Encouraging best practices among employees requires effective training, monitoring and accountability.
By Erin Rigik, Senior Editor
Superior cash management and loss prevention strategies begin with best practices in labor management, including employee training, monitoring and accountability.
A recent report from Retail Knowledge, a retail fraud and loss prevention firm, indicated that over the past three years, employee theft was the single largest cause of loss to U.S. retailers.
“It accounts for 38% of all loss,” said Mark Emmott, director of Retail Knowledge. “To put that in context, employees would appear to have stolen almost $23 billion from their employers last year. This appears to be incrementally increasing year upon year both in percentage terms as well as the absolute value of goods being stolen.”
Comparably, employee theft accounted for 37% of retailer loss in 2014, a 2% increase over 2013, according to Retail Knowledge data.
Brent Mouton, president of Brenton Investment Corp., knows that industry-wide, employee management practices are closely tied to loss prevention numbers. At Brenton Investment Corp.’s 13 Hit N Run Food Stores in Louisiana, employee applicants undergo background checks, followed by comprehensive training once they’re hired.
Not only does Hit N Run prepare workers to operate registers and stock shelves, but the c-store chain also informs them of exactly how management is watching.
“We talk to them about how the security system is linked to the registers and let them know we can see every transition and that transactions are recorded. We talk to them about the inventory audits that we do, as well as the safe and cash draw audits,” Mouton said.
The company also explains to its new employees how it uses shift comparisons to ensure sales aren’t taking a mysterious dip, and that it monitors voids, no sales and cancelled transactions.
Using DVR technology, Hit N Run Food Stores is able to drill down and view video of specific transactions—be it voids or no sales—and listen in on what was said at the time of the transaction, all while viewing the receipt of the transaction alongside the interaction.
“The store manager is ultimately responsible for the employees at the store, but we have operations people who also oversee this process and check in with the store managers and assist them at digging deeper into any potential problems,” Mouton said.
While most c-stores strive to be constantly watching and preventing issues from arising, the time-consuming nature of employee monitoring and theft prevention can be a challenge for most retailers.
Hit N Run Food Stores has a two-prong prevention strategy. Aside from education and monitoring, the retailer doesn’t hesitate to prosecute.
“The final piece of the puzzle is that when we do catch someone, we don’t just terminate them. We gather up the evidence and we call the cops and then we have him (or her) arrested, and we do it at the store. We want everybody to see,” Mouton said. “It does make an impression on our employees when they see someone get arrested, and word does spread—not just at that store—but at all the other stores because the stores are in communication with each other.”
RAISING RED FLAGS
Chris McGoey, founder of McGoey Security Consulting, said the key to combating employee theft is implementing high standards from day one, beginning with a complete background check of potential employees, including calling references. Once employees are on board, have procedures and policies in place for how cash transactions are handled and how employees are to check out at the end of a shift.
“If everyone is doing that correctly and accurately, it takes away a lot of the opportunities from the dishonest employees because if they start stealing cash or are not ringing sales, that’s going to jump out. It will be a giant red flag,” McGoey said.
He pointed out that the convenience store industry faces a larger percentage of employee theft issues than most retail type stores particularly because employees often work alone and therefore have less supervision.
Technology can provide that missing supervision. Video surveillance today features sharp quality digital images and the cost of the technology is going down. Yet most convenience stores today feature multiple cameras, and cash and inventory loss continue.
“Having a video surveillance camera doesn’t do the trick all by itself,” McGoey said. To get a handle on theft, management must interface with all employees on all shifts and hold them accountable for everything in the store—both merchandise and cash—on a shift-by-shift basis.
“Until you do that, convenience stores will continue to have employee theft,” he said.
McGoey explained that dishonest employees will test managers to see if they’re watching. They’ll be paying attention to see if they’re being held accountable for their cash drawer. “If (everything is) well documented and someone follows up to balance every single shift, then you’ll have less or very little cash loss,” McGoey said.
As c-store operators know, dishonest employees aren’t just stealing cash, but also merchandise.
“The amount of employee theft that occurs in convenience stores is directly proportional to how the inventory is managed,” said Bill Scott, founder of StoreReport LLC & Scott Systems Inc. “Sloppy stores, higher theft. Neat stores, less theft. When employees see a lax attitude toward stock, especially things accumulating in store rooms and on unorganized shelves, if they get the attitude you’re not concerned they won’t have any qualms about taking it.”
Beyond strong inventory practices, monitoring can again assist with identifying employees stealing merchandise.
“Those that have a shrinkage or cash loss problem aren’t (reviewing videos). They think that they’re just too busy,” said McGoey. “There’s a labor pool out there of employees that will work for convenience stores and there are some that get very astute at these transactions and how to not ring sales. They can move through the labor pool from store to store to store, until they finally get caught or arrested. And they can do a lot of damage out there. The key is to have the on-duty owner or the on-duty manager hold each employee accountable per shift, and the technology is there.”
When an employee is stealing from a company, a pattern develops that becomes apparent in the shift data.
“For the same day of the week, on the same shift, you should do similar amounts of sales and transactions,” McGoey said. “A single, well-run store will have very few over rings, very few refunds, and a certain amount of sales that will fit within a specific range, and the cash flow will be balanced.”
If a dishonest employee comes to this type of well-run store, he or she should soon stand out. “If they’re not ringing sales, then their sales trend is going to drop from what’s ordinarily expected from that shift,” McGoey said. “Their average transaction will drop, and their cash usually is all over the place as far as being over or short.”