How to Spot and Stop Retail Employee Theft.

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Posted by Pedro Ramos - 11 July, 2019


Unfortunately, there’s no denying that employee theft is a reality of retail operations.  Employee theft, also known as internal theft, occurs when employees steal from the organization where they’re employed.  According to the 2018 National Retail Security Survey, approximately 33.2% of inventory shrinkage is associated with employee theft/internal fraud, surpassed only by Shoplifting/external theft including Organized Retail Crime (ORC) with 35.7% of overall shrinkage.  According to the Jack L. Hayes International Annual Retail Theft Survey, nearly one in every 40 employees was apprehended for theft from their employer. Most Loss Prevention professionals spend more time investigating employees than customers, because a dishonest employee can and will cause more loss to the store than a shoplifter. 

Most Common Types of Internal Theft, Crime, & Dishonesty

There are numerous ways that a dishonest associate can intentionally steal from a retailer, but below we will outline the most common types of internal theft:

“Sweethearting”

The most common type of employee theft, Sweethearting is the term used when an employee gives away or discounts merchandise to a friend, family member, or fellow employee.  Cashiers can accomplish this through scan avoidance, price overrides, refund or gift card fraud, void fraud, or invoicing scams.

Stealing Products

Like shoplifters, employees may simply steal inventory items either to keep for themselves or to sell after the fact.  This can be accomplished in a variety of ways from simply hiding small items in pockets or elaborate plans like hiding items in the trash and retrieving it from the dumpster after.

Gift Card Scams

Gift cards are, in effect, employee-created currency making gift card theft very difficult to detect.  There are a few different ways to execute this type of theft, one of which involves associates issuing fake refunds to gift cards that they will keep for themselves or later sell.  They may also give a customer purchasing a gift card a blank card while keeping the loaded one.

Skimming

Skimming refers to the theft of cash from the register or point of sale prior to the cash being recording into the employer’s accounting system. Traditionally, skimming involved taking small bills from the till by ringing in a “No Sale” transaction.  Employees can also avoid ringing in a transaction while pocketing the money from the customer for the sale causing a decline in inventory without a corresponding rise in sales.

Collaborating with a Customer

Another common form of employee theft involves colluding with a “customer” to steal merchandise – in most cases this accomplice is a friend or relative of the employee.  For example, cashiers sometimes void large transactions but still place merchandise in shopping bags for customers.  Others ring up only portions of an order to let accomplices walk away with stolen merchandise.  In certain cases, even supervisors have been caught helping to cover up employee theft schemes for a portion of the stolen profits.

Identifying & Eliminating Internal Theft

The majority of employee theft occurs at the POS terminal or register and can be identified by analyzing deviations from Key Performance Indicators (KPIs) and statistical norms.  By using modern technology to easily identify these exceptions through data analytics and reporting, retailers can avoid having to sift through hours of video surveillance and transactional history.  Retailers and Loss Prevention professionals can then investigate and use CCTV to confirm whether or not employee theft is occurring and determine the best way to handle dishonest associates.

Based on industry best practices, our own experiences, and the experience of 20/20 Data Analytics users, below are the most common indicators that employee theft may be occurring at your retail stores:

Issued & Redeemed Gift Cards

Monitor gift cards used in employee purchases, number of gift cards issued at each location, and an overall gift card payment purchase summary.

Refunds, Exchanges, Discounts, and Price Adjustments

Set established KPIs for acceptable “normal” ranges per location for metrics like refund count, no match, credit cards with employee and non-employee activity, etc.

Price Overrides

Tracking unauthorized price overrides, users can uncover multiple different types of internal theft.

Coupons

Track transactions by employee to identify which employees have frequent coupon transactions in which no items are sold.

Line Voids and Cancels

One of the easiest ways to identify sweethearts or other types of employee theft is by tracking line voids which occur when an individual item is deleted from the transaction.  Similarly, cancels occur when whole transactions are voided before completion.  They can be the result of poor training, policy violations, or other operational issues in addition to internal theft.

Post Voids

A post void occurs when an entire transaction is removed from the record after completion.  This is usually used to correct a mistake like an incorrectly entered price and re-entered within the next transaction or two.  Monitor when transactions are immediately re-entered after a post void and when they are not, possibly indicated employee theft.

Low Dollar Transactions

Monitor transactions per employee to identify anyone with unusually high rates of low dollar transactions that may indicate employee theft.

Faced with the daunting task to do more with fewer resources, it’s never been more important that loss prevention professionals work smarter, not harder to combat enterprise loss like internal theft.  Learn more about Loss Prevention best practices in our new whitepaper, “5 of the Biggest Mistakes you can make as a Loss Prevention Leader.”

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Topics: Blog

Posted by Pedro Ramos

Pedro Ramos is the VP of Sales at Agilence. He has 25 years of experience in Retail Operations & Loss Prevention and 10+ years in Technology Sales. Pedro is also involved in his hometown’s soccer program and other community organizations.


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