How to Reduce & Prevent Retail Employee Theft

The retail sector is particularly susceptible to employee theft, primarily as a result of low wages and high staff turnover. In 2009, employee theft at 36.4% was the second biggest source of UK retail shrinkage amounting to £1.5 billion. Even though employee theft is less frequent than customer related theft, the resulting consequences can be enormous .i.e. the average customer related theft amounted to £66, while the average employee theft was £1,318.

From a loss prevention point of view, employee theft is more difficult to detect as employees exploiting their position of trust can easily manipulate policies and procedures. In 2009, Marks and Spencer manager, Bijal Mistry, used his staff ID number to make fraudulent refunds amounting to £6,700. Lynda Cackett, a 14 years veteran of the same company, was caught stealing cash amounting to £1,200 from the till. Adrian Lashley an H&M manager stole £8,200 and fled to Brazil only to return after spending all of the cash. Ben Marsh stole £14,000 from a greengrocers store in Bristol by paying a ghost worker for three years and Michael Harris a trading manager who had worked with supermarket giant Tesco for 20 years, was accused of stealing £18,750 worth of electronic items even though he admitted to only £4,000.

Employee theft is not inevitable and no retailer should accept it as a part of being in the retail business. With simple and effective policies and procedures employee theft can be prevented or minimised.

The Process of Employee Deviance

1.      The theft process starts with the opportunity; if merchandise is placed in locations that are not properly secured, for example: high value items placed in warehouse without locks, merchandise not strategically displayed on the shop floor or placed close to an exit or positioned in a place which easily facilitates their removal from the store.

2.      If the employee perceives the consequences to be less severe to deter them from carrying out the act

3.      If the benefit from stealing the merchandise outweighs the perceived cost of being caught, they will be willing to take the risk e.g. students taking on temp jobs.

4.      If they rationalize their decision by saying something like I am not paid enough for the work, the organisation is rich therefore will not be affected by this or everyone else is doing it any way.

Theft Indicators

  • An employee leaves without notice or calls in sick in the middle of a routine oversight or natural audit process
  • Employees oppose re-examination of audit of financial data or records
  • An employee expresses concerns  about company policy or charges that managers do not follow set procedures
  • Employees who constantly monitor the movements of managers or loss prevention personnel
  • Recurring variances match known debts periods
  • Discontentment with the job and / or supervisor
  • Unusual enquiries into loss prevention coverage hours
  • Reluctance to take part in meetings about integrity or theft
  • Noticeable increases in variances before employee holiday or bank holiday weekends

How to Prevent Employee Theft

The following are some of the measures that if implemented can lead to a reduction in employee theft:

1. Pre-employment screening

It all starts at the beginning. Before employees are recruited it is essential that effective background checks are conducted. To ensure this process is fit for purpose the application form has to be comprehensive and up-to-date – it needs to request as much relevant details as possible. The interview process has to be thorough. Interviewers need to be trained to ask questions relating to loss prevention. Where possible loss prevention personnel need to be involved with the interview process especially where staff are expected to work in determined sensitive areas such as cash rooms or tills.

Honesty and integrity testing will give an indication of where the interviewee stands on issues such as theft and deception. The use of temporary agencies is something retailers need to be cautious about, as many temporary agencies do not conduct the level of checks required to filter out undesirable potential employees.

2. Demystify Loss Prevention

Loss prevention in many retail organisations is outsourced to private companies who may send in their own employees to “catch” both dishonest employees and shoplifters. As a result of this cloak and dagger approach, instead of enlisting the help of the store employees, they see them as potential suspects and therefore do not enlist their help in the process.

Many retail organisations employ security tactics instead of loss prevention. In the security model, anyone who is not a part of the security team is a suspect unless proven otherwise. With this approach loss prevention personnel operate in the shadows. This is one of the main reasons why retail loss prevention efforts are ineffective. For any loss prevention effort to be effective, it requires loss prevention personnel to openly discuss issues with other store employees and where possible enlist their cooperation.

If store employees are included as stake holders within any loss prevention strategy, statistically you increase your chances of achieving a positive outcome. Nobody likes to be seen as a suspect, especially honest longstanding employees.

3. Embrace New & Existing Technology

Closed Circuit Television (CCTV), Electronic Article Surveillance systems (EAS), Direct Store Delivery Receiving systems (DSD), Point of Sale (POS) Data Mining Software and Merchandise security Tags are a few of the technologies used within the retail industry. Universally these technologies have succeeded in

  • Reducing store shrinkage by almost 50%
  • CCTV has aided in the reduction of shoplifting by 31%
  • Automated cashier performance systems have reduced cashier related shrinkage by 25%
  • Automated DSD systems have reduced receiving shrinkage by 35%.

The effective use of technology combined with robust policies and employee participation can dramatically reduce shrinkage within any organisation. However, I must caution that technology on its own cannot produce the desired results, employees have to be thoroughly trained to operate and utilise these technologies.

4. Loss Prevention training

A poorly trained temporary cashier who cannot tell the difference between a Granny Smith and Royal Gala apple may charge a customer the lower price for fear of upsetting the customer. Now if that same cashier had been thoroughly assessed during product knowledge training they would have been made aware of the fallback systems that are there to help them in these circumstances i.e. product identification code sheets.

Most employees do not see the bigger picture of their actions and how they impact upon the organisation. All new and existing retail employee needs to be given loss prevention training in order for them to have an understanding of what loss prevention is and how it affects the organisation and them as individuals.

If employees are not thought to report incidents of damage or theft, they could see them as insignificant. Teaching employees the importance of inventory control and reporting any incidents of damage or suspected theft will assist a great deal in inventory accuracy and ultimately reduce shrinkage

5. Policies and Procedures

Standardised policies and procedures are essential for the smooth operation of any organisation, especially in the retail environment where staff turnover is relatively higher than other industry sectors. A clearly formulated policy that is rigorously audited for procedural compliance will ensure that all employees are operating within the organisation’s standards. Every retail organisation should aim to incorporate into their operating procedures:

  • Key/Perimeter Access Control
  • Scanning Policy
  • Employee Honesty & Integrity Policy
  • Employee Shopping Policy
  • Void; Refund; No-sale Policy
  • Unofficial Markdown;
  • Receiving & Shipping Policy

The above highlighted cases of employee theft demonstrate that long serving senior staff can still operate outside standard procedures and practices. However, what they really exposed is a lack of oversight and operating practices that were found wanting. For example, Bijal Mistry had a previous police caution for stealing at Morrison’s – another retailer. The fact that he was employed by Marks & Spencer and rose to managerial position showed an inadequacy in pre-screening procedure in the company. As difficult as it might be to eliminate, employee theft can be minimised by the implementation of the above measures.

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