Retail Loss Detection and Prevention Policies and Procedures By -John E. Grimes III, MS, CFE, CFI
Loss prevention defined Loss Prevention is the concept of establishing policies, procedures and business practices to prevent the loss of inventory or monies and preserve profit in a retail environment.
Role of Loss prevention • While each retail company approaches the mission and purpose of their loss prevention programs based upon the unique needs, structure and culture of the organization, at its core the role of loss prevention is to enhance the profitability of the company – just like every other role in retail. Primarily, that role focuses on the reduction of shrink (losses). • Loss prevention departments look at all of the various issues that can potentially lead to losses, devise strategies to minimize those pitfalls within the business, and implement strategies that are practical, actionable, and consistent with the goals of the business.
Shrinkage (shrink) • Inventory Losses in a Retail Environment are referred to as Shrinkage. • Shrinkage can best be described as the amount of merchandise physically available in a location versus the amount of merchandise that should be on hand based on inventory records. In simple term it is missing product.
Measuring shrink There are many other factors that are accounted for when determining the expected inventory count other than purchases and sales. They include: • • • • •
Markdowns Markups Returns by customers Returns to the supplier Damaged merchandise
What causes inventory shrinkage • • • • • • • •
Internal Theft (various schemes, including cash theft schemes) External Theft Vendor Theft Paperwork Errors Inaccurate shipments Inventory miscounts Poor receiving practices Failure to record all markdowns.
Non-inventory dollar losses Non-inventory related losses that occur at store level. • • • • • •
Net Cash Register Discrepancies Net Deposit Loss and Discrepancies Credit Card Charge backs Bad Check Loss Gift Card Loss due to theft Cash Robberies
THIS IS WHY IT IS IMPERATIVE THAT LOSS PREVENTION BECOME A CRITICAL COMPONENT OF BUSINESS PHILOSOPHY!
The 5 ps of loss prevention Philosophy
Practices
People
Procedures
Policies
Philosophy
Zero tolerance for fraud! Have a Written Code of Ethics! Create a Positive Organizationa l Culture! Set The Tone at the Top!
Empower People to Achieve Goals!
Policies
Fortifies the corporate philosophy Overarching published rules that govern and embrace general goals of your business
Procedures
Published Directives that govern personnel in conducting business operations, including internal controls to prevent and detect losses.
Published Directives that govern personnel in what steps to take when detecting indications of loss.
Practices
Acts that are performed habitually or repeatedly
Practices should conform to established procedures
People THE HUMAN FACTOR Employee Theft
10-10-80 Rule
10% of the human population is good. They will not do anything wrong, no matter what pressure or opportunity presents itself to them.
10% of the human population is bad. They will take advantage of opportunities or create opportunities to steal.
80% of the human population are on the fence and could possibly fall on the wrong side of the fence if pressure enters their lives, and could take advantage of an opportunity and make the wrong decision and steal, rationalizing their decision in a number of ways
Understand why some of the 80% fall on the wrong side of the fence.
Fraud Triangle
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Variations of the Fraud Triangle have been discussed since that time, including the Fraud Diamond adding a fourth side representing capability.
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The Fraud Triangle was developed by Dr. Donald Cressey in the 1950s while conducting research on why people commit fraud.
For the proposes of this course the Fraud Triangle with the 3 sides of Pressure, Opportunity, and Rationalization will be utilized.
PRESSURE
Thank you !