Employee Theft Starts With Your Company Culture

In my last year of university, I started to work for a large prestigious company as a full-time intern. I studied at night and wrote my diploma thesis on the weekends. I was very happy and grateful to be working for this company — not only because it promised to be an incredible full-time job after I graduated but also because they provided food and drinks for their employees. Any employee who took food was supposed to pay into the tin can standing on the counter.

Happy to have a quiet place to work where I had access to food without fuss, I armed myself with sufficient small bills and change. I always wondered why there was so little money in the tin, but I figured a maintenance person came around to collect it.

Weeks into my routine, there was a company-wide announcement that shocked many of us. Apparently, employees weren’t just not putting money into the tin; they were stealing it. Some employees even scooped out coffee from the coffee machines to bring home. Thousands of spoons, coffee cups, and other office supply material was taken every single year. While many of us could not even imagine such a thing, others justified it with: “It’s just a cup — I work so hard — and it is not like it is going to make a difference with a company this size!”

Well, it does. In fact, employee theft costs retailers in the US alone more than $15 billion every year.

How Company Culture Influences Employee Behavior

As my story above shows, employee theft starts with the company culture. While it was incredible that we had such great benefits, the culture was that employees are entitled to it just as they are entitled to their salary if they show up to work.

However, there is more to that. Employees must believe that they will be caught, and there will be consequences. If the culture is one where things get quickly swept under the carpet, and strong office politics are dictating how each person fits into the business structure, you will have a harder time dealing with or preventing employee theft. On the contrary, if your employment culture is one of mutual respect and open doors where employees feel safe to go to their manager or the HR department and report a co-worker’s criminal behavior, chances are, potential offenders will think twice about it.

Employee Code Of Conduct

The company created an “Employee Code of Conduct” that outlined clear guidelines and benchmarks for employee behavior. All existing employees from the marketing intern to the janitor had to read and sign it, and it was made an integral part of the onboarding process for new hires.

Janette Levey Frisch, an employment / HR attorney – also known as the Employer’s Legal Wellness Professional at The EmpLAWyerologist Firm – says:

“Employers who are serious about minimizing employee theft should have clear policies in their Employee Handbooks in which they state that employees found, after proper investigation, to have stolen from the company, will be subject to discipline up to and including termination. Employers should also implement policies regarding internal investigations and then conduct proper, thorough investigations when there is a suspicion or allegation of employee theft. At the conclusion of an investigation, employers should document their findings, their decision, and the reasons. Managers and anyone conducting the investigation should be trained on all policies and procedures and on how to conduct the investigation. While these steps are not a 100% guarantee against an employee lawsuit, they will go a long way toward minimizing an employee’s ability to successfully sue based on false accusations.”

What You Can Do

While a code of conduct will not actively prevent employee theft, it sets the tone. Now it is on you to follow through. Don’t be afraid to put certain steps in place to minimize the fraudulent behavior of dishonest workers. These steps can be:

  • Access Control. Require your employees to wear security access cards that can be set to a particular role and you can grant, manage and remove access rights remotely as needed.
  • Be conscious of odd behaviors. Require your employees to take vacation and be suspicious of workers who are overly protective or exclusive of their workspace.
  • Get financials in order. Reconcile your financial statements on a regular basis to become aware of anything out of the ordinary.
  • Set the right management tone. Management is like parenting. You must be respectful, listen with an open ear, offer help, where help is needed and be consistent — otherwise you not be taken seriously. Have one-on-one time to review your employees progress and get a feeling for what is going on in his or her life.
  • Create an internal control system. Having employees you can trust is great, but you still need to be able to check them. Are your employees staying unauthorized after hours? Make sure, you know about it.

What Steps Do You Take To Prevent Employee Theft?

Have you implemented special steps or created a company policy in your business that have worked in the past? Are there any other steps that you take to discourage unlawful and dishonest behavior? Please share with us in the comment section.

Lessons To Be Learned From The NRF Retail Security Survey

A few weeks ago, the National Retail Federation published its 24th annual National Retail Security Survey in conjunction with its annual NRF PROTECT conference — estimating that American retailers lost $44 billion in 2014 due to shoplifting, fraudulent activities, and other shrinkage causes.

The study is the result of NRF’s strategic partnership with Dr. Richard Hollinger of the University of Florida. One hundred senior loss prevention executives from various sectors in retail were interviewed to uncover various findings to inventory shrink, employee integrity, external retail crime and more.

Lesson 1: Loss Prevention Technology Matters

Shrinkage is an enormous problem — a $44 billion problem to be exact.

Click here to tweet: Shrinkage costs US shoppers about $300 per household every year! #lossprevention

Tweet: Shrinkage costs US shoppers $300 per household every year! #lossprevention http://ctt.ec/5EJ0c+

Although there is some good news, this only represents 1.38% of retail sales — the lowest percentage in the survey’s history! This means that retail sales are growing faster than the shrinkage.

One reason for this is the availability and the implementation of sophisticated loss prevention technologies. It is safe to say that retailers who are utilizing the latest loss prevention technologies available to them are the ones seeing the results. Technology does matter.

Click here to tweet: Technology matters. Shrinkage % down in US for 1st time in 24 years. 

Tweet: Technology matters. Shrinkage % down in US for 1st time in 24 years. http://ctt.ec/cdvrz+

 

Lesson 2: Employee Theft Is Not Dealt With Effectively

According to the study, the losses in 2014 break down into the following categories:

  • Shoplifting (37%)
  • Employee/internal theft (34.5%)
  • Administrative and paperwork errors (16.5%)
  • Vendor fraud or error (6.8%)
  • Unknown loss (6.1%)

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While external shoplifting is still the main cause of shrinkage, employee theft is a very close second!

However, internal fraud and even outright stealing is a very touchy topic among employers. Without sufficient evidence, addressing sweethearting or other criminal activities by employees is difficult — if not impossible.

Retailers need to find the cause of employee theft in their stores and then search for ways to eliminate these. This might be a more controlled POS environment, securing backrooms with remote access control systems or by using RFID to account for all products at any point in time.

Lesson 3: Loss Prevention Budgets Are Going Up

The third lesson is that retail executives realize the importance of reducing shrink and invest accordingly. According to the study, 39.4% of those surveyed say their budget for 2015 increased over last year; just over one-third (36.6%) said their budgets would be similar to what they were last year — leaving 23.9% of respondents with decreased resources.

However, no matter how big your budget is, your funds have to be spent wisely. With the complexities and demands on store operations and security personnel increasing, retailers have to choose very carefully which solutions to implement.

For loss prevention professionals, it is important to select solutions that provide a lower total cost of ownership to the organization. By choosing technology with an open architecture, it allows for the integration into other systems with the purpose of generating valuable and actionable intelligence.

What did you learn?

Did you have a chance to read the NRF Retail Security Survey? What were your key takeaways? We would love to hear them – just sound off in the comments below.

5 Common Pitfalls That Could Thaw Your Loss Prevention Efforts

Any loss prevention or store operations manager knows that loss prevention is the result, not the effort.

Ultimately, the only thing that counts at the end of the day is how much shrinkage you can prevent by employing the latest technology, devising the best training and hiring the most diligent employees.

However, even in the best scenarios there are factors that hinder your loss prevention efforts and encourage shrinkage. Below are the most common ones:

Lack Of A Comprehensive Loss Prevention Strategy

The first and probably the most important reason loss prevention efforts fail is a lack of a comprehensive loss prevention strategy that ties into the overarching business goals of the organization.

A study by Robert S. Kaplan and David P. Norton for the Harvard Business School entitled “The Strategy-Focused Organization” found that “a mere 7% of employees today fully understand their company’s business strategies and what’s expected of them in order to help achieve company goals.”

The overall goal of most retailers is to profitably sell products that were manufactured by a third party to maximize shareholder value — whereas the task of loss prevention managers is to help the organization sell more by losing less.

If a loss prevention strategy only focuses on preventing shoplifting, you are ignoring the other pieces of the puzzle such as securing the employee and back entrances, scanning incoming inventory to prevent vendor fraud, tracking each item individually to minimize administrative errors and making the store more secure for employees as well as visitors.

Shrinkage prevention is an organization-wide problem and has to be tackled on a corporate level. Every single employee must be informed, aware and educated on the causes and consequences of shrinkage — this will not only lower employee theft but also make the entire team more alert.

Loss Prevention In A Vaccum

Hand in hand with incorporating loss prevention into the overarching business strategy is the integration of loss prevention systems into existing business applications.

Traditional RF- or AM-based electronic article surveillance (EAS) systems are not integrated with other systems because they are electronic-based and not software-driven. This lack of integration not only isolates the company’s loss prevention efforts from other processes within the organization, but it inhibits the retailer to build a network of reinforcing systems that work together.

With mega-trends such as omni-channel, globalization, big data and the Internet of Things shaping the retail landscape, IT and other business departments need to work closer and align better with loss prevention.

However, the recently released study The Great Disconnect Between LP and IT finds that there are huge discrepancies between IT and loss prevention – however executives’ priorities do not align with these realities. For example, on average, the revenue lost per case of employee theft is up to six times larger than what shoplifters help themselves to (according to the 2015 Retail Theft Survey), but tackling internal theft is deprioritised compared to other priorities.

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At the moment, only 8.3% of the IT budget (not including Payment Card Industry (PCI) Data Security Standards and data breach protection efforts) is dedicated to loss prevention efforts. One reason for this low number is simply that other business priorities are taking precedence. The other reason that loss prevention receives so little attention from IT is because electronic systems are not IT-enabled and cannot be integrated into other business applications. In fact, IT personnel, as well as LP professionals name system integration as one of the biggest hurdles in building a closer relationship.

With an increasing number of solutions including open API’s, internet connectivity and the ability to integrate with business applications, this will change over the next couple of years.

Demotivated Employees

The third reason why loss prevention fails is demotivated employees. Retail thrives and fails with the quality and retention of its employees that it hires.

Theft from employees and their lack of motivation to follow up on alarm situations is very high. This is especially true in the United States, where the average retail employee earns on average $7.65 – $14.10 according to PayScale — compared to for example $17.42 in Germany. In addition, American stores have a high employee turnover rate of 67 percent. Both of these factors result in decreased motivation and loyalty towards the employer which is reflected in high shrinkage.

If a customer walks into your shop and they get approached almost immediately and helped, there is less opportunity to browse the merchandise, inspect security tags and slip items into aluminum foil-lined bags. In contrast, if your personnel is busy exchanging the latest gossip, filing nails or playing games on their phone, there is more opportunity for theft.

Lastly, if your front line workers don’t pursue a visitor that set off an alarm because they could not bother or are too embarrassed, your loss prevention efforts are futile.

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No Clear Reasons For Alarms

The number of alarms your system sounds during the day can be a good indicator if something is amiss. For example, if you usually have 20-30 alarms during the day and this increases suddenly to 80-100 alarms daily, you know something is not right. But sometimes it is hard to determine the reason for the alarms.

If your system can decipher the alarm direction, you already have an indication for the cause of the problem.

Maybe a piece of merchandise fell behind a display case and into the field of the security pedestal, it would cause a non-directional alarm. However, you could see an increased number of incoming alarms if your neighboring store does not deactivate their tags properly, and customers continue their shopping in your store.

Not knowing the causes of the alarms prevents you from fixing the underlying problem and will result in too many alarms — which in turn will scare away shoppers.

No Status Updates On The Health Of Your Systems

For most retail employees, the day starts by testing the loss prevention systems. They have to go with a tagged merchandise item past a pedestal to manually test if it sounds an alarm.

However, if the system does not perform at peak performance, stops working during the day or the staff does not perform a daily check, the store will be unprotected for longer periods of times.

Often, the reason for the malfunction is simple and could be fixed if the system would be able to sound an alert — for example moving a display that has been blocking the EAS system.

Also, by having an Internet connection, you can allow remote device monitoring and maintenance as well as constant firmware updates to keep your solution improving over time.

Which factors do you see as the most hindering?

Which common pitfalls do you encounter every day that hinder you to do your job effectively? We would love to hear them – please use the comments below to continue the discussion.

Sweethearting: A Sour Pill To Swallow For Retailers

The National Retail Foundation recently released its 2014 National Retail Security Survey, which estimates that retailers lost about $44 billion in potential revenue due to shrinkage last year. While shoplifting and organized crime contributed the bulk of the losses, it is closely followed by employee theft at 34.5%.

The most common type of employee theft is a practice commonly known as “sweethearting” — which refers to an employee giving a customer unauthorized discounts or free merchandise or services.

But how big of a problem is it really?

Sweethearting Is Very Common

According to a study by Brady, Voorhees, & Brusco, which was published in the March 2012 issue of the Journal of Marketing, 67% of respondents admitted that they had participated in sweethearting in the past two months.

This practice is common in all kinds of service industries, such as restaurants, hotels, and car washes as well as retail stores. As their motivation for giving away free or discounted products or services, employees often cite the hope for receiving better tips or gaining some other benefits from their customers.

Employee Theft Poses A Unique Loss Prevention Challenge

Sweethearting poses numerous, difficult challenges to any retailer.

On one hand, it is a loss prevention problem. The customers and employees are aware of that fact and will keep quiet about it. That makes it very complicated for loss prevention professionals to find the cause of the shrinkage and eliminate it.

On the other hand, it has consequences on customer satisfaction, loyalty, and positive word-of-mouth as it inflates these scores by as much as 9%.  The client satisfaction and loyalty with this store are now tied to an employee the retailer would rather not employ.

What Can You Do To Discourage Sweethearting

Surveillance cameras and security guards checking receipts are no longer sufficient to prevent employee theft effectively. Since this problem creates a ripple effect through all areas of your organization, you can best tackle it on different fronts:

  • Educate your entire organization. Most of the time, the frontline workers are not aware of the severity of the consequences for their employer. Every single employee must know that sweethearting is prohibited, and there are clear standard operating procedures in place for giving discounts or “freebies”. Make sure your workers understand the consequences to your bottom line as well as to their career should they not act appropriately.
  • Be aware during the interview and monthly or annual review meetings. There is a variety of social and environmental factors as well as personal traits that suppress or encourage sweethearting – be conscious to these.  For example, you could include thorough screening of your potential employees’ ethical standards, their need to be accepted socially and his or her comfort with taking risks to detect possible culprits before you hire them.
  • Access control to sensitive areas. Another way to prevent employee theft is to remotely and accurately control your worker’s access to storage or warehouse facilities or other sensitive areas based on their role or the time of the day.
  • IAS at employee exit. There are certain store layouts that have a specific employee exit and entrance. It acts both as a deterrent and loss prevention solution to place pedestals at these entry and exit points. A retailer will have the same advantages as from a pedestal at the customer entrance.

Conclusion

Sweethearting is a problem that cannot be ignored by any retailer or business owner. While modern loss prevention solutions can help alleviate the problem, pre-employment screenings, and thorough, ongoing audits are needed to reduce employee theft in the long-term.

Need an assessment of your theft level? Schedule a free, no-strings-attached security assessment with one of our loss prevention experts and learn how you can alleviate this and other security-related challenges.