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Retail loss prevention

Retail loss prevention (in some retailers known as Asset Protection) is a form of private investigation into larceny or theft. The focus of such investigations generally includes shoplifting, package pilferage, embezzlement, credit fraud, and check fraud. "Loss prevention" or "LP" is used to describe a number of methods used to reduce the amount of all losses and shrinkage often related to retail trade.

Sources of theft

The objective is to maximize profits through reducing retail theft, also known as shrinkage. According to the 2006 National Retail Security Survey, retail operations suffered an average annual inventory shrinkage percentage of 1.57% in 2006. According to the survey, shrink is divided into 5 categories:

46.8% from employee theft,
31.6% of shrinkage comes from shoplifting
14.4% from administrative error
3.75% from vendor error
2.86% from unknown error.

Although most retailers experience a shrink percentage of less than 2%, some smaller retailers often experience monthly and annual average shrinkage percentages as high as 20%.

Types of Retail Loss Prevention Investigations

Shoplifting

Embezzlement

Employee embezzlement is the theft or taking of property or funds entrusted to an employee by an employer. The most common type of retail embezzlement is cash theft. Other types include ringing up fake gift cards, passing merchandise, discount fraud, and, of course, theft of merchandise. Embezzlement investigations are widely known in the loss prevention industry as "internal investigations".

Cash theft is generally investigated using cash office audits that appear on exception reports and CCTV cameras. Fake gift cards are usually investigated through the use of an electronic journal in which the gift cards are logged.

The passing of merchandise is usually discovered through the use of an exception report in which a particular employee is shown to have an unusual amount of voids or no-sales. Generally merchandise is rung up by an employee and subsequently voided out. The merchandise is then passed to a person at the counter, usually a friend or family member of the employee.

Other forms of employee theft that are discovered via the use of exceptions reports are discount and commission fraud. Discount fraud is the fraudulent use of an employee's discount to reduce the price of merchandise for someone else. Generally this is done by an employee passing their discount card to a friend. Commission fraud is usually accomplished by ringing large return purchases back to another employee or recent ex-employee.

Merchandise theft is often investigated though the use of CCTV cameras and investigator observations. The items stolen by employees tend to be small items which either have a high dollar value or are edible. Stockrooms have a particularly high level of employee theft and are often investigated using CCTV. Loss prevention often tours stockrooms looking for "stashes", out-of-place merchandise, and price tags. Typically, a covert CCTV camera is placed in the areas of high opportunity for theft.

Credit card theft

Stolen credit cards find their way into retail stores as much as or more than online retail websites. This is usually for several reasons. Retailers have generally relaxed their procedures for checking credit cards, to shorten customers' time spent at the cash register. Also, purchasing merchandise first-hand afford a credit card thief some anonymity, as opposed to providing a mailing address for an online sale.

Credit card theft is generally investigated by loss prevention personnel who receive a tip from a local police investigator investigating a stolen card. Typically the use of a stolen card can be easily found using the store's electronic log, which will specify the register at which the stolen card was used. Sometimes CCTV video of the transaction exists and can be used by the police to establish a suspect or close a case. Today, most retailers are not liable for the use of stolen cards, unless they have chosen to override the chip and PIN and accept a customer's signature when they could have accepted a PIN. However, retailers today frequently establish their own credit institutions and issue their own in-store only credit cards. In-store credit fraud is likely to become an increasing problem for loss prevention investigators in the next decade.

Check / Cheque fraud

Check fraud is generally accomplished in one of two ways. The first is by writing a check that is manufactured to look like a real document, which in fact has no real value or no real bank account to back it up. Typically this is done by suspects who are experienced in forgery. The second method is check kiting, in which the suspect writes a check for a high dollar purchase, then withdraws the funds from the account before the check clears. Check kiting is usually done when suspects establish a fraudulent bank account under a false name.

Margin loss and sweethearting

Retail Loss Prevention departments are becoming increasingly more involved in investigating losses which affect the margin of products and services. Typical areas of investigation include the overriding of PLU prices, price matching from competitors, and reduction of service fees such as delivery or protection agreements. While unintentional margin loss is reduced by educating employees and managers, the term for intentional margin loss is "sweethearting." Sweethearting generally occurs when an employee promises a deal to a customer in order to close a sale, or otherwise reduces the price of merchandise for dishonest reasons. Sweethearting investigations involve research into employees' finding competitor price matches to give to customers; overriding prices for their customers, friends, and themselves; and markdown of fees such as delivery and protection agreements.

Equipment, tactics, and technology

Camera systems

CCTV CCTV is an abbreviation for Closed Circuit Television. CCTV camera systems are common to almost all loss prevention departments. The obvious benefits of CCTV camera is that the investigator can gain a better view of a suspect, record incidents, and not reveal themselves to shoplifting suspects. Some retailers use two-man teams in which one person uses the CCTV camera system to detect shoplifters and a floor man follows the suspect and apprehends them.

CCTV camera systems have been drastically modernized in the last decade. Most systems now record digitally as opposed to using videotapes. Many systems now include a computer server that contain video for months at a time. One drawback of many of these digital recorders is their inability to move and view more than one fixed area of the store. However, new digital cameras overlooking registers have greatly increased the number of internal cash thefts being resolved.

CCTV is one of the most effective tools ever used, not just by loss prevention, but the security industry in general. Firms which offer leases on such systems have brought costs down to a point where the franchise owner can consider it economically justifiable. A quality CCTV system, including thumb|A tag used for EAS

Electronic article surveillance (EAS) is a deterrence system used by retailers to deter shoplifting. EAS involves the use of electronic security towers and electronic security tags. Hard tags or Sticker tags are placed on items throughout the store and are disabled at cashier by either removing the hard tag using a detacher or by scanning label tags over a magnetized strip or label deactivator. If the tag is not disabled it will activate the alarm tower, which is generally located at the exit to a retail store. EAS tags & labels are extremely effective in deterring amateur shoplifting, but most professionals require a combination of hard tags, labels, and ink tags to keep them in check. Even with the most elaborate anti-shoplifting systems some goods will be lost; this is possible with booster bags or simply a "grab and run".

Dual Resonator EAS stickers are usually placed on small items such as shaving razors and cold medicines. These items are popular items to sell at swap meets. Dual Resonator EAS stickers are printed on thin paper and are difficult to remove. Usually the sticker includes a retailer's company logo and serves as an indication to would-be buyers that the merchandise has been stolen.

Two-way radio sets

Almost all loss prevention departments have some form of two-way radio communication. This technology is used by investigators to help two-man teams follow a shoplifting suspect in conjunction with the CCTV camera system or to summon assistance when apprehending a shoplifter.

Point of Sale

Point of sale is a form of electronic journal that allows the loss prevention investigator to see a transaction as it is occurring live. This system is either displayed on a computer screen or on a monitor linked to the CCTV camera system. This system has assisted investigators in closing employee embezzlement cases pertaining to merchandise passing, merchandise voiding, and discount fraud.

Audits and reporting

Exception reports

Exception reports are compiled on an annual basis into a report. Usually the reports are received monthly or bi-weekly. They include information on cash audit overs and shorts, no-sales, flagged returns, employees ringing themselves up, fake employee numbers used to avoid commission docking, excessive markdowns and/or discounts, and merchandise voids. Exception reports have dramatically reduced the amount of time an investigator needs to detect a possible sign of employee embezzlement.

Electronic journals

Almost every large retail institution has some form of electronic journal which records all its transactions. Information such as credit card numbers, gift card numbers, refunds, and merchandise voids is gathered at the point-of-sale. These journals can then be used to view and print facsimiles of receipts or checks.

Cash office audits A cash office audit is usually conducted by a common retail employee who counts up the cash from transactions at the retailer's registers. A shortage occurs when the amount contained in the register does not match what the cash audit says it should have. Shortages are used to begin and close cash embezzlement cases that are investigated by loss prevention departments. Cash office audits include information pertaining to which employees used a particular register during the day. This information is used by loss prevention investigators to narrow the field of suspected employees.

Ink tags

Ink tags have been around for several decades and are most commonly used by clothing retailers. Special equipment is required to remove the tags from the clothing. When the tags are forcibly removed, one or two glass vials containing permanent ink will break, causing it to spill over the clothing, effectively destroying it. Ink tags fall into the loss prevention category called benefit denial. As the name suggests, an ink tag denies the shoplifter any benefit for his or her efforts. Despite this, shoplifters have found ways around them, such as duct-taping the holes through which the ink comes out and then removing the tag with pliers, resulting in little to no damage of the merchandise. This however isn't possible with all ink tags as the holes may not be visible. Ink tags are most effective if used together with an anti-shoplifting system so that the shoplifter can not use the product and remove the ink tag.

Ceiling mirrors

Ceiling mirrors were once a staple of the loss prevention industry. Now, for the most part, they have been relegated to convenience stores. Mirrors allow loss prevention investigators to watch activity in a high-theft area without being seen. Some loss prevention departments have been known to use mirrors to increase the range of their camera systems.

Bottom of Basket

Bottom of Basket loss (BOB), occurs when an item is placed on the lower tray of a shopping cart and the cashier forgets to check the lower tray for items, resulting in the item not being paid for. What makes this form of shrink unique is that it may happen intentionally or unintentionally. All estimates for the dollar amount lost in this manner are over $2 billion US per year in North America alone, or $7 per checkout lane per day. There are a few products on the market to help prevent this loss. The most common are mirrors mounted across the checkout lane. Some stores have camera systems pointed at the lower tray with monitors for each cashier. Neither of these systems work effectively because the problem is not visibility, but the inattentive cashier.

A newer type of system actively monitors the checkout lane and alerts when an item is detected on the lower tray of the shopping cart. The alarm will trigger when anything is on the lower tray including products, bags, or coats, but uses technology to distinguish the difference between a shopping cart and a person or bag passing through the lane, in order to accurately activate and begin scanning for items. Unfortunately, all these types of "alarm" systems have not proven any significant decrease in BOB loss as the cashier tends to ignore these alarms within 3 months of installation. And there is no way of knowing if the cashier simply ignored the alarm.

Consent searches

Consent searches are widely used in law enforcement and are still present in loss prevention today. By asking a customer to consent to a search of their belongings, such as shopping bags and receipts, any illegal search or seizure requirements can be circumvented. Consent searches in some instances can be used to build on previously existing facts to establish the probable cause necessary to detain a shoplifter. The extreme end of establishing probable cause through a consent search has been eliminated except with a few smaller companies who still utilize it.

In modern retail loss prevention, consent searches are most often used by warehouse retailers such as Costco and Sam's Club. The warehouse retailers have made consent searches of their customers' purchases a part of the membership agreement. Although a customer may refuse to consent to a search of their purchase from a legal standpoint, the warehouse retailer does retain the right as a private business entity to strip the customer of their membership or issue a verbal trespass. Warehouse retailers have been able to utilize consent searches to lower their prices on goods and reduce external shrinkage at the same time.

Viewing towers

Although the necessity of viewing towers has been largely eliminated by CCTV camera systems, they still exist today. A tower is usually a centrally located observation platform raised above the sales floor. An investigator can spend time in the tower while searching for shoplifters or investigating employees, much in the same manner as with CCTV. Most towers are now obsolete and being eliminated in many retailers.

Integrity shops

A common example of an integrity shop is marking a large-denomination bill and placing it in a cashier's drawer. The goal is to see if the bill disappears from the drawer or doesn't reach its appropriate destination, such as a cash office. The information gained from an integrity shop can be used to initiate investigations or conduct interviews that could possibly reveal dishonest activity or outright theft. This is also a good way to find out if an employee is attempting to embezzle.

References

Hayes, R., "Retail Security and Loss Prevention", 1991, ISBN 0570690380
Horan, D.J., "The Retailer's Guide to Loss Prevention and Security", 1996, ISBN 084938110X
Kimieckik, R., C., "Loss Prevention Guide for Retail Businesses", 1995, ISBN 0471076368
Thomas, C., "Loss Prevention in the Retail Business", 2005, ISBN 0471723215