chap_10 Loss Prevention

CHAPTER 10LOSS PREVENTIONChapter 10LOSS PREVENTION Click on a line to access the corresponding pageTable of ContentsAnnual inventory shrinkage / loss...............................................................................................Page 3 Calculate your shrinkage figures.................................................................................................Page 4 Doing physical counts of your inventory....................................................................................Page 5 Helping the company reduce shrink?.........................................................................................Page 6 Adept at waiting on more than one customer at a time...............................................................Page 6 Minimizes most shoplifting opportunities..................................................................................Page 6 We have a policies and procedures manual.................................................................................Page 6 Aware of the effects of shrinkage................................................................................................Page 6 Electronic security systems.........................................................................................................Page 6 No employee be left in the store by themselves..........................................................................Page 7 Make sure that all cash refunds are legitimate...........................................................................Page 7 Keys are the non-duplicating type...............................................................................................Page 7 Cash register and head office procedures are in place.................................................................Page 7 All markdowns are accounted.....................................................................................................Page 7 All parcels of all employees are checked....................................................................................Page 8 The back door of the store is used only as an emergency exit....................................................Page 8 We always do reference checks on new employees....................................................................Page 8 All garbage is inspected by a second party before leaving the store...........................................Page 8 Generous staff purchase program................................................................................................Page 9 Page 2LOSS PREVENTIONChapter 10Page 3REDUCING THE PAIN“Loss Prevention” is not a very glamorous part of retail. It is however an extremely important element of the success equation. Theft or shrinkage, call it what you will, is all lost dollars and each of these dollars is 100% pure bottom line profit. A store owner doing $400,000 per year with an average 3%shrink is forfeiting $12,000 per year from his or her pocket. In most cases, if true figures were available,it would most likely be twice that amount. Shrink is hard to track and most retailers grossly underestimate their loss rates. Any inroads we can make in reducing this amount is money in the bank.In the last 10 years employee theft has overtaken customer losses as the greatest portion of shrinkage figures, with paperwork errors being a distant third. There are a 100 ways for staff to steal and it’s economically impractical to cover all bases. Therefore the general theory in loss prevention circles is that management has to create the impression that the organization knows all the ways to steal and has the checks in place to catch any offenders. In reality they don’t but the likelihood is still there that apprehension is probable and most employees will forget about trying and hopefully focus on their job.Primary among the control factors to stop shortages is management involvement. Only when all levels of management participate in loss prevention programs will shortages gain the visibility as a major company problem. Employees will then realize the importance of proper control and that the company is not willing to accept such losses.Shrink figures are the difference between these two figures calculated in retail dollar values and typically expressed as a percentage of total puterized point of sale (P .O.S) systems can make the process a lot easier. They allow you to pinpoint specific trouble spots and calculate period gross margins which can be compared to financial statement gross margins to give another form of shrinkage calculation.1. Do you know what your annual inventory shrinkage / loss figures are?Most retailers use the “gut feel” approach as to what their shrink is and whether it is a problem in their organization or not. Unfortunately it’s a major problem for almost every retailer as each dollar lost is bottom line profit. It takes an average $10 of extra sales to make up for every dollar lost. Our experience has been that the “gut feel” figure can in most cases be doubled if compared to an actual figure.This elusive shrink figure is calculated by comparing an actual physical count of all inventories with a book value figure. Book value figures are obtained by keeping a perpetual inventory accounting system, which can be either manual or computerized (see chapter 12).Chapter 10LOSS PREVENTIONPage 4Shrinkage $ = Book Value of Inventory - Actual Inventory on Hand Shrinkage % = Shrinkage $ at Retail Values ÷ Total Sales2. How often during the year do you calculate your shrinkage figures?Obviously, the more often you go through the procedures of calculating your shrinkage the better and faster you become at gathering the data and hopefully the more accurate the data becomes. Only with strong, believable information can management make sound business decisions.A physical count of inventories is costly and time consuming and why the majority of retailers count inventories only once a year. Therefore,they only have the ability to calculate shrink once each year and become vulnerable to a very nasty surprise if gross margins and profitability are not what they are expected to be. The problem with this is that, if there are any major shortages, it is too late to react for the current year. If for example, monthly or even quarterly comparisons were made between the book and physical numbers, it would give us time to rectify any problems before it was too late.LOSS PREVENTIONChapter 10Page 53. Do you have a systemized pro-cedure for doing physical counts of your inventory?Having to count inventory strikes fear in every retail employee. Yes, coming in early to count stock can be a fate equal to death for most of our staff. They have trouble making it for a 10:00AM shift so heaven forbid two hours earlier.Performing a physical count of the inventory is also a major production for most retail owners.Fortunately it does not have to be that way if they did it more often and followed a proven systematic approach.Consider these counting steps:a. Preparation - having the store neat &organized is essential. Start a couple of days before the count to clean up layaways, returns,repairs etc. Pre-count any merchandise that won’t be sold before the official count (eg. off season stock, displays etc.) Make sure no stock is in transit between stores or warehouse.b. After Hours:We’ve seen stores try to count stock and ring in sales at the same time. Y ou can bet the accuracy of the count is greatly diminished not to mention the level of service customers get. Count your inventory when the store is closed.c. Supervision:It is not recommended that store managers do their own counts of their store unless the actual count is closely supervised by an objective outsider that has no reason to inflate the numbers.More than one store manager and employee has been know to “overcount” inventory to cover up for known theft.d. Draw a Map:The store should be divided into its natural count areas. Have the supervisor draw a map and number these areas. An area could be a floor rack, wall unit, table, back room etc. Every section of the store must be represented on the map including the ceiling and washroom if merchandise is in these areas. Do not make the areas too large. A typical store should have 20to 30 count areas.e. Count Sheets:Count sheets should be pre-numbered, printed and padded. The layout of this form as far as number of lines, column headings page totals etc.will vary between organizations. Standard headings would be: date, store, page location,counted by, checked by, quantity, price,description / SKU # etc. It is imperative that every count sheet is accounted for, hence the pre-printed numbering and padding.f. The Count:Each section is systematically counted so checkers can easily follow. On a wall section count top to bottom, left to right.Record on count sheets in pen, never pencil. Have the supervisor initial any changes in red ink. After each section is counted and recorded begin double checking,bringing any mistakes to the supervisor’s attention. All sheets and map are then sent to senior management for processing.Following these steps will not only make your inventory count more accurate, it will also simplify the process so that you can count it much more often.Chapter 10LOSS PREVENTIONPage 64. Do you have an employee reward system for helping the company reduce shrink?In order to push losses due to theft to their lowest possible levels, it is necessary to gain the commitment of each and every employee. Loss prevention should be part of all job descriptions.Rewards should be given to those who have saved the company money through their actions or suggestions. Rewards for recovering goods from shoplifters and identifying fellow employees who are stealing, not only honor the actions of loyal employees, but act as a deterrent to possible dishonest employees, who may think they will never be caught.5. We have a policies and procedures manual.Misinformation on how to handle anything dealing with cash and inventory, is the main reason behind employee mistakes, which result in discrepancies between book and physical figures. The larger one gets, the more important updating this manual and policing its policies becomes.6. Our staff are aware of the effects of shrinkage on our store, on our customers and on themselves.The shrink figure is not something management should keep to themselves. All employees must be made aware of how you, and more specifically how they, are doing in the battle to control losses. Regular loss prevention meetings must reiterate the cost of such losses and how it relates to the economic viability of their store and ultimately their job.7. Our sales associates acknowledge and greet every customer and are adept at waiting on more than one customer at a time.Your best defence against shoplifting is an attentive sales staff that acknowledges and waits on each and every customer. Thieves do not like to be waited on. Stay with your customer as much as possible. Constant staff training on effective selling skills, will greatly increase service levels and hopefully reduce most shoplifting opportunities.8.Our stores are designed and merchandised in such a way that it minimizes most shoplifting oppor-tunities.Blind spots, cash counter placement and merchandise displays must be such that it is impossible for a customer to be in the store without being seen by sales staff. Word travels fast if your store is easy to steal from. Stores with an unobstructed clear view from the outside,will again create doubt in the shoplifters mind,as to whether or not any one is watching.9. For our type of retail operation we are making the best use of electronic security systems, security mirrors, video cameras and micro tag systems.All of the above have their place depending on the type of retail operation. A centrally monitored security system can reduce insurance rates substantially, plus give reports as to who was in the store and at what time. Security mirrors help eliminate blind spots and security cameras can persuade a would be thief to move on to an easier territory. The micro tag systems are relativelyLOSS PREVENTIONChapter 10Page 7expensive and shrink figures must justify such a purchase. Employees can tend to get sloppy and not practice basic loss prevention rules when these systems are installed. Y ou must remember that these systems are only one tool of many in the fight to reduce losses.10. It is policy that no employee be left in the store by themselves.Taking away the temptation to steal and the knowledge that if you do steal, there is a good chance you will get caught, are the two main principles behind controlling internal or employee theft. There is no bigger temptation than being in the store by yourself when cashing out, especially if the individual has any financial difficulties or simply feels they are under- compensated for their efforts.11.Our store entrance keys are the non-duplicating type and we always know who has store keys at any time.Limit access to keys as much as possible. Keep a record of who has keys and make sure you retrieve the key when they leave your employment. If you don’t get their key back,change your locks.12. All markdowns are accounted for and unauthorized markdowns are investigated. (ie. someone gives a customer a discount on a soiled garment.)What is company policy on soiled merchandise?Who can authorize a markdown? How are markdowns recorded? How are retail price reductions handled? All of the above can affect a change in the book value of merchandise. Strict policies and procedures must be in place tohandle all of the above. P .O.S. systems can assist management to police procedures, by producing markdown reports which show any discrepancies between suggested retails and actual selling price.13. Spot checks are carried out to make sure that all cash refunds are legitimate.False refunds are a popular method for dishonest employees to get cash from the till and still balance at the days end. To control this, the customer’s name, address and phone number must be recorded on a special form and signatures are required. Spot calls to customers should be made at head office to ensure the validity of the refund.14. Cash register and head office procedures for handling voids, post voids, no sales, refunds and control of “Z” & “Management” keys are in place.Even the most basic of today’s cash registers have many functions that can help management control employee dishonesty. The daily audit trail gives indication of every time the cash drawer is opened and for what reason. Ideally you want the drawer opened only for recording sales and if it has to be opened for any other reason an explanation is needed. Having the staff initial the audit trail and write an explanation works for some organizations, while others demand full reports signed by manager and or supervisor.The “Z” & “management” keys, depending on the register, allow certain functions to be done only by the holders of these keys. (ie. cash refunds, voids, and running of the days total sales, taxes etc.) These keys should not be made available to all employees.Chapter 10LOSS PREVENTIONPage 815. The back door of the store is used only as an emergency exit, and all deliveries and staff comings and goings are done through the front door.The back door is a prime route for dishonest employees to get merchandise from the store.Access to and from any back doors must be restricted. Fire regulations do not permit the permanent locking of most back doors so a “panic bar” might have to be installed. This allows exit only in an emergency but does not allow entrance.16. All garbage is inspected by a second party before leaving the store.Again, trying to restrict all methods of stealing usually keeps everyone honest. Putting merchandise in with the garbage is one of the oldest tricks in the book. Once out at the garbage bin the dishonest employee has an opportunity to hide the stolen stock so they can pick it up later. Having a second party check all garbage before it leaves the store or making it a two person job means that individuals would have to collaborate in order to steal. Consider using clear bags to further reduce the risk.17. All parcels of all employees are checked whenever they leave the store.This is a hard one to implement if not already in place. One must open up and show the contents of all bags including purses to another staff member. This is to show that you are carrying nothing that belongs to the company. No one is exempt from this policy including store managers and supervisors. If someone does not want there parcels checked, they always have the option of not bringing them into the store.18. We always do reference checks on new employees.It is that 10% of people who are always scheming, always trying to get something for nothing that we don’t want in our system.Unfortunately, retailers have a tendency to hire each others thieves. Generally as a group we don’t prosecute when we catch these bad apples and we do a poor job of checking with past employers as to reasons for dismissal. Two things to check with past employers are the candidates start and finish dates. One will usually fudge these dates if they were dismissed from a previous job for dishonesty. Also try to speak to their immediate supervisor as to work habits etc.LOSS PREVENTION Chapter 10 19. We have a generous staffpurchase program that allowsmost employees to purchasemerchandise at our cost price orjust slightly above.A 20% discount off the retail selling price,especially for retailers that average a 50%markup, is not conducive to controllingemployee theft. A generous staff discount canalso compensate for a low hourly wage orsalary. All staff purchases should be recordedand kept in a special store file. This allows youto document all merchandise purchases forevery employee.It is estimated that 1 out of 3 businesses thatgo bankrupt do so because of employeetheft. Getting serious about loss preventionmay just save your business.Page 9。