismissal or refusal of employment.”
Signature: _________________________________ Date: ______________________
References
Barefoot, J. Kirk. Undercover Investigation. (Stoneham, Mass: Butterworth, 1983).
Baumer, Terry L., and Dennis P. Rosenbaum, Combatting Retail Theft: Programs and Strategies. (Stoneham, Mass: Butterworth, 1984).
Carter, R. (1987, July). Employee Theft Often Appears Legitimate: Accountancy, 100,75-77.
Chuck, Michael D.K. et al. L.P. Specialists Level 3 Investigations Training Manual.(Los Angeles, Calif: LPTI Press, 1991).
D’Addario, Francis J. Loss Prevention Through Crime Analysis. (Stoneham, Mass: Butterworth, 1989).
Gibbs, J. P. (1975). Crime, Punishment and Deterrence. New York: Elsevier.
Hayes, Read. (1992) National Retail Theft Trends Report. Paper presented at the Loss Prevention Colloquy II, January 30-31, Ft. Lauderdale, Florida.
Hayes, Read. Retail Security and Loss Prevention. (Stoneham, Mass.: Butterworth-Heinneman, 1991.
Hayes, Read. (1993) Employee Theft Control, Orlando: Prevention Press.
Hollinger, R.C. Dishonesty in the Workplace. (Park Ridge, IL: London House, 1989)
Hollinger, R.C., Read Hayes and Barton Weitz. (1992) National Retail Security Survey. Paper presented at the National Retail Federation 1992 Convention, January 12-15 New York, NY.
Hollinger, R.C., (1991) Neutralizing in the Workplace: An Empirical Analysis of Property Theft and Production Deviance. Deviant Behavior: An Interdisciplinary Journal, 12, 169-202.
Hollinger, R.C. and Clark, J.P. (1982a). Employee Deviance: A response to the perceived quality of the work experience. Work and Occupations, 9, 97-114.
Hollinger, R.C. and Clark, J.P. (1983). Deterrence in the Workplace: Perceived severity, perceived certainty, and employee theft. Social Forces, 62, 398-418.
Inbau, Fred E. Criminal Interrogation and Confessions, Third Edition. (Baltimore, MD.: Williams and Wilkins, 1985).
Merriam, D. (1977). Employee Theft. Criminal Justice Abstracts, 9, 380-386.
Sennewald, Charles. The Process of Investigation. (Stoneham, Mass: Butterworth, 1981).
Sykes, G.M. and Matza, D. (1957). Techniques of neutralization: A theory of delinquency. American Journal of Sociology, 22, 664-670.
Whitney, David and Jon Smith. (1989) Internal Investigative Auditing. Paper presented at the Florida Crime Prevention Training Institute/Florida Attorney General’s Office, March 28-29, Orlando, Florida.
Zulawski, David and Douglas Wicklander. Practical Aspects of Interview and Interrogation. (Elsezir Science, 1992).
©
2002 NARM 
