Retailers lose approximately 2 per cent of total sales each year from shrinkage, but with an average small-to-medium-sized business generating an annual profit of 15 per cent, shrinkage accounts for a significant portion of lost profit, wrote Dan King in a February article in Integrated Solutions for Retailers.
“Unfortunately, the majority of retailers have no idea where their greatest loss occurs, thinking vaguely of customer theft in store hot spots,” adds King, president of New West Technologies, a U.S.-based POS software developer. However, the 2004 National Retail Security Survey found that nearly half of all shrinkage is employee theft.
“The two biggest areas for employee theft occur in the back room and the register, with the latter being the largest,” says King.
To minimize employee theft problems, he suggests reducing the opportunities for human error and greed by combating poor register management and implementing a “security pincer attack of operations.” Retailers must focus on accountability and control, he said.
Accountability
Hold employees accountable by implementing:
- Individual cashier log-ins: Track discrepancies by cashier to give you the opportunity to apply additional training or other administrative actions.
- Passwords: Educate your staff on good password management, including strong alphanumeric passwords and frequent changes.
- Till monitoring: Ensure that cashiers are emptying tills over a certain limit.
- Screen locks: prevent unauthorized users from accessing the register.
- Video surveillance: Prove/disprove with physical evidence after the fact.
Control
Gain control of transactions considering:
- Discounting tiers: Limit discounts to set rates, avoiding abuse while treating customers flexibly.
- Negative quantity transactions: Reduce unauthorized returns and store credit when none are due.
- Duplicate item returns: Reduce item credit loss.
- Refunds over the original purchase amount: Eliminate fraudulent returns.
- Refunds to a different credit card: Prevent credit card fraud.
- No Sale transactions: Require approval, audit and track exactly what is going on with these transactions.
Back Room Inventory
“Without accessible cash, thieves instead steal merchandise from back room areas,” says King.
“Accurate reporting and tracking are the key concepts to deter theft. When inventory is managed effectively and accurately, employees are less likely to steal and have a smaller margin of error to hide under before theft becomes obvious.”
- Link purchase orders to shipping receipts: Verifying the purchase order with the physical units will reduce manufacturer error and employee theft.
- Scan your inventory: Some inventory software tracks product serial numbers, which is a great way to track inventory, reduce duplicate entries, and increase accuracy.
- Reduce manual entry: It’s inaccurate, inefficient, and ineffective for tracking.
- Eliminate unnecessary paperwork: Each form is an opportunity for theft and error.
- Reporting: Follow historic trends on a bell curve to discover relevant discrepancies.