***LOSS PREVENTION EXECUTIVE INTERVIEWS***

All featured interviewees in this series were speakers at the Internal Loss Prevention Conference, 26-27 February 2008 in London.

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INTERVIEW:
ARJUN MEDHI, STAFF FRAUD ADVISOR, CIFAS
Interview by Sara Lloyd-Jones, EyeforRetail

Q: Retailers are notorious for shying away from the issue of internal loss. Why do you think they are now beginning to tackle the issue head on?

A: I agree that businesses in general were reluctant to admit the scale of the problem, perhaps due to potential reputational damage. However, several factors have combined to cause businesses to be more ready to tackle the issue of internal loss. These are: 1) Increasing incidences of staff fraud and financial losses; 2) Increased targeting of business by organised crime networks; 3) Unquantifiable reputational damage to image and brand; 4) Internal impact on business.

Q: How important do you think the problem is?

A: The problem of staff fraud is as important as any fraudulent/theft behaviour but probably has more significance as it is committed internally. The reason for this significance is that individuals are placed in a position of trust to safeguard the financial interests of their employer but abuse this position in order to gain for themselves. Organisations are taking this problem seriously and are now more prepared to make an example of an internal fraudster through active prosecution to naming and shaming. The profile of internal loss has been raised immensely in the media too.

Q: What do you think is the main motivation for staff who steal?

A: Although an element of greed is often present in the vast majority of these cases, employees are known to commit fraud according to three variables: opportunity (i.e. exploiting a lax in system and security); pressure (e.g. threat from organised criminals); integrity (i.e. the employee holds no loyalty with their employer). In addition, organisations are increasingly seeing individuals stealing to fund high levels of over-indebtedness. Furthermore, there is a potential to receive a high benefit out of committing a low risk crime. The risk is perceived to be low because the sentencing has traditionally not always been severe and sometimes not even custodial, though this is beginning to change. 

Q: What do you think is the main deterrent?

A: It's very important that organisations have a clear, widely communicated and effective investigation and prosecution policy to ensure that staff members know that if they are identified as being involved in fraud they will be dismissed and reported to the police. However, due to derisory sentences and low prosecution rates, organisations are increasingly ‘naming and shaming' staff fraudsters; publicising prosecutions by inviting staff members to court to witness sentencing; adopting a zero-tolerance policy; using civil recovery methods; and of course, participating in anti-fraud schemes like the CIFAS Staff Fraud Database. 

Q: Do you think that retailers in general have a hold on their internal loss problem, or are the criminals generally a step ahead of the game?

A: I cannot comment on retailers but I do believe organisations are working hard to combat the internal loss problem effectively. However, to continue being “ahead of the game”, an organisation must be proactive and invest more in adopting the anti-fraud culture. 

Q: What do you think has been the most successful move against internal loss in retail in the last 5 years?

A: Again, I cannot comment on retailers. However, overcoming the traditional unwillingness to admit that internal loss is a real problem represents an important first step in the fight. 

Q: Do you think the most effective tool against internal loss is found in data mining advances, staff recruitment/training or any other solution?

A: There is no “most effective tool”. The key to success lies in the combination of effective tools. This may involve adopting an anti-fraud culture, implementing a more robust vetting/ induction process and regular, clearly communicated bulletins about relevant developments, introducing a whistle-blowing hotline, engaging with law enforcement, monitoring staff and data sharing. It may be impractical for every organisation to adopt all these activities, in which case it may be more feasible to adopt a risk-based approach that takes into account the nature of the business, the industry and the different job roles. CIFAS worked with the Charted Institute for Personnel and Development to produce a best practice guide on Tackling Staff Fraud and Dishonesty. This guide was prepared to help organisations to understand the threats inherent in staff fraud and dishonesty and to help manage and mitigate the risks. The guide can be downloaded from the CIPD website. 

Arjun Medhi is Staff Fraud Advisor at CIFAS, the UK's Fraud Prevention Service. He is speaking at the EyeforRetail Internal Loss Prevention Conference in London on 26-27 February. For more details download the brochure!

INTERVIEW:
WALTER PALMER, CEO, PCG SOLUTIONS
Interview by Sara Lloyd-Jones, EyeforRetail

Q: Why do you think retailers are finally paying attention to the issue of internal loss?

A:In the past, retailers have not necessarily been shying away from the issue of internal loss, but it is always easier to point the finger at someone else (the external thief).

External theft is more obvious for retailers – when tackling this the issue is not what are we doing to ourselves but them and us.

However, as we get better reporting and epos data we get better visibility about these issues, and there is a call for more control of internal loss – retailers have to be proactive in tackling internal loss issues including staff theft and fraud, as well as internal process loss.

Q: What do you think is the main motivation for staff who steal?

A: This is a topic that many people have studied… a lot of this comes down to opportunism and the fact that often the stores make it far too easy for dishonest staff to operate.

Part of the problem here is that we let people rationalise what they do – as in the cases of speeding or cheating the protagonist is allowed the opportunity to consider that in their case ‘it's not a big deal'.

In fact, research has shown that people rationalise in three ways. Firstly, they argue that what they are doing is not a big deal – that this is a perfect example of a victimless crime. Secondly, if a company precedent is set where nobody else is caught, staff feel as if they can get away with dishonest behaviour and this becomes part of the ethos of the company. Thirdly, as we briefly mentioned, the more opportunities there are to steal, the more temptation there will be, along with a feeling that employers ‘just won't notice'. Of course though, minimising opportunities for dishonesty through stringent controls has to be balanced with business interests and the sheer speed of the retail industry has to be taken into account.

Q: Are there any particularly useful deterrents to stop staff from stealing?

A: It is certainly not the case that there is just one thing that you can do to prevent or minimise internal loss – the issues are complex and you have to employ a multitude of strategies and techniques in order to effectively manage controls whilst maintaining a level of trust within your company. Competing interests mean that no singular practice can guard against dishonest staff. However, the problem needs to be holistically tackled by the retail organisation, primarily through training and incentives. Once retailers make the internal loss problem something that is central to their loss prevention strategies they will have a much better chance of reducing the 50% of shrink that stems from dishonest staff and inefficient internal processes.

Q: Are the criminals still a step ahead of the game in internal loss?

A: Adrian Beck's argument on this topic is that a retailer will identify where losses are stemming from and put into place a seemingly effective counter measure. This will work for a period of time and then the criminals will inevitably find some way to work through it. Retailers will then need to re-evaluate and ensure that they continue to do so on a regular basis.

Q: Are there any particularly good solutions available at present which can help?

A: In the fight against malicious internal loss, there are indeed some sophisticated tools available but this is an ongoing battle. Of the solutions that stand out, intelligent video is one that is very effective right from its inception. Data mining continues to be a crucial instrument to help us look at things that retailers have been previously blind to.

With regard to non-malicious retail loss such as systematic shrink and process loss, new systems are continually produced and so techniques and procedures to minimise loss which may have worked well yesterday can often be rendered ineffective due to the speed at which these systems are updated.

Q: Internal process loss then seems to be a massive issue for retailers – why is this?

A: Retail organisations are constantly adopting new technologies, and they often struggle with how to integrate and update them. Retail is an especially fast-paced business and retailers rarely have time to pay very close attention to the systematic issues in their organisation. Therefore process visibility is hugely affected and control is lost.

A further issue is that whilst headquarters may understand how all the pieces of the process jigsaw fit together, many more people are involved and only one individual only knows one piece of the puzzle. Retailers therefore need to take a more holistic approach towards process control in order to minimise loss.

An example of how shrink can be hugely affected by inefficient processes on the shop floor (which are of course not necessarily intentional) is the ‘buy two get one free' case – customers present three products to the cashier, who only beeps through two products (seeing no need for the third product to go through). This can create a huge shrink problem as one out of every three products sold goes missing! This is a perfect example of a gap between planning and execution that creates shrink, but could easily be avoided by ensuring process continuity.

Q: What do you think has been the most successful move against internal loss in retail in the last 5 years?

A: Generally, the increased use of technology such as video, data mining and suchlike. In addition to this, retailers are beginning to make fundamental changes and are safeguarding their organisations more effectively. Of course, the answer can't be found in data mining advances, staff recruitment, training or any other solution singularly; effective screening, instruction, control and detection are ALL key and will be the only way for retailers to win the internal loss battle.

Walter Palmer is CEO of PCG Solutions. He is speaking at the EyeforRetail Internal Loss Prevention Conference in London on 26-27 February. For more details download the brochure!

INTERVIEW:
ADY HOUGHTON, HEAD OF CORPORATE AUDIT, ICELAND
Interview by Sara Lloyd-Jones, EyeforRetail

In October this year, I visited an Iceland Store in Sheldon and met with Ady Houghton and a member of his enthusiastic and professional team, Nicky McKinlay. They took me through their Loss Prevention and Audit structure and explained their main challenges and experiences in internal loss prevention for a large retailer.

Their insights provided me with plenty of material for the EyeforRetail Internal Loss Prevention conference agenda, and so in November, I caught up with Ady and asked him to share his latest views on this perennially contentious subject…

Sara: Retailers are notorious for shying away from the issue of internal loss. Why do you think they are now beginning to tackle the issue head on?

Ady: The main cost line on the profit and loss account is stock loss, and this has proved very difficult to reduce in the past. Between different companies the figure varies, but always appears as a relatively high value. Of course then, if this was reduced it would contribute to the bottom line immediately. As other costs are proving very difficult to reduce further this cost line stands out. Financial Directors are now understanding this cost in greater detail and creating energy for business focus to reduce this specific cost.

Sara: How important do you think the problem is?

Ady: In short, it could be the difference between the current net profit percentage and the ability to double it.

Sara: What do you think is the main motivation for staff who steal?

Ady: Firstly, business makes it easy for staff to steal, so opportunism is a huge factor. However, addictions such as drugs, gambling and alcohol tend to spur on the compulsion to steal. A huge motivating factor is the awareness of staff that their bosses will not like to accept that their own staff are stealing.

Sara: What do you think is the main deterrent?

Ady: It is absolutely crucial for retailers to have a clear stated policy of what is and what is not acceptable. Whilst tackling the cultural issues associated with compliance in operations, we need to have transparent compliance measures within operation procedures and policy and be prepared to independently investigate issues of theft or fraud internally.

Sara: Do you think that retailers in general have a hold on their internal loss problem, or are the criminals generally a step ahead of the game?

Ady: Historically you can see a wide gap between organisations who tackle this problem effectively and those who just count the cost. It is about the internal challenge of cost and the energy and will to resolve / reduce the cost.

Sara: What do you think has been the most successful move against internal loss in retail in the last 5 years?

Ady: In my opinion these are threefold. Firstly the data mining of checkout transactions, secondly the developing world of CCTV analytics and thirdly the line level stock loss data by location.

Sara: Do you think the most effective tool against internal loss is found in data mining advances, staff recruitment/training or any other solution?

Ady: The fight will always be won through a cocktail of effort and tools, people and technology.