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10.1016/B978-0-12-385057-7.00015-4

Retail Security

OBJECTIVES

The study of this chapter will enable you to:

1. Define shrinkage, its causes and its impact on the retailer.

2. Define the retail supply chain and discuss a bigger picture approach to protecting it.

3. Be aware of the various risks that present themselves in a retail environment and that must be tracked and eliminated, mitigated or controlled.

4. Demonstrate how the loss prevention function contributes to the financial success of a retail store.

Introduction At the retail sales end of the distribution chain, merchants are beset on all sides by assaults on their profit and loss positions. The very nature of retailing demands that quantities of mer- chandise be attractively displayed in easily accessible areas. The public can roam at will and handle much of the merchandise. Every effort is made to create a desire to possess the dis- played merchandise and to make possession as effortless as possible.

Of course, the merchant expects payment for the goods. Others, customers and associ- ates alike, sometimes overlook that aspect of the transaction, and the merchant takes a loss. Generally, each loss is relatively small, but the aggregate damage to the business from such erosion of inventory can be enormous. At retail, 2010 losses were estimated to be $37.1 billion, up from $33.5 billion in 2009.1

Add to these problems the issues of targeting by terrorists, and retailers have their hands full. The 1999 bombings of three Lowe’s Home Improvement stores in North Carolina and the 2002 sniper attacks in the Washington, D.C. area required retailers to take added precautions to protect their customers.2 Additionally, in 2007, Robert A. Hawkins shot 13 people with a rifle at a Von Maur store in a mall located in Omaha, Nebraska, killing eight. Workplace violence risks, coupled with the risk of robbery, for many segments of the retail industry have chal- lenged retail security executives in the way they go about protecting their customers.3 Chains vary in their response to threats, ranging from dispatching loss prevention personnel to roof- tops in affected areas to monitoring parking lot activity and deploying rapid response to poten- tial problems. Although these actions might seem extreme, consumers have come to expect a safe shopping experience. Those retailers that fail to provide a safe shopping experience may find that they are front page news and tomorrow’s bankruptcy statistic.

As in the past, the associate contributes more to losses than the shoplifter. According to the University of Florida’s 2010 National Retail Security Survey’s preliminary results, 43.7% of retail

Fischer, R., Halibozek, E., & Walters, D. (2012). Introduction to security. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank') href='http://ebookcentral.proquest.com' target='_blank' style='cursor: pointer;'>http://ebookcentral.proquest.com</a> Created from apus on 2020-08-10 13:27:00.

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http://dx.doi.org/10.1016/B978-0-12-385057-7.00015-4

368 INTRODUCTION TO SECURITY

loss is due to theft by associates, whereas 32.6% is from shoplifting.4 In recent years, drugs have become associated with both shoplifters and associates, with 46% of shoplifters and 55% of associates showing evidence of drug use when apprehended.5

Most businesses are subject to inventory shortage, but few feel the problem as acutely as retailers. They necessarily deal in merchandise that must be received, stored and possibly even moved from company warehouse to the store receiving area and then onto the sales floor. All of these operations pose a risk of loss from theft or damage. Inadequate or careless record keeping will also contribute to inventory shrinkage.

The three principal sources of loss to the retailer are external losses from theft, internal losses from associate dishonesty, and losses from carelessness or mismanagement. In the aggregate, these losses are referred to as inventory shrinkage. As previously noted, loss preven- tion executives report that over 75% of losses are due to theft by associates and customers. The other, approximately 25%, of the inventory shrinkage problem, is due to theft by administrative error (carelessness), theft by vendors and, lastly, from unknown causes.

Rolled up into shoplifting is the ever-increasing problem of organized retail crime or ORC— highly organized groups sometimes associated with international crime groups. These groups know exactly what they want to steal and have established theft and fencing networks.

A commonality of associate and customer theft is return fraud. Return fraud is estimated to cost retailers billions of dollars each year. The retailer is caught between two opposing desires—making the return process as hassle-free as possible, and controlling that process to limit the opportunity for fraud by customers and associates alike.

All of these losses contribute to shrinkage, whether internally caused or as a result of exter- nal factors. The term “shrinkage” in a retail environment refers to inventory loss. Inventory refers to the merchandise a store sells. Retailers keep inventory records so they can effectively manage all of the items within the store. Shrinkage is the difference between the value of the merchandise that a store’s records depicts, commonly referred to as “book” inventory, versus what is actually present in the store. If a store’s inventory records state that the store should have ten of a particular item, but there are only eight of those items, the store has experienced a loss, or shrinkage, of two of those items.

Shrinkage is calculated as both a dollar figure and as a percentage of sales. Most retailers calculate shrinkage at retail, not cost. This would be the actual selling price of the item to the consumer, not the landed cost of the item prior to establishing the retail price. Landed costs refer to the retailer’s cost to get the item on the store shelf for sale. The difference between the cost and the retail sale price of the item is referred to as the margin. For example, an item with a landed cost of $100 that sells to the consumer for $130 would have a margin of 30%. In this example, if we are missing two of these items, our loss at retail would be $260.

When using the retail accounting method, retailers compare their shrinkage calculation to total retail sales based on a set time period. Industry averages for shrinkage, based on surveys of major US retail organizations typically range between 1.5 to 2% of total annual sales. For example, if a store is realizing annual sales of $1,000,000 and the store is experiencing a shrink- age rate of 2%, the store is losing $20,000 annually.

Formulating a solid shrinkage reduction plan starts with calculating shrinkage for each store. It is imperative that each store conduct an annual inventory of their products in order to

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Chapter 15 l Retail Security 369

establish the true level of shrinkage. You cannot rely on benchmarking data alone. Some stores calculate their shrinkage on an ongoing basis (cycle counts) and others do so based on a one- time annual inventory. A store may count certain high shrinkage stock keeping units (SKUs) on a daily basis. Whatever method is employed, there must be a firm understanding of the oppor- tunities for loss in order to establish meaningful, effective controls to reduce those opportuni- ties, and thus reduce losses.

According to the 2010 National Retail Security Survey, the estimated shrinkage of all par- ticipating retailers averaged 1.56% of total annual sales (at retail).6 It should be noted that most retailers that report their shrinkage statistics have established retail loss prevention programs, which are designed to reduce the impact of shrinkage on that retailer’s bottom line. Those retailers that do not have established programs to address the causes of shrinkage should expect their shrinkage averages to be significantly higher than those statistics reported in the National Retail Security Survey and similar surveys.

Why is it so important to manage retail inventory shrinkage? The net profit of most major retailers is fairly thin. For example, the North American Retail Hardware Association tracks bottom-line profits for the hardware/home center industry. On average, bottom-line profits fall in the range of roughly $0.03 for every $1.00 sold of merchandise within the hardware/home center industry. This has been such a generally accepted standard in this particular industry that the NRHA created training awareness literature coined “The Three Pennies of Profit” to engage store associates in the impact of shrinkage on store profits.7 As stated above, in 2010, the average retail shrinkage for those retailers involved in the NRSS was 1.56% of sales. As one could surmise, controlling all losses to preserve bottom line profit is imperative. A sustained shrinkage of 3% could conceivably put a retailer out of business.

Supply Chain

When we think of retail, most of us think about our personal shopping experiences. This may include shopping for everyday items or perhaps shopping for electronics, appliances or more expensive items. Very few of us think of all of the effort and cost involved in getting the item we just purchased to the retailer. The process involved in getting the product to the store shelf is referred to as the supply chain. The supply chain represents raw product sourcing, where the product was manufactured, packaged, stored, shipped, delivered and then ultimately placed on a store shelf for sale to the consumer. Most major retail chains that effectively control their shrinkage look at the entire supply chain when considering an effective asset protection program.

It is myopic thinking, unless you have multiple third-party sourcing options, to view retail security as focused on physical retail locations only. When we talk about “retail security,” our bigger picture focus will ultimately be on the entire supply chain. There are risks that can only be addressed by taking a much larger view of the retail supply chain. For example, if you are a retailer that sources product internationally, depending on your supply contracts, you may be responsible for a loss that occurs at the time of shipment, versus receipt at a physical com- pany-controlled location. Shifting that loss responsibility back to your supplier or your trans- portation company through negotiations would be one way of transferring your loss risk. Additionally, if you are a product manufacturer or you engage in private label arrangements

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370 INTRODUCTION TO SECURITY

(third-party manufacturer of product with your brand name), issues of brand protection may become a risk for your organization.

It is recommended that retail security professionals whose responsibility is the protec- tion of assets for their retail organizations “map out” their supply chain. A supply chain map is just what it sounds like: a world map that depicts the point of origin of raw products, end products, packaging, manufacturing, transportation methods, storage, etc., and that then fin- ishes with the product being received at the retail location. Once mapped out, the chart should be methodically reviewed and the risks identified, and not only the risks to inventory, but all potential losses as identified by all those responsible in each stage, as the inventory moves through the supply chain. These risks should include risks to personnel and assets alike. Next, the risks should be ranked based on severity or impact to the organization, and likelihood of the occurrence. A well thought-out asset protection program will identify the risks to the retail organization so that a strategy can be crafted to address all risks to the retail organization through mitigation or appropriate response techniques.

The focus of this chapter will be to discuss the causes of shrinkage and the impact it has at retail.

Shoplifting Retailing today demands that merchandise be prominently displayed and exposed so that cus- tomers can see it, touch it, pick it up, and examine it. Because the open display of merchan- dise is such a successful sales technique, there is little likelihood that merchandise will ever go back behind the counter. To combat the risk of loss associated with making the product more accessible, some stores have found ways to make it more difficult to steal openly displayed items. These techniques and procedures are discussed later in this chapter in the section titled “Preventive Measures.” Displaying merchandise in this way is hardly a theft-proof practice, but theft must be controlled if profit margins are to be maintained. Shrinkage from shoplifting is not likely to be eliminated, but it can be reduced through a well thought-out and implemented program.

Extent of Shoplifting

Shoplifting is defined as “the taking or carrying away of the property of another, without the consent of the owner and with the intent to permanently deprive the owner of the property in whole or in part,” and generally classified as a “larceny” in most states, punished as a misde- meanor or felony, depending on the dollar value of the item(s) taken.

It is difficult to accurately assess the full dimension of the shoplifting problem. Few shoplift- ers are apprehended, and of those who are, even fewer are referred to police. In fact, the most optimistic studies of shoplifting prevention effectiveness indicate that stores that do a good job apprehend no more than 1 out of every 35 shoplifters.

Information provided by one major retailer from its Midwestern region provided an excel- lent profile of shoplifting activity. The number of shoplifting apprehensions was consistent

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between April and September. Beginning in October, this number climbed until it reached a peak level in December. In contrast, January provided the lowest number of apprehensions, which increased gradually until April. This same Midwestern retailer reported shoplifting apprehensions by day of the week are consistent, with the exception of Saturdays, when appre- hensions are approximately 50% higher than they are during the week. Sundays are the slow days. As far as time of day, most shoplifting apprehensions are made between 1:00 p.m. and 7:00 p.m., with the period between 4:00 p.m. and 7:00 p.m. contributing the greatest amount of activity.

According to Peter Berlin, founder of the National Association of Shoplifting Prevention (NASP), most people steal for one reason—to get something for nothing. Additionally, one out of every 11 Americans is a shoplifter, according to NASP, a fact that the National Retail Security Survey claims cost U.S businesses $12.1 billion in lost retail sales in 2010.8

Methods of Shoplifting

Shoplifting is conducted in every imaginable way; the ingenuity of the shoplifter is legendary. By and large, the great majority of thefts are simple and direct, involving nothing more sophis- ticated than putting the stolen merchandise into a handbag or a pocket. However, there are certain methods beyond the simple taking of items that are in general use and should be antic- ipated, including:

1. The “bloomer” technique—using large, baggy clothes such as bloomers or pantyhose that can be filled like shopping bags.

2. The clothing technique—slitting pockets in coats or jackets, hiding merchandise inside a coat or up a sleeve, sewing large cloth storage areas inside a coat or jacket, or sewing hooks to the lining of coats or jackets.

3. The fitting room technique—wearing stolen clothes under the thief ’s own clothing. 4. Hiding items in purses or umbrellas. 5. Palming—placing small items in the palm of the hand. 6. The bag technique—using shopping bags, sometimes even using the store’s own bags. 7. The packaging technique—hiding items with other prepackaged items being purchased. 8. Wearing the item in plain view or walking out with large items. 9. Grabbing an item and running. 10. Booster boxes and cages—boxes designed with special spring lids in which merchandise

can be concealed, or cages worn by a woman to make her appear pregnant. 11. Hiding items in books, newspapers, or magazines. 12. “Crotching”—a technique used whereby an item is held in place by the thighs under a full

skirt, dress, robe, or long garment. 13. Price changing, switching the price tags or bar codes on items. One person may switch the

tag or alter the bar code on an item, leave the store and the other person buys the item; or it is done by the same person. (Note: This activity can be quite sophisticated, utilizing printers, scanners and other computer equipment to create bar codes and other pricing media to accommodate their thefts.)

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372 INTRODUCTION TO SECURITY

Common Red Flags Displayed by Shoplifters 1. Continuously looking around to see where associates may be, commonly referred to as

displaying “furtive movements.” 2. Acting nervous for no apparent reason. 3. Lingering in an area, but never really appearing to be looking at merchandise. 4. Group enters the store together and then splits up, with some members engaging sales

associates, while the other members steal. 5. Decline assistance from sales associates. 6. Clothing appears inappropriate for the weather. 7. Carrying large boxes, bags, purses, backpacks, etc. 8. Picks up two items and returns only one to the shelf. 9. Repeatedly handles the same item over and over, putting it back and picking it

up again. 10. Enters the store right when the store opens or just before the store closes to take advantage

of unprepared or reduced associate staffing.

According to research by Commercial Services Systems, Inc., the techniques used vary with individual preference and type of establishment. For example, purses are most commonly used for concealment of merchandise in supermarkets, followed by the use of pockets and car- rying items under clothing. It is estimated that the purse is used 26–33% of the time, pockets 17–30%, and clothing 12–24% of the time.9

Who Shoplifts

Types of shoplifters can be broken down into two distinct groups: professionals and amateurs. The amateur group can be further broken down into opportunists, the impoverished, sub- stance abusers, thrill seekers and kleptomaniacs. Each is described below.

Professionals These are individuals or groups of individuals who are very organized in their approach. They make their living from the sale of shoplifted merchandise. Professionals will use devices to maximize the amount of merchandise that they can steal at one time. For example, some will go as far as to push a baby stroller (either containing a real baby, a doll, or a padded area to give the appearance of a baby) and use portions of the baby stroller to conceal merchandise. Still others have clothing modified that will hold large amounts of concealed merchandise. Others will use special bags that are foil lined, place the merchandise into the foil-lined bag and then exit the store. These specially constructed bags are used by the shoplifter to defeat electronic security devices that are placed on the merchandise they are stealing. When attached devices are not removed or deactivated, they will cause an alarm when they leave a designated area. The foil-lined bags prevent the security devices at store exits from working properly, thus allowing the shoplifter to remove the item(s) from the store without audible detection.

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Chapter 15 l Retail Security 373

Organized Retail Crime Falling into the category of professionals are Organized Retail Crime (ORC) groups (see Figure 15-1). ORC refers to professional shoplifting, cargo theft, retail crime rings and other organized crime occurring in retail environments. Two defining characteristics of ORC involve premeditation of the crime by two or more assailants. Additionally, the items stolen are intended for resale, trade, or other value, and not for use by the individual who steals them. Federal and state legislation involving steeper penalties and lower thresholds for felony classification has been passed and is continually reviewed for needed changes. On November 2010, the House of Representatives passed H.R. 5932, the Organized Retail Theft Investigation and Prosecution Act of 2010. Again, varying by state, lobbyists for stricter regulation against ORC pushed hard to increase the awareness and legal support to track and punish offenders.

These thieves typically work in teams and travel from state to state stealing select prod- uct. These teams will typically target specific retailers and literally clean them out of prede- termined products. They tend to stay in motel rooms and will fill the motel rooms with the product they have stolen. They will move from city to city, not staying more than a week or two before moving along. In many cases, they have an elaborate distribution network and have been known to either ship the stolen merchandise overseas for resale or have established connections to re-introduce the stolen product back into the supply chain through either legitimate or illegitimate sources. Product stolen from one retailer may end up on the shelf of another retailer the next day.

FIGURE 15-1 Typical Organized Retail Crime network. (Courtesy of Theresa L. Tapella.)

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374 INTRODUCTION TO SECURITY

Opportunist The opportunist is an individual who takes advantage of shoplifting situations as they become available, thereby seizing the opportunity. This individual will steal if the opportunity pres- ents itself and the risk of getting caught is perceived to be low. Most retailers will come to find that this type of shoplifter may also be one of their best customers. Opportunists come from all walks of life. Opportunists usually have the means to pay for the item(s) they steal. Income lev- els for this type of shoplifter range from low to extremely wealthy. When this type of shoplifter is caught they show guilt, express remorse, are embarrassed, will offer to pay for the item and will often become very emotional.

Impoverished The impoverished are individuals who steal because they need the particular item they are stealing. These individuals are usually very poor and may be homeless. They are easy to spot because of their unkempt physical appearance and lack of hygiene. They are not very cautious in their approach and generally act very suspicious. However, this type of shoplifter can be dangerous when caught. They tend to be boisterous and will attempt to flee.

Substance Abuser Individuals who steal to support their addiction to alcohol and/or drugs are substance abus- ers. The substance abuser will steal items that can be easily sold or traded to support his or her addiction. This type of shoplifter can be extremely dangerous depending on the type of depen- dency and is considered one of the most dangerous shoplifters when caught, as he or she may also be in possession of drugs or drug paraphernalia.

Thrill Seeker The thrill seeker is an individual who steals for the emotional “high” associated with the crime. Many juvenile shoplifters fall into the thrill seeker category. They steal to show off to their peer group. However, as time progresses, the thrill seeker will take bigger risks and begin to perfect his or her shoplifting techniques as he or she continues to steal. The thrill seeker will tend to steal until caught. Once caught, much like the opportunist, thrill seekers will show remorse, shame and regret.

Kleptomaniac A kleptomaniac is an individual who will steal just about anything from anywhere. The sole purpose of a kleptomaniac is to fulfill the desire to get something for nothing. This individual is slightly associated with the thrill seeker; however the kleptomaniac doesn’t usually need the item he or she is stealing. This type of shoplifter will steal items that don’t seem to be typical stolen items. When caught, they will attempt to talk their way out of being turned over to law enforcement. They will claim that they don’t remember taking the item, don’t need the item, unintentionally concealed the item, and in extreme cases will produce a doctor’s note explaining that they have a medical problem, and that is why they took the item.

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Prevention and Response

The best deterrent to shoplifting is good customer service. Individuals attempting to shoplift do not want to be engaged with a retailer’s sales staff. A sales staff that offers a greeting and assistance will deter many amateur shoplifters.

Training sales associates on how to respond when they believe they are encountering a shoplifter or have witnessed a shoplifting situation is critical. The principles that are taught to sales associates are fairly consistent. You must observe the shoplifter approach the product, take the product, conceal or carry away the product; you must maintain continuous observa- tion of the shoplifter, observe the shoplifter fail to pay for the item and depart the store. If a sales associate cannot attest to all of the above in a positive manner, then it is recommended that associates not approach, attempt to detain or accuse the individual of shoplifting.

While good customer service is the number one deterrent to shoplifting, the second is how the store is designed, how the aisles are configured, and where and how your product is displayed.

It is essential that retail stores limit the number of uncontrolled exit points. A controlled exit point is one that is staffed or at least monitored by store personnel. There should be a point of sale terminal positioned in close proximity to all customer exits. Aisles should be arranged to allow the sales staff to easily move about the store and observe customer activity.

Placing high pilferage prone merchandise in plain sight and in full view of check-out areas is a very effective approach to reducing the loss of such items. Additionally, keeping merchan- dise “fronted” on the shelves and peg hooks filled will allow your sales associates to quickly observe when merchandise is missing. “Fronting” is defined as keeping merchandise close to the front portion of the display shelf, which gives the appearance of a well-stocked store.

Securing a product in a secure area with limited access, or locking the product up and retrieving the item for the customer are two effective ways to limit shoplifting losses of theft- prone items. However, locking up merchandise on display may result in reduced sales of that item too. This is a balancing act that each retailer will need to experiment with and is a matter of individual risk tolerance. If it is decided to place theft-prone merchandise in a locked display case, there should be a “lock it up – walk it up” policy; that is, a sales associate must retrieve the secured item and carry it to the point of sale. The premise is that if an item is theft prone to the extent that it must be displayed in a locked display case, it should receive that same degree of protection to the point of sale.

Technology can greatly assist the retailer in shoplifting prevention. One of the biggest deter- rents to shoplifting is the placement of an anti-shoplifting tag on the theft-prone items sold in the store. Tags are either placed inside the product packaging (most desired) or affixed to the product’s surface or package. The tags will interact with a device, usually a pedestal, at the exit point if they are not properly deactivated. Deactivation will typically take place at the point of sale area at the time of payment.

The use of a closed circuit television system (cameras) can also assist retailers in shop- lifting prevention. Placement of cameras should be well planned. Entry and exit points should be covered. Areas that cannot be easily monitored by sales associates, commonly

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376 INTRODUCTION TO SECURITY

referred to as “blind spots,” should also be monitored. Shoplifters will leave clues to where your blind spots are, in the form of empty product packaging. The packaging is removed to make concealment easier. If the store has a security staff that monitors the camera system on a real-time basis, it will be the primary detection tool when used in conjunction with store detectives on the floor. In smaller businesses, the camera system serves primarily as a deter- rent, not a detection tool. It does provide, in both scenarios, the capability to review video surveillance to either confirm or refute a suspicion. It can also be used as a training tool for sales associates, as well as a means to identify and document individuals who stole, but were not detained, so that the next time the individual enters the store and is seen, management and/or the security staff may be alerted. Lastly, it also serves as irrefutable evidence in a criminal trial.

Detaining Shoplifters

Approaching and detaining shoplifters takes a considerable amount of training. It is up to each individual store to determine protocol related to how they intend to handle confronting shop- lifters. The number one concern to all retailers should be the safety of their associates. While laws vary from state to state, it is generally agreed that shoplifters can be detained at the point where they have physically gone beyond the last point of payment. Sometimes states clearly define this location (which may, in fact, be at any point outside the department where the item is displayed) and other times it is left to interpretation. It is up to each retailer to know what the rules are for each state in which they are doing business.

When detaining a shoplifter, the sales associate should identify him or herself as an associ- ate of the store. They should immediately identify where the stolen item is located and ask the shoplifter to produce the item and then take possession of it. The sales associate should then escort the shoplifter to an area away from other customers and contact local law enforcement for assistance. While there are many more detailed steps in this process, the above represents a general overview of how most retailers handle shoplifting detentions. Some retailers have set a dollar threshold at which they will contact law enforcement. Still other retailers hire and train retail security personnel, commonly referred to as “store detectives” to handle shoplift- ing detentions exclusively. The mishandling of a shoplifting detention can have legal repercus- sions, and it is therefore extremely important to have a policy in place that is in line with local shoplifting laws.

Internal Theft Of all the different causes of shrinkage, theft by a trusted associate is the most insidious. It is the definitive act that reveals an associate’s acute displeasure with the company, supervisor or manager, or even fellow associates. If an associate respects his/her employer, supervisors and managers, and enjoys being part of a cohesive team that receives proper recognition for work accomplished, that associate is far less apt to steal from his or her employer.

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Chapter 15 l Retail Security 377

Common Associate Theft Justifications l The associate is living beyond his/her means. l The associate is not able to manage his or her finances and maintain a sensible budget. l The associate desires more lavish clothing, more food, higher living conditions, etc., for

dependents than he or she can afford, and believes that theft is justified to obtain this improved standard of living.

l The associate has no self-control and steals on impulse. l The associate was raised by parents who did not endorse honesty and may have,

themselves, committed a variety of dishonest acts, thus sending the message that stealing is acceptable.

l A family illness has created a need for money that the associate feels he or she cannot satisfy honestly.

l The associate believes that he or she has not been treated fairly or given proper credit for work accomplished.

l The associate feels that his or her wage is too low. l The associate believes that the company expects losses and doesn’t really care as long as it

doesn’t get out of hand. l The associate is frustrated or dissatisfied about something in his or her personal life and

theft from the store is a way of diverting attention away from addressing the personal problem.

l A supervisor has criticized the associate and the theft is justified as a way to “get even.” l The associate believes that one or more other associates get better treatment and/or

recognition. l The associate knows of co-workers who are stealing and getting away with it. They say to

themselves, “everyone else is stealing, why not me?” l The associate knows of co-workers who have stolen, been caught and while being fired,

were not prosecuted. l The store’s internal controls are insufficient and or not enforced; therefore “management

must not care.”

The above justifications/excuses are but a few of the many that associate-thieves use to rationalize why it is justifiable in their mind to steal from their employer. And while the employer has little or no control over what goes through their associates’ minds, the one thing an employer does have control over is reducing the opportunities for losses to occur.

If internal controls are insufficient on their face, or are adequate but not enforced, it is not a matter of whether retail associates will steal, but rather how many will steal and how much they will steal. Theft by an associate typically starts with small items or small amounts of cash, and will grow steadily as the associate becomes emboldened or increasingly dependent and stops only when caught or the employer goes out of business.

Associate theft is everything from a single dishonest act by one associate to an organized scheme that involves a single or multiple associates, and multiple thefts of cash and/or mer- chandise. There are numerous annual and ad hoc studies conducted and reported each year

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378 INTRODUCTION TO SECURITY

that speak to the magnitude of associate theft; and while specific statistics within those studies vary, it is a generally accepted premise that associate theft accounts for almost half of a retail- er’s overall annual shrinkage. Other studies indicate that as many as one out of three retail associates have stolen, are stealing, or will steal from their employer.

Prevention and Response

While there are widely accepted human, mechanical, electronic and procedural controls that should be implemented to effectively deter (and detect) associate theft, it is similarly acknowl- edged that those retailers that are successful in developing a “culture of honesty” among their associates have a leg up on this annual multi-billion dollar problem. That culture manifests itself in a workforce that truly cares about the success of the business, with all associates com- mitted to managing the various aspects of the operation to ensure its success. Shrinkage con- trol then becomes one more aspect of the retail operation that gets equal attention. So just what is their secret?

Developing and maintaining a culture of honesty permeates the attitudes and daily work habits of associates. It pays benefits that can be measured by the degree of associate job sat- isfaction and demonstrated work ethic, both of which have a direct impact on customer ser- vice and sales. The added benefit is reduced shrinkage and as a result, enhanced bottom-line profits.

Creating this culture of honesty requires a commitment on the part of the corporate staff and managers at all levels and, ultimately, all associates. For additional information on inter- nal security and honesty see Chapter 12.

Methods of Internal Theft

The following are the leading types of thefts by retail associates, along with summaries of the internal control processes that must be in place to either prevent or deter them. However, it must be noted that this information is not all-inclusive; unique operations and or duties, as well as the continual evolution of retail environments and systems, require that the store man- ager formulate internal controls to be both job and store specific.

Cash No matter what type of desirable merchandise may be available in a retail environment, there is nothing as tempting for an associate to steal as cash (see Figure 15-2). It is, therefore, neces- sary to hold associates who have access to cash to a higher standard than, say, a sales floor or stockroom associate, and to have enhanced controls in place to safeguard against the theft of cash. Cash losses at the point of sale (POS) can quickly grow to large amounts when appropri- ate controls are not in place.

A basic POS control that should be in place is the “one cashier per drawer” policy. When more than one cashier operates out of the same till, it creates a situation in which all of those cashiers fall under suspicion when an unexplained shortage occurs and you lose individual accountability. Even if each cashier has a unique system identification and password to sign

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on to the system before ringing a sale, there is still the dilemma of who among the multitude of assigned cashiers made the honest mistake or stole the missing money. Let’s say, for example, a retail location has three registers, of which two are assigned to designated cashiers. No one other than those associates should be allowed to ring on their respective terminals. The third terminal can be designated the “overflow” or “manager” terminal, on which more than one cashier, associate or manager rings, but only when both of the assigned terminals are busy or unavailable. When an associate on an assigned terminal goes on break, no one else should be allowed to ring on that terminal. In this process, the vast majority of sales will occur on the two assigned terminals and if an error or unexplained loss occurs at either of those terminals, the manager will have increased accountability for follow up. This policy will provide an excellent deterrent to theft, as a dishonest cashier will know that suspicion cannot be spread out among the entire store.

It is also important that POS terminals be counted down and the cash and sales reconciled at the end of the assigned cashier’s shift. If there is a delay and the sales are not reconciled until the following morning and there is missing cash, it could be days before there is a chance to talk face-to-face with the cashier responsible. Counting down refers to tallying up of all of the media in the drawer. Media is defined as the various methods customers use to pay for mer- chandise (cash, checks, credit cards, debit cards, in-store credit, house accounts, etc.). All of these media should be totaled and placed in a sealable cash bag. Normally the cash drawer will be counted down to the starting change fund amount set by the store, usually $200 to $500, depending on the type of retail business.

Control of cashier (and manager) passwords is also essential. If a dishonest cashier knows another cashier’s password, it is easy to log onto a POS terminal using that cashier’s password

FIGURE 15-2 Cash drawer. (Courtesy of William H. Cafferty.)

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and hide the fact that the dishonest cashier was ever on that terminal. Cashiers must be advised to protect their password and to change it when it is suspected that it has been com- promised. This is even more important for managers. Managers should always take precau- tions against being “shoulder surfed” (cashier observes which keys the manager presses to enter his/her password) by putting his or her body between the cashier and the POS keyboard. Creation of scan cards for use by managers is preferable to entering passwords; this is also advisable for cashiers, if possible. If scan cards are used, it is, of course, important that they be protected at all times.

Following are the major POS associate embezzlement schemes, along with the minimum controls that must be in place to deter them.

Fraudulent Refunds This is the most often used method of theft of cash by dishonest associates. A cashier will sim- ply scan or ring in a nonexistent item of merchandise for a refund, which creates a correspond- ing cash overage in the till. The cashier will then remove that overage when the opportunity presents itself. As long as the dishonest associate does not remove any more or less than the overage in the till, that register will not be “over” or “short” when counted down at the end of the cashier’s shift. Store managers who use the daily over and short total as their only indica- tor of POS issues will not suspect that thefts are occurring. There are a number of controls and procedures that will provide the retailer with both an effective deterrent to this type of embez- zlement, as well as an enhanced potential for detection when a dishonest cashier attempts to circumvent the controls.

First, a decision should be made as to the level of independent authority a cashier has to process a refund. The retailer may want to set a maximum dollar amount that a cashier can ring, above which a manager override must occur in order for the transaction to proceed. Most modern day POS systems provide this capability via a security bit or option that can be set to halt the transaction when the dollar value of the refund exceeds the set amount, and allow it to proceed only after a manager override is performed. In such cases, it is further recommended that the approving manager be required to actually initial the hard copy refund document. Should a cashier learn a manager’s code, gain access to a manager’s swipe card or key, he or she must now also forge the manager’s initials, which adds another layer of protection to deter this type of theft.

Second, if cash refunds are given when the customer does not have proof of purchase (a receipt), a decision should be made as to whether cashiers have the independent authority to process such refunds. It is important that the back office associate whose job it is to recon- cile the previous day’s POS activity has a prescribed standard to confirm that all procedures were followed. In cases where the customer does not have proof of purchase, the chance of the refund being fraudulent (perpetrated either by the customer, the associate, or the customer and associate in collusion) is much greater. If a manager must approve all such refunds, that greatly reduces the opportunity for wrongdoing. Again, the manager should initial the refund document. If a store credit or gift card is given in lieu of cash when the customer does not have proof of purchase, it is important that a policy be in effect that the subsequent purchase with

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that store credit or gift card be recorded as such so that the customer cannot return with that particular receipt later and obtain a cash refund.

The disposition of the refunded item—returning it to stock, returning damaged product to the vendor for credit, or other disposition—must involve an associate other than the cashier who processed the actual refund. Further, there should be some sort of documentation that provides an audit trail of this separation of duties. The goal is to ensure that there actually is a refunded item and that someone other than the cashier who rang the refund transaction veri- fies, through initials on the refund document, that the item was, in fact, present and retrieved from the cashier’s location. These product pickups should occur no less frequently than daily, ideally before the end of the cashier’s shift.

Fraudulent Voids If not properly controlled, fraudulent voids can also be used by a dishonest cashier to embez- zle cash. Keep in mind that there are two types of voids: those that occur before the transac- tion is completed and those that occur after the transaction is completed. In both cases, if the cashier is allowed to independently process the void, it creates an overage in the drawer and, like the bogus refund, if only the exact amount of the void is removed by the dishonest cashier, the final cash count will equal what the terminal has tabulated; thus, there will be no “over” or “short” and a manager who does not look further into why voids occurred will not be the wiser to the losses taking place.

In a pre-transaction void, a dishonest cashier will not complete the transaction and there- fore the customer will not be provided a receipt. Typically these types of transactions are done when a cashier knows that a customer is going to pay cash and would not likely ask for a receipt. The POS system calculates the total of the sale on the register, but then the cashier will void out the transaction, advise the customer of the total and open the drawer by ringing a “No Sale” or through another means, take the customer’s money and make change. Once the over- age is created in the drawer, the cashier will remove the cash when the opportunity presents itself. If the customer comments that he or she would like a receipt, the cashier will state that the register has malfunctioned and the transaction will have to be re-rung. Signs to look for at the point of sale are evidence of any “system” used to keep track of the dollar value of voids initiated. This might be scrap pieces of paper you find in the garbage with dollar amounts writ- ten on them, stacked coins on the outside of the register that represent certain amounts, a per- sonal calculator that doesn’t belong to the store. Additionally some cashiers will set the money aside in the register or face the bills in a different direction and at the end of their shift take all paper money faced in their direction.

On some of the older registers, the cash drawer can be left open and the register will still function properly, thus making the retrieval of the cash much easier. Newer registers will not work when the cash drawer is open, but only when configured that way. In order to retrieve the cash, the cashier can take the cash in front of other customers, take the cash during another transaction or ring a “no sale” transaction to open the drawer. The “No Sale” key is typically used to make change for customers or to remove excessive cash in the drawer. Managers should track both the cashier voids and the number of no sale transactions by cashiers.

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If a cashier voids a transaction after it is completed, depending on the features of the cash register or POS terminal, it may be classified as a transaction void, a reverse transaction, or even as a refund. In any case, this type of transaction should not be allowed as an independent action by a cashier. There should always be a manager approval process, whether it is via an electronic manager override or a manual approval.

Most POS systems have electronic security features that allow the retailer to enable a man- ager override requirement that will not halt the post transaction void until a manager inputs his or her code. It is strongly recommended that retailers enable this feature on their systems. If the registers in use do not have this feature, it should, nevertheless, be a requirement that a manager be called to approve post-transaction voids. In both pre- and post-transaction voids, the cashier and approving manager should initial the void receipt, and the cashier should indi- cate the reason for the void on the receipt, which is then turned in for reconciliation by the back office.

Fraudulent Suspensions If the POS system includes a transaction suspension feature, which means placing a transac- tion in a “hold” status, there is a potential for a dishonest cashier to use that to embezzle cash as well. The scenario would be similar to the fraudulent use of the “void” function, as previ- ously described. It is used to give the appearance to the customer of a legitimate transaction. Cash is removed in the same fashion as previously described.

The defense against this type of fraud is to not allow cashiers to independently suspend a transaction. Further, there should be a regimen in which suspended transactions are reviewed and purged from the system no less frequently than weekly by management, with follow-up on all questionable suspensions. Lastly, there should be a periodic review of sales transactions to look for “no sale” rings or small purchase rings immediately following a suspended transac- tion. This will be done so the dishonest cashier can access the drawer to remove the cash.

“Sweethearting” “Sweethearting” is the dishonest act of a cashier that allows a friend or relative to pass through the checkout and pay less than the actual value (or nothing at all) of the merchandise they may appear to be purchasing. The cashier can simply bag items without scanning them; provide an unauthorized discount; pull them around the counter scanner instead of over it; or even use a hidden barcode for an inexpensive item that has been taped to the bottom of his or her hand. The item is typically turned upside down so that the item’s barcode is not scanned, but the one on the palm of the hand is. Unfortunately, there is no POS security bit or other single feature that will deter or control this type of crime; however, the typical POS system does have controls that address discounting. Cashiers can be restricted to applying just the minimum dis- count without a manager override (approval). Additionally, the typical POS system will provide a report of all items sold below margin, which identifies all such sales, to include the cashiers who processed them.

One of the best technological controls to combat sweethearting schemes is the closed cir- cuit television-point of sale (CCTV-POS) interface. Retailers are now mounting cameras over

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the check-out areas that focus in on the scanning area and the customer. The camera is inter- faced to the register and the data that is entered into the register is overlaid or displayed to the side of the video image in the form of the store’s receipt tape. In our example above, if a bar code doesn’t belong to the product scanned, it will show on the register overlay. Or, if the total amount on the overlay looks to be far less than the number and value of products being scanned, this is an obvious indicator of wrongdoing.

It is important that retail stores have a strong policy against cashiers ringing sales for rela- tives and close personal friends, as it is these two categories of customers for whom the vast majority of sweethearted sales are rung. It is thus recommended that cashiers be prohibited from ringing sales to relatives and close personal friends. It is understood that management does not know who the relatives and close personal friends are of each cashier, but usually other retail associates do know who they are. If it is discovered that a cashier has violated that rule, administrative action should be taken against that cashier.

Theft from the Safe This type of cash theft is typically the act of a very desperate person, usually a manager or supervisor. The perpetrator is usually in dire need of cash and doesn’t have the knowledge or opportunity to steal the cash through fraudulent POS transactions or other more sophisticated schemes. There are a number of basic controls that should always be in place to reduce the risk of theft from the safe.

Controls to Reduce the Risk of Safe Theft 1. Limit the number of persons who are given the combination to the safe to the absolute

minimum, consistent with operational requirements. 2. Advise combination holders that they are not to record the combination on calendar pads,

within desk drawers, or other “secret” locations within the office. 3. Require the safe door to be closed and locked when not in actual use. 4. Prohibit leaving the safe on “day-lock,” which is turning the combination dial back to

the last number in combination, thus locking the door, but also allowing the door to be re-opened by simply turning the dial back to “0.” This cannot be done with the newer model electronic accessed safes.

Safes equipped solely with the traditional dial-type combination lock have many inherent weaknesses. Safes equipped with electronic locks, on the other hand, provide a greater degree of security and, depending on the level of sophistication, provide various features such as (1) the capability of assigning a different combination to each authorized associate (then you can simply delete an associate’s combination when he/she terminates or is no longer autho- rized); (2) creating an audit trail that shows when each authorized associate entered the safe; and (3) setting “time windows” that restrict when an associate’s assigned combination will work. Advanced electronic safe locks use both combination entry keypads and electronic “keys” that can store and transmit electronic data. These are the ultimate in safe entry devices for the typical retail store safe.

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Another aspect that must be considered is the type of safe that is best suited for the busi- ness. A single door safe that allows access to everything stored within it provides the least effective control, as you must store everything within, but persons with access may not have the need to access certain items or cash stored therein. Multi-door safes, on the other hand, such as the “depository” safe, have two doors (or a separate lockable compartment inside the safe), and provide a means to “drop” deposit bags into the safe without opening it. The other compartment can be used to store tills. Thus the opening and closing managers can be given access to the tills in the lower compartment, but not to the money bags containing sales in the upper compartment. A small change fund can also be maintained in the lower compartment with the tills for use when office personnel are not present.

The sophistication does not end with electronic locks and double door safes. Convenience stores and other retail establishments in need of the ultimate in physical secu- rity, robbery deterrence and associate access control are typically equipped with what is known as a “cash dispensing safe.” These safes have sophisticated electronic access controls, and can be configured to dispense small amounts of change in currency and coins, pro- vide a time delay between transactions, record deposits and keep an accurate count on the day’s transactions. Additionally, this type of safe provides a variety of reports for use in cash accountability.

Last, but not least, it is advisable to have one or more CCTV cameras covering the safe. One should be positioned to provide a frontal view of the associate accessing the safe or, at the very minimum, looks directly down on the associate and the safe. If the camera is positioned so that all you see is the back of the associate, you will not see his or her hands and therefore will not have the capability to see exactly what was removed from the safe or where it was placed on the associate’s person.

Merchandise As with the deterrence of cash thefts, it is equally necessary to have effective internal controls in place to deter the theft of merchandise by associates during their performance of duties. While the modus operandi varies, depending on exactly what the associate is doing (e.g., receiving, stocking, operating a POS terminal, trash removal, home delivery, etc.), there is nor- mally an effective means available to control the opportunities to steal; it is just a matter of implementing and enforcing the controls.

A common denominator in a vast majority of associate merchandise theft scenarios is an uncontrolled back or side door. As with other aspects of the retail security business, there is an axiom about back doors: “If you don’t control your back door, it’s not a matter of if you will lose merchandise through it, but rather how much merchandise you will lose through it.”

Shoplifters steal merchandise through front doors, but theft by associates is, for the most part, through back doors. Shoplifters must contend with the chance of being observed by sales associates, cashiers and honest customers, but dishonest associates who remove merchandise through a back door can take their time and wait for the opportunity to exit when they know there is no one watching. And while we use the term “back door,” it applies to any door at the back or side of a store that is an associate-only door.

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The stockroom normally contains an overhead door, often with a personnel door adja- cent to it. It is not uncommon for a retailer to believe that the receiving door must remain unsecured because it is used often throughout the day. If so, it is imperative that someone in a supervisory or managerial role be in the area at all times the door is unsecured. Ideally, of course, the receiving door should be closed and locked when not in actual use, with the keys to the lock controlled by management. If the receiving door must be left open for ventilation rea- sons, it is recommended a security screen be installed.

The personnel door is, in many cases, a designated fire exit. As such, NFPA, Life Safety and local codes will usually demand that it remain unlocked while the building is occupied. This door should thus be equipped with a stand-alone exit alarm or an alarm-equipped panic bar. An exit alarm is a device that will sound an alarm when the door is opened, unless it has been deactivated prior to opening the door. There are also various brands of emergency exit door panic bars that come equipped with a built-in key-controlled exit alarm. If not deactivated by a key holder, it will alarm when the door is opened and will continue to sound until someone with a key resets it. Stand-alone exit alarms come in a variety of configurations, including those that are battery operated. The key to the exit alarm should, of course, be held only by manage- ment personnel. It is understood that keeping back doors secured will not be as convenient as leaving them unlocked. Unfortunately, convenience and good controls do not normally share the same space.

Associate parking should never be allowed near the receiving door or any back (or side) door that is not closely controlled. Associates should be required to park their cars as far away from those doors as possible. The reason for this is obvious. Uncontrolled back doors and close-by parking of associates’ cars is a recipe for losses.

Removal of empty boxes through back doors is the number one method of product theft by associates if not properly controlled. Again, another simple rule applies. Management should require and enforce the flattening of all empty boxes before they are removed from the retail store. The ideal solution is to install a compactor in the stockroom and require its use for all empty boxes.

Trash removal can be a dirty business. It is a chore that no one likes, and is usually assigned to a junior associate, often a part-time person. While it is, indeed, a dirty business, it is also a prime candidate for use by a dishonest associate bent on stealing merchandise. It is very important that control of this daily chore not be neglected.

First, while the procedure may be to collect trash just prior to closing, trash bags should not be removed from the store until the following morning. There are two reasons for this. First, allowing trash to be carried out during hours of darkness increases the opportunity for associ- ate theft; second, it also increases the opportunity for robbery. It is not uncommon for busi- nesses to be robbed by someone who waits out back at closing time, accosts an associate who is taking trash to the dumpster and then forces that associate, at gunpoint, back into the store to steal the day’s cash.

Second, clear trash bags should be used, both in trash receptacles and for the collection of trash. This increases the risk of detection for an associate who is thinking of placing merchan- dise in the trash bag for removal to the dumpster.

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Third, the removal of trash should always be witnessed by a member of management. This would be a natural occurrence if the back doors are secured and the keys to door locks or alarms are kept by management personnel only.

And fourth, if possible, the Dumpster should be locked, again with the key retained by management personnel only. Most Dumpsters come configured so that they can be locked, and the refuse company may even supply a padlock to which their drivers have the key. Or they may just require that it be open at the times they come to empty it. Locking the Dumpster removes the incentive for an associate to put stolen merchandise in it for later pick-up, and it also prevents others from using the store’s Dumpster.

If a back or side door is the designated associate entrance or exit, management should evaluate the feasibility of using the front door instead—that is, unless there is a security officer or loss prevention associate continually monitoring the associate entrance or exit. With a back or side door as the designated associate entrance or exit, it must necessarily remain unlocked, and associate vehicle parking is typically close by—again, a recipe for losses. Another associ- ated risk is that this door is frequently left unsecured early in the morning for the convenience of arriving associates. Needless to say, no door should be left unlocked and uncontrolled prior to opening, as this presents an excellent opportunity for robbery. One solution is to install a cipher lock (or card reader) on the outside of the door for associate use. The cipher lock would be an additional lock for use when the deadbolt is unlocked, but would pro- vide a means to prevent unauthorized persons from entering. The combination to that lock would have to be changed, of course, whenever someone with the combination terminates employment.

Closed circuit television plays an important role in reducing the threat of theft of merchan- dise through the back or side door. Strategically placed cameras enhance a store’s theft deter- rence efforts. Cameras should be placed on the wall immediately above the interior door frame or in the ceiling near the door at a location that covers the path to the door. It is important that the camera is able to record the face of the associate and anything that may be in the associ- ate’s hands; not the backside of the person as he or she is walking out. Also, by positioning the camera so that it points away from the door, there is less chance that high light levels from out- side sunlight will impact the image. It is also recommended that at least one exterior, environ- mentally housed camera be mounted on the perimeter wall to observe the overhead and exit doors, the Dumpster and any associate parking areas at the back/side of the store.

Investigations

Most major retailers assign investigative responsibility for losses involving professional shop- lifting rings, suspected ORC situations and internal and external loss scenarios to specialized personnel in their corporate office or field offices who are hired and trained to handle these types of issues. Investigators will typically be assigned auditing and training responsibility as well for a set number of stores. Retail loss-prevention investigators will typically work closely with law enforcement on the majority of these types of investigations. Smaller retailers that do not have their own investigators will hire third-party investigators familiar with retail opera- tions and theft scenarios.

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The investigator will first determine if a policy violation has occurred. Additionally, if theft is suspected, the investigator may gather more information to determine the extent of the theft or thefts. This could include interviewing other store associates, securing the appropriate doc- umentation or perhaps relocating an existing camera or installing a hidden camera in the store after hours to document the extent of the loss. It is up to the investigator to prove or disprove the suspicion or allegation, determine the extent of the problem and work with local store management to resolve the issue.

The final phase of most retail investigations is interviewing all associates who may have involvement in the loss. This will usually be coordinated with local management, unless local management is involved. Retail loss-prevention investigators have very specialized training in the area of interviewing.

When good evidence exists that an associate has been involved in a theft, the investi- gator will interview the associate in a private setting, which may or may not include a silent witness. The ultimate goal of the interview is to determine the total extent of an associate’s involvement, whether it is cash or merchandise, and whether there were any other associates involved. The first time an investigator becomes aware of a loss is generally not the first time the suspected associate has stolen something.

A secondary goal will be to determine how the associate inflicted the loss on the store. The investigator will want to determine how the associate was able to circumvent controls in order to inflict the loss. This will help the investigator in tightening up the operation to prevent losses from occurring in the future.

Third, is the associate aware of other associates who may be stealing? The investigator will want to determine if there are others and determine if collusion may be involved. Gathering this information may prove to uncover additional losses that the store must address.

Fourth, the investigator will ask the associate to voluntarily write an admission of the theft. The admission is typically written in the associate’s own handwriting (if feasible). The state- ment will sum up the losses, describe how the associate was able to inflict the losses and should tie into specific evidence the investigator has obtained. For example, a cashier who may have been stealing by creating fraudulent refunds should initial and date all the fraudu- lent refunds and make reference to these same refunds in the written statement. The investiga- tor should encourage the associate to include in the statement an acknowledgment that the associate knew what he or she was doing violated company policy. If a witness is in the room, the witness will then sign the associate’s written admission as a witness. A copy should be pro- vided to the associate and the original kept by the investigator.

Lastly, the investigator will want to recover any cash, merchandise or company property the associate indicates he or she has in his or her possession or at another location.

At this point the matter is usually turned over to the retailer’s human resource group or the local store manager to determine disposition regarding the future employment of the associate. Many retailers decide to buy time to make a decision by placing the associate on “administra- tive leave pending further investigation.” The benefit of such may be to finish the investigation, consult with legal counsel and or local law enforcement. With a consistent approach to inves- tigations, the retailer now has recourse in civil court and also has documentation to support criminal action, if deemed appropriate, by the applicable criminal jurisdiction.

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External Threats Although the majority of losses at retail stem from internal vulnerabilities, external threats, or those things that originate or are caused by forces outside of the store, can impact the loca- tion’s income, integrity, and safety. While external threats can never be fully mitigated, under- standing the threats and preparing to respond will decrease the overall impact.

Burglary

Burglary constitutes any kind of illegal entry to a structure or property, forcibly or not, with the intent to commit a felony or theft; the exception to this is entry into a vehicle, which is larceny. Varying degrees of burglary have been defined based on the types of entry, but differ by state. Statistics available from the FBI Uniform Crime Reports indicate that “property crimes,” of which burglary is included, dropped 2.8% on a year-by-year comparison (2010 versus 2009).10 Retailers can reduce the likelihood of being victimized by this type of crime through physi- cal security measures and electronic means, which would include the installation of a burglar alarm system. These systems can be basic or very sophisticated and are dependent upon local law enforcement to respond in a timely manner for appropriate apprehension. The level of physical security and systems will be driven by the geographical area in which the retail loca- tion is domiciled and the type of merchandise being protected. Data is readily available, which will assist the retail security executive in making these types of protection decisions.

Robbery

The defining characteristic that differentiates robbery from burglary is that robbery involves an individual or individuals attempting to steal another’s property by seizing the property by force or violence, directly from the victim. Burglary may result in the deprivation of the same prop- erty, but not taken directly from a person, or by using force or violence toward a person. The degrees of robbery differ between states, as does the specific definition.

While this action can never be fully prevented, a properly evaluated and protected retail establishment can reduce their risk of falling victim to a robbery as well as decrease the risk of physical harm during a robbery. Not all precautions available are right for every kind of loca- tion. Therefore it is important to consider multiple factors before implementing any deterrent strategies. Factors such as actual vs. perceived threat, region, and product vulnerability, past incidents, opportunity, and federal regulations should all be weighed when formulating a rob- bery prevention and response plan.

Regardless of the associated risk, the basics of a solid prevention program include the inte- gration of physical security (CCTV, alarm system, proper lighting, and proper locking mecha- nism). Properly placed and utilized physical security devices can provide an effective deterrent for a potential robber and can aid in evidence collection after a robbery. Cash protection at the point of sale, while in the safe, and during deposit must be implemented, and a monitor- ing system should be in place. A monitoring system could be as elementary as enforcing the “two-person rule” when money is unprotected for counting, transfer, or deposit. It can also be

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as complex as investing in armored car services and armed protection. Finally, access control procedures including stringent opening and closing regulations, monitoring of all ancillary doors, and inclusion of proper limitations to and monitoring of personnel entry and exit are essential.

Checks and Credit/Debit Cards

Credit and debit cards are the number one method of payment in brick-and-mortar retail stores and at “retailer” websites on the Internet. This fact has not gone unnoticed by the crimi- nal element. Attacks against both retailers and their customers continue to be a major threat and present an ever-increasing technological challenge to banks, credit/debit card issuers, retailers and businesses in general.

Compliance with Payment Card Industry (PCI) Data Security Standards is now required for all brick-and-mortar retailers. Violation or noncompliance with those standards can result in large fines against a retailer.

The Nature of the Check

The use of checks for payment in retail stores is continuing to diminish and may soon be obso- lete. A check is nothing more than an authorization to the holder of the funds or the bank to debit the account of the authorizer and to credit the named person or the bearer in the amount specified. Provided that sufficient funds are available in the debited account, the exchange is made either in cash or by crediting the account of the payee.

Checks and the Retailer

Bad checks of various kinds add to the merchant’s cost of doing business. Forgeries or fraud- ulent checks are a direct loss of both merchandise and cash. Checks that are ultimately collectable, but that are returned by the bank for any number of reasons present a huge admin- istrative headache in making the collection. Even though a majority of such checks are soon made good, often after a single letter or phone call, the costs of such follow up and double handlings, as well as the additional cost of collection agencies, if such are required, may bring the cost of each returned check to between $25 and $30. The charge for any returned check is usually added to the eventual collection, but most retailers feel that they do not collect the full amount. Such returns actually cost them in direct and indirect losses.

Check and Credit/Debit Card Approval

The two most important and relatively simple steps that merchants can and must take in approving checks are a thorough examination of the check itself and a positive identification of the check casher. Neither of these steps will screen out the accomplished forger or the skilled bank check artist, nor will they eliminate the problem of honest, but careless, people issuing checks that are returned because of insufficient funds. But they will reduce, or possibly elimi- nate, a great deal of the most persistent losses.

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Retailers are not obliged to cash checks—and, in fact, the number of retailers who have decided not to accept checks is on the rise. They do so in their own interests, as a service. They must assure themselves that the customer is properly identified. Generally any official docu- ment that describes the holder and bears a picture can be accepted as adequate identification. An artful forger can fabricate such documents, but because forging of this kind requires some equipment and skill, it is not a widespread general practice.

Driver’s licenses, passports, national (major) credit cards, birth certificates, and motor vehi- cle registrations are all acceptable forms of identification.

Credit and Debit Cards

As with check-cashing policies, stores must properly identify card users and, if necessary, ask for identification and compare card signatures to signatures on other forms of identification such as a driver’s license or state-issued ID. As the business environment turns more “cash- less” and checkless, credit and debit cards will totally dominate the retail transactions. The good news is that with electronic data transfer, retailers can be assured that customer accounts are either adequate to cover the sales cost or guaranteed by the credit card company.

ID Equipment and Systems

Electronic check verification systems, using computer interlink capabilities, give some mer- chants the ability to check individual checks against lists of problem check writers; in some cases, this technology even allows for the verification of the solvency of the account on which the check is drawn.

Store Policy

Every store must set and maintain its own policy for handling checks. Certainly the policy should be reviewed and adjusted as necessary, but it must be strictly adhered to as long as it is in force. Associate indoctrination and continuing education are essential to the success of any check control program.

As a guide, though certainly not a rigid rule, merchants should consider certain limitations. The retailer should not accept the following:

1. Third-party checks. Payment can be stopped on such checks and the merchant’s recourse is only to the customer, not to the payer.

2. Checks drawn on out-of-town banks. Such checks are difficult to verify, and the time involved in clearance is such that, if the check is fraudulent, the customer has long disappeared before the check is returned.

3. Checks over a certain amount above purchase. 4. Checks for cashing, other than government or payroll checks. 5. Checks for cashing, without adequate predetermined documents of identification. 6. Checks for cashing drawn on other than personal checks imprinted with the name and

address of the customer.

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If such rules are followed, the loss from bad checks should be small, provided all checks are themselves carefully examined by the cashiers.

Policies, Procedures and Practices Many people who are new to the retail business feel that controls and procedures send the message to all associates that they don’t trust their work force. At the same time, when a large loss occurs, associates are flabbergasted that such an enormous loss could have happened without management knowing. Additionally, after a retail establishment becomes the vic- tim of loss over and over again, they quickly understand that policies and procedures need to become part of the daily operation. They also understand that policies and procedures are in place to prevent losses, losses that turn into profits, profits that ultimately may turn into pay raises and benefits. The reason for policies and procedures needs to be communicated to all the associates of the store. There needs to be a trust but verify mentality, which will, in turn, send the message of individual accountability versus lingering suspicion when policies and procedures don’t exist.

Establishing written and enforced policies and procedures is very important. Violating a policy should be considered a very serious misstep. A procedure generally describes how your policies are to be implemented. A procedure may be a separate document from your store’s written policies. A practice is generally less stringent than a procedure and it is generally infor- mal and unwritten. It may not match what your policies and procedures say, but it may be a general practice of the store. This is an important distinction, because you cannot have a solid system of accountability if a policy says one thing, the actual procedure says another, and the general practice of the store associates doesn’t come close to either. Additionally, when there are violations, managers will not enforce the rules on a consistent basis if there is inconsis- tency in adherence.

Internal policies (controls) are important for any business, but are critical in the retail busi- ness. The retail business gives team members ready access to both desirable products and cash and, as such, has risks of loss not shared by other types of businesses. An ideal policy (control) consists of three components. Think of it as a three-legged stool (see Figure 15-3). If any one of the three legs breaks or doesn’t support its fair share of the load, the person sitting on the stool is at risk of falling, as is your policy or control at risk of failing.

Policy Components—The Three-legged Stool

l The first leg is physical, mechanical or electronic. It can be something as simple as a padlock or as complex as a security bit (setting) in the point of sale (POS) system.

l The second leg is the human component, and involves that aspect of a policy (control) in which a person, normally a supervisor or manager, plays a key role. An example would be a policy that states that a supervisor must approve refunds over $50. If a supervisor becomes lax and knowingly allows refunds over $50 to occur, without approval, that is now a store practice and the policy is useless.

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l The third leg of an ideal control is the oversight component. That can be anything from the back office daily reconciliation of POS summary reports against supporting documentation, to a quick review of digital CCTV records to verify that a refund with no supporting documentation was legitimate. Back office personnel are your final line of defense to ensure policy compliance.

Policies and procedures must be enforced. As can be seen, instituting and maintaining a culture of honesty is a daunting task that is a constant management battle and difficult in the fast moving pace of retail. Management is frequently challenged by personnel shortages and unexpected events, which make it more difficult to ensure that policies don’t get pushed aside and sloppy practices begin to take their place.

Training

A well-rounded retail security program involves a top-down approach, including proper pro- gram support, organization, implementation, maintenance, and continual improvement. It will also take a commitment on the part of management to train associates on the proper way to execute their job duties, while adhering to applicable policies and procedures. A complete and ongoing training program should be developed and implemented. Topic-specific training and ongoing refresher training will play an active role in ensuring ongoing compliance.

Topic-specific training may also be provided to aid in enhancing an associate’s understand- ing and ability to respond to various events, security issues included. A classic example would be how associates should react and respond to a robbery situation. This is topic specific and will require refresher training periodically to ensure that the principles are not forgotten. It is up to each retail location to determine the training topics and frequency based on the risks to the operation. Training records should be maintained and updated.

FIGURE 15-3 Three-legged stool. (Courtesy of William H. Cafferty.)

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Auditing for Compliance

One of the most important tenets of a proactive retail security program includes having proper policies and procedure in place, and conducting a periodic audit of those policies and proce- dures to ensure they are being maintained. Depending on the size of the store, this may be the store manager or, if a multi-store operation, a dedicated security manager may be responsible for reviewing policy and procedure compliance.

The store manager and/or security representative should, at a minimum, conduct an annual audit of loss-specific policies and procedures. Policies and procedures that are consid- ered critical will require more frequent review. When a policy or procedure is not being fol- lowed, corrective action must be taken to ensure ongoing compliance.

Technology Today’s retail security executive must embrace technology and then use it to benefit the asset protection program. Internally, this means understanding the intricacies of the point of sale system, inventory adjustments that may impact shrinkage and various other technological advances that track money and product. These technological advances have allowed retail- ers to become more efficient and eliminate staff and overhead that have kept them competi- tive. Additionally, these same technologies can also be used by potential thieves and it is up to those in the retail security world to understand the various risks that each of these technolo- gies have on money and product. Externally, technology has advanced in light years compared to the technology available to retail security executives just 10 years ago. The following is a sampling of technology and the uses in today’s retail environment.

Point of Sale

The Point of Sale (POS) system is the heart and engine of the retail merchandise inventory control and sale processes. It is the system that maintains an ongoing accounting of the “book” inventory; that can automatically place replenishment orders for every SKU in the store based on preset reorder points; that typically has other features that can accommodate many other related tasks such as accounts receivable and accounts payable; and it is the system used to record all sales, returns and other actions (e.g., layaway, special orders, suspended sales, etc.) related to merchandise movement.

Stores that do not have a point of sale system, but rather rely on simple electronic cash reg- isters to record sales, returns, etc., and on separate computer systems (not interfaced with the cash registers) or even manual methods of tracking store inventory levels, payables and receiv- ables, are at a distinct disadvantage. Of course, like any automated system, the POS system is vulnerable to actions by users who would use the system to commit dishonest acts. It is the responsibility of the business owner to be knowledgeable of and apply the electronic safe- guards offered by the POS system, along with implementing associated operational controls, to prevent or deter dishonest users from the opportunity to commit a dishonest act, and provide an alert and/or audit trail when a suspicious act is committed.

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Exception-based Reporting (Software)

Exception-based reporting is software that ties into the transaction data of the point of sale sys- tem. Retailers program the software to retrieve information based on pre-established excep- tions. The requirements may be unique to each retailer, but the end result is the same: to ferret out areas where internal theft may be occurring. This is a major tool used by retailers to com- bat theft losses at their point of sale. Once programmed, reports are generated listing out all the exception detail. For example, a location may average 3 percent of their daily sales trans- actions as refunds to customers. The set point for the software would be to tell you when any cashier is processing a return percentage greater than 3 percent. The individual assigned to look into these issues would then pull all of the refund documentation to ensure proper pro- tocol was followed. If not, investigative action would then be initiated. The software is used to identify internal theft issues early, before they grow into larger problems.

Electronic Article Surveillance

Electronic Article Surveillance (EAS) is a technology used in the retail sector to deter and detect shoplifting. It consists of disposable soft tags and reusable hard tags embedded with electronic technology that are attached to items of merchandise or inserted inside packaging. If the tag is not properly deactivated or removed at the point of sale, an alarm will be triggered as the tagged item passes through a store’s exit door.

Disposable tags come in a variety of forms, everything from price labels embedded with the technology, to tags hidden within sealed packaging, to tags with strong adhesive that are attached to the outside of the item or packaging. These tags are deactivated by proprietary devices located at the POS, typically integrated with the scanning process. Hard tags must be removed at the POS through use of a proprietary tool. There are hard tags that if not removed with the proper tool will rupture and spill ink onto the item. This type of tag is referred to as a “product denial tag” and is normally used on clothing items. It should be noted that if a soft tag is applied to the outside of an item or packaging, shoplifters may pry or cut it off. If the item is protected by a hard tag, professional shoplifters may have tools to forcibly remove it from the item. Also, professional shoplifters will use bags or other containers lined with materials to thwart the effectiveness of the sensing devices (pedestals) at store exits. The primary EAS tech- nologies are radio frequency (RF), acousto-magnetic (AM) and electromagnetic (EM).11

Alarm Systems

There are a number of alarms in use in retail establishments that protect the physical structure, the merchandise displayed and stored within, and the exits from the building. All are essential components of a good loss-prevention program.

Intrusion Detection Alarm (IDA) Also known as a “burglar alarm,” an intrusion detection alarm is a system that notifies the alarm company when there is a forced entry to a building through a door, window, roof or

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other access point. It is critical that sufficient and proper alarm devices (e.g., door and win- dow contacts, motion, sound or glass breakage sensors, infrared devices, etc.) be placed in all vulnerable areas in order to thoroughly protect a building. For example, if motion detec- tion devices are not placed in proximity to the store safe and in the ceiling or areas outside the room where the safe is located, burglars could forcibly enter through the roof, drop down into the office where the safe is located and never trigger any of the door or window alarms. Notification to a UL approved central station and/or a local law enforcement agency is typi- cally through an automatic landline telephone dialer. There are more sophisticated com- munication methods available to the retailers to ensure intrusion signals are received. It is important that the system provide an alternative means of notification should the primary means be disrupted.

Duress Alarm This is the feature of an IDA, primarily used in robbery-in-progress situations. A key holder would activate this device, which can be fixed or mobile. These are typically used by those opening or closing a store or installed in a fixed position at a cashier station or in a back office where cash counting occurs or where the safe is located. This also may be in the form of a handheld device that a key holder would carry with his or her everyday car and house keys. Additionally, a duress code can be assigned to all authorized store personnel. The alarm sys- tem is programmed to know that the person entering that particular code is in imminent danger. This unique code will deactivate or activate the alarm system, but will also send the message to your central station; “I’m under duress,” which would cause the alarm-monitoring station to notify local law enforcement to respond to the retail location.

Merchandise Alarm A merchandise alarm is designed to protect expensive and/or small items of merchandise that have an increased risk of being shoplifted. The alarm can be a simple contact alarm system consisting of wired leads from an alarm control box to the items, with adhesive or lasso-type contacts attached to the merchandise, which, when cut or pulled off the item, will cause an alarm to sound, to more sophisticated wireless motion detection systems that alert sales asso- ciates when a customer opens a display. Use of merchandise alarms normally provides an effective deterrent to shoplifting; however, it is important that the keys and/or combinations to the alarms be protected and that sales associates react immediately when the alarm sounds.

Exit Alarm Exit alarms can be mounted on the inside of perimeter doors that must remain unlocked because they are designated fire exits. These doors, which are located both on sales floors and in stockrooms and other associate-only areas, provide a convenient avenue of exit for cus- tomer and associate thieves if not controlled. Exit alarms are available as integral elements of emergency exit panic bar door hardware and as stand-alone devices that are easily installed. They are normally battery operated, so it is important that they be tested regularly, the batter- ies replaced when necessary, and the keys to the alarm modules be strictly controlled.

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Closed Circuit Television (CCTV) Systems

There was a time when closed circuit television CCTV coverage in a retail store was considered a luxury. That day has long passed and it is now recognized that CCTV coverage of POS ter- minals, high value/theft prone/sensitive merchandise displays, critical areas containing safes, communications and IT equipment, back offices where money is counted, perimeter doors, and exterior areas containing theft prone product and/or equipment is essential. Only with CCTV coverage in these areas will a retailer have an effective deterrent to theft and the capabil- ity to review and determine if a theft occurred or an action was taken by a customer or associ- ate that requires detailed investigation. Video coverage of a theft by an associate or customer is rarely challenged in court—it is, indeed, the best evidence a retailer can have in the prosecu- tion of a customer or associate.

Today’s CCTV systems provide a wealth of features and capabilities that can be custom- ized to fit the precise needs of the retailer. Remote viewing capabilities through the Internet also provide business owners a capability to monitor their systems from around the corner to around the world. Additionally, as mentioned previously in this chapter (see sweethearting) is the capability to interface your CCTV system to your point-of-sale system.

Access Control

Access control devices do just what the term implies—provide a means to control a customer’s or an associate’s access to certain areas within the store. They run the gamut from simple deadbolt locking mechanisms to devices that use keypads, biometric scanners and other identification methods to allow only those with proper authorization to enter. The more sophisticated devices can also transmit alerts via e-mail or telephone when certain actions occur and keep a detailed audit trail of those individuals who accessed the controlled area. Like alarm and CCTV systems, access control systems are essential elements of an effective loss-prevention program.

Radio Frequency Identification (RFID)

Radio frequency identification tagging is a technology that uses radio waves to transfer data from an electronic tag that is attached to an object through a reader for the purpose of iden- tifying and tracking the object by means of a unique serial number. It has become a very important component of large retail organizations’ inventory control and loss-prevention pro- grams. It allows retailers to track individual items (referred to as “item level”) through the sup- ply chain: from the warehouse, to the delivery truck, to the store’s receiving dock, then to the shelves, all the way to the point of sale. This technology can also serve as reliable confirmation that an item presented by a customer for return was actually sold.

Perhaps the greatest benefit of RFID technology is its assistance in improving inventory accuracy information and gaining a more correct image of the sources of inventory shrink- age. To efficiently and strategically manage inventory, a store must have an accurate picture of the actual inventory on hand. For example, knowing when a product is out of stock is impor- tant for knowing when to order more. RFID tagging allows the retailer to gain a real-time

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perspective on inventory because each item is tracked electronically versus relying on the computer inventory numbers alone.

In the future, a move toward greater use of RFID technology will make retailers more effi- cient and proactive in loss assessments as well as inventory management. Since RFID tech- nology is not suitable for all kinds of products (for example, it is difficult to use on liquids and some metals), a balanced approach to use of RFID with Electronic Article Surveillance (EAS) technology may prove to be the ultimate efficiency tool at retail.12

Summary Retail security, facing some of the same problems in the 21st century that it always has, is also faced with the new challenges in the areas of e-commerce, social media and organized retail crime (ORC), to name a few. E-commerce has allowed thieves to quickly move stolen merchandise with some degree of anonymity, reaching international buyers via the Internet. Inroads have been made by retail organization associations in building relationships with major e-commerce trade companies that have historically been known to host the sale of sto- len product. These e-commerce companies are now working in conjunction with retailers and local law enforcement to shut down auction or sale postings, which specifically can be traced to stolen or counterfeited product.

Add to that the recent shoplifting multiple offender crimes, sometimes associated with flash mob activity, which have used social media to coordinate group crime attacks on retail- ers. Additionally, more sophisticated and aggressive ORC groups are pushing the resources of the retailer and law enforcement alike to take aggressive action as well, which pulls the investi- gator role away from the handling of traditional in-store issues.

All of these issues continue to challenge retailers to provide resources, people and technol- ogy, to combat the ever-changing landscape of retail security. However, some of the traditional retail security issues remain the same, as discussed in this chapter; not much has changed related to shoplifting and internal theft. The tools for discovering, preventing and apprehending internal thieves and shoplifters continue to improve each year. Still, improved technology has not drasti- cally reduced retail shrinkage; thieves still find methods to defeat even the best electronic devices.

The same challenge will exist for retailers in the future; ensure risks are property identified and then ranked. Match up the sometimes limited resources to determine how retailers can cost effectively address these risks, all the while remaining competitive and profitable.

Review Questions 1. What are two broad categories of shoplifters? 2. What is the most effective tool for use in deterring internal theft known as “sweethearting”? 3. Describe the difference between a policy, procedure and a practice? 4. What are the three components of a balanced policy control system? 5. Identify the most common method of associate theft of cash at the point of sale (register)

and what is the best way to reduce the opportunity for this loss to occur?

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References [1] University of Florida, National Retail Security Survey, 2009 and 2010.

[2] Lowe’s Bombing Suspect Arrested by Monica Toriello, Home Channel News, December 13, 1999.

[3] Associated Press, Raw Data: Past Deadly U.S. Mass Shootings (Robert. A. Hawkins), April 3, 2009 (<www.foxnews.com>).

[4] University of Florida, 2009 and 2010.

[5] Substance abuse linked to increased problems on the job. Security April 1991:10.

[6] University of Florida, 2009 and 2010.

[7] Our Three Pennies of Profit, Retail Profitability Training for Employees—North American Retail Hardware Association & Russell R. Mueller Retail Hardware (<http://www.nrha.org/>).

[8] Berlin P. (n.d.). Root causes of shoplifting: why do shoplifters steal? Theft class by NASP. Retrieved September 6, 2011 from <http://www.shopliftingprevention.org/WhatNASPOffers/NRC/Understanding TheRootCauses.htm>.

[9] Commercial Services Systems, Inc., <http://www.ncjrs.gov/App/Publications/abstract.aspx?ID=83837>. [10] FBI—Uniform Crime Report (2010) <http://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2010/

preliminary-annual-ucr-jan-dec-2010>. [11] Electronic article surveillance definition in the Free Online Encyclopedia. (n.d.). Encyclopedia. Retrieved

September 6, 2011 from <http://www.thefreedictionary.com/Electronic+article+surveillance>. [12] <www.RFIDJournal.com>, downloaded 09/09/2011.

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