Retail loss prevention

Loss prevention (or assets protection) is a corporate buzzword referring to the practice of reducing inventory shrink in the form of operational errors, consumer and employee theft. Loss prevention, as a concept, has evolved from such industry staples as periodical store inventories, bag checks before employees leaving, and magnetic scanners at the entrance and exits of stores to controlling anything that could potentially affect a corporation's bottom line. Now, forward thinking companies have loss prevention personnel tackling safety, digital espionage, legal issues and even hazardous material control.

While shoplifting can be a cause of losses for corporations, general trends indicate that it is not the greatest cause of loss. As noted earlier, mistakes, accidents, and miscalculations cost corporations millions of dollars every year. Most experts agree that customer theft accounts for only 20% of inventory shrink. Because of the inherent need for companies to reduce operational costs, there is an ever-present need for experienced LP professionals, particularly in the retail sector. Some colleges even offer degree programs in loss prevention.

Overview

Loss Prevention is a form of private investigation into larceny/theft. Investigations generally include shoplifting, embezzlement, credit fraud, and check fraud. Most large retailers have a Loss Prevention department to prevent losses from larceny/theft. Generally retail operations suffer an annual shrinkage percentage of about 2.1%. It is generally accepted that one third of shrinkage comes from shoplifting, one third from employee embezzlement, and the final third from inventory mistakes.

Shoplifting

Shoplifting is one of the most common property crimes in the United States today. Contrary to popular belief, most shoplifters are not minorities. According to studies like the Uniform Crime Report most shoplifters are white males. However, anyone can be a shoplifter, an important fact for loss prevention investigators to understand; those who focus on stereotypes generally have a difficult time detecting shoplifting.

Most amateur shoplifters spend too much time selecting merchandise and looking for investigators, making them much more likely to be detected. Professional shoplifters on the other hand tend to already know what merchandise they wish to steal and move quickly to get it. A common technique used by professional shoplifters is called a "grab and run," in which the shoplifter quickly enters the store, grabs an item, and runs out of the store. Due to the quickness of this technique, professional shoplifters are difficult to catch.

Loss Prevention departments are run very differently from retailer to retailer. Centralized Loss Prevention departments are generally more common with discount retailers. Retailers like Target use a centralized command system in which there are floor people, a department manager, and a district manager. Decentralized Loss Prevention Departments are more common in clothing retailers. Retailers like Dillard's, for instance, have decentralized loss prevention departments in which there are usually only store investigators and sometimes off-duty police officers to assist in the arrest of shoplifters.

Attitudes towards shoplifting have shifted greatly in the last two decades. Retailers now want their investigators to focus more on prevention of theft rather then apprehension of shoplifting suspects. This is a result of numerous false arrest charges over the last two decades that have cost retailers millions of dollars in lawsuits. A false arrest is generally known in the Loss Prevention world as a "bad stop." A bad stop generally occurs when an investigator arrests a suspect who turns out not to have any merchandise.

To combat bad stops retailers have introduced a series of steps designed to help establish probable cause. The number of steps vary from company to company but are usually in some semblance of the following:

• 1. The investigator must see the suspect enter an area or department with no merchandise in their possession.

• 2. The investigator must see the suspect select the store's merchandise.

• 3. The investigator must see the suspect conceal the store's merchandise.

• 4. The investigator must maintain constant surveillance of the suspect.

• 5. The suspect must pass all reasonable points of sale with the merchandise.

• 6. The investigator must approach the suspect and apprehend them.

Of course shoplifting incidents rarely go according to the six steps listed above. Investigators must use their best judgment when establishing probable cause. One method commonly employed is establishing the selection of merchandise. This is usually done by noting what a suspect had when first observed. If seen later with several items they did not have before, it is reasonable to assume that the merchandise belongs to the retailer. This is direct violation of step 2, however one only needs a reasonable belief that a crime was committed to establish probable cause.

Proactive prevention tactics have generally yielded better results then the apprehension of shoplifters. The prevention technique is generally employed by the investigator showing their presence in the area of the suspect. In this techinque the shoplifting suspect is generally "spooked" by the investigator into "dumping" the merchandise that they have concealed or are about to conceal.

Embezzlement

Employee embezzlement is the theft or taking of property or funds entrusted to an employee by a employer. The most common type of retail embezzlement is cash theft. Other types of employee embezzlement include ringing up fake gift cards, passing merchandise, discount fraud, and of course theft of merchandise. Embezzlement investigations are widely known in the Loss Prevention industry as internal investigations.

Employee embezzlement is usually handled by experienced investigators who generally have five or more years experience in the loss prevention industry. Cash theft is generally investigated using cash office audits that appear on exception reports and CCTV cameras. Fake gift cards are usually investigated through the use of a electronic journal in which the gift cards are logged.

The passing of merchandise is usually discovered through the use of an exception reports in which a particular employee is shown to have a unusual amount of voids or no-sales. Generally merchandise is rung up by a employee and subsequently voided out. The merchandise is then passed to a person at the counter who usually is a friend or family member of the employee.

Discount fraud is usually discovered again by the use of exception reports. Discount fraud is the fraudulent use of a employee's discount to reduce to the price of merchandise for someone who is not eligible for it. Generally this done by a employee passing their discount card to a friend so they can receive the employee discount.

Merchandise theft is often investigated though the use of CCTV cameras, investigator observations, and rumors floating around the store. Employees who steal merchandise typically wander the store and sift through merchandise during their shift. Usually the items stolen by employees tend to be small or edible.

Employee theft is often overlooked by store managers for several reasons. Most managers have no background in loss prevention or by nature are very trusting. Sometimes however, managers overlook obvious employee theft brought to their attention due to high employee turnover. In some cases, managers will not pursue employee shoplifting when the employee is a minority or disabled. This is usually combated by district loss prevention managers who have the authority to overrule the descisions of store managers.

Credit Card Theft

Typically stolen credit cards find their way into retail stores as much as or more than online retail websites. This is usually for several reasons: the first is because retailers generally have relaxed their procedures for checking credit cards, so time spent at the cash register can be hastened. Second is the anonymity that a credit card thief enjoys by purchasing merchandise first-hand and not having to leave an address for merchandise to be mailed to as would be required by an online retailer.

Credit card theft is generally investigated by loss prevention personnel who receive a tip from a local police investigator who is investigating a stolen card. Typically the use of a stolen card can be easily found using the store's electronic journal log. Using the electronic journal log, loss prevention investigators can locate the register where the stolen credit card was used. Sometimes CCTV video of the transaction exists and can be used by the police to establish a suspect or close a case when they already know who the suspect is. Today, most retailers are not liable for the use of stolen cards issued by banks and credit card companies. However, retailers today are frequently establishing their own credit institutions and issue their own in-store only credit cards. In-store credit fraud is likely to become an increasing problem for loss prevention investigators in the next decade.

Cheque Fraud

Cheque fraud is generally accomplished in one of two ways. The first is writing a cheque that is manufactured to look like a real document, which in fact has no real value or no real bank account to back it up. Typically this done by suspects who are experienced in the crime of forgery. The second method is cheque kiting, in which the suspect writes a check for a high dollar purchase and withdraws the funds from their account before the cheque clears. Cheque kiting is usually done when suspects establish a fraudulent account under a false name at a banking institution.

Retailers reserve the right to reject cheques for whatever reason. Most low-level store employees have no experience in detecting forgery and cheque kiting, and thus these stores are very prone to be the target of such fraud. Typically when cheques are rejected by store management, the suspect raises issue with the manager in question in hopes that they will pass the cheque. Commonly those who create fraudulent cheques hire minorities to make purchases at a retailer. When a cheque is rejected a common scare tactic to get the retailer to accept the check is to claim racial bais.

Cheque Fraud investigations generally involve high dollar items. Typically a cheque fraud investigation begins when a loss prevention investigator notices a suspect attempting to purchase a unusual amount of merchandise, often over $1,000 dollars. Sometimes cheque frauds cases are easy to deter by examining addresses, names, and other information on the shoplifters identification and comparing it to information received from a banking institution.

Sometimes an experienced investigator can observe obvious forgery by examining the cheque document or by calling the bank to verify that the account actually exists. When a false cheque is passed sometimes investigators can salvage it by taking it to the bank before the suspect has the opportunity to withdraw the funds. Typically cheque fraud is done by a large group of non-local individuals who travel from state to state. Typically purchases are made in the late afternoon right as banks are closing. Typically when a account actually exists, fraudulent or not the suspects are usually able to withdraw the funds before the retail store can detect the fraud.

Attempts to Professionalize Loss Prevention

Over the last two decades retailers have attempted to professionalize the loss prevention industry, often with mixed results. This largely due to the fact that this is the age of lawsuits. Retailers face enormous challenges when facing issues like "bad stops" and "racial bias" by investigators.

A large number of retailers have established centralized command structures in an attempt to control Loss Prevention much like other departments are in the retail industry. Typically the centralized command structure consists of the typical floor or low level investigator who is paid as a hourly employee. Next is the Loss Prevention Manager who is in charge of the Loss Prevention department at the store level. Generally the Loss Prevention Manager has been in the industry for significant period of time and is paid a salary. The District Loss Prevention Manager is the next level; this person is in charge of overseeing the operations of several stores within a geographic area. Generally the District Manager has college degree in combination with significant amount of loss prevention experience.

Typically retailers are now seeking out individuals who are pursuing college degree in criminal law or criminal investigations to fill in their entry-level investigator positions. Typically retailers pay higher wages to these individuals based on how many credit hours they have. Retailers are now seeking certifications as a requirement for management positions in loss prevention. The most common certification looked for by employers is the Wickerland/Zulukowski interrogation method.

Problems with Investigators

For the most Loss Prevention Investigators tend to develop one of the three types of personalities towards their work. The personality traits that develop are similar to those of police officers.

The Type A Investigator: Typically this type of investigator has a strong anti-crime personality and experiences early success upon entry into Loss Prevention. However, as apprehensions and merchandise recoveries become less frequent, this personality starts to take risks that others wouldn't. Many of the problems associated with this type of investigator are customer complaints, bad stops, conflict with employees, and sometimes fights with shoplifters.

The Lazy Investigator: This investigator usually comes into the industry with no experience and assumes that the job is one that will be easy. However, when the investigator quickly discovers how difficult loss prevention investigations can be they become frustrated and adopt a lazy, dismissive attitude. This type of investigatior will often miss even the most obvious of theft.

The Analytical Investigator: This is the least common type of investigators, most investigators fall into the category of either the Type A or Lazy Investigator. Usually the analytical investigator has some educational background and typically gets their career off to a slow start much like the Lazy investigator. However, as the analytical investigator gains experience they usually become very good at what they do. Typically the analytical investigator makes sound rational decisions based on the situation they find themselves in. Typically the as the analytical investigator proceeds into their career they frequently find their work unchallenging and sometimes unrewarding. In addition most analytical investigators feel that they are underpaid for the work that they do.

One of the biggest problems facing loss prevention today is the wage associated with entry-level investigators. Typically investigators find themselves in dangerous situations that retailers do not provide sufficient training to deal with. Most investigators today are paid under ten dollars per hour. Sometimes investigators decide that the potential danger associated with the position is not worth it for near minimal wage and thus quit.

Bag Checks and False Arrest

One of the issues raised more and more often these day is the issue of the legality of bag checks by retailers. The reason for bag checks is simple, its cheap and it works. Just look at the shrinkage precentages of the local Warehouse retail and you'll find that they are employing this method to its greatest capacity. Most retailers however use Electronic Article Surveillance (EAS) to determine when a bag check should be conducted. Typically EAS sensors are placed on high dollar items to deter shoplifting suspects, however items containing large amounts of metal have been known to set of EAS alarm towers.

Legally retailers can only search your bag at the door if they have reasonable suspcion to do so. Usually this established by a sensor setting off a alarm tower or a investigator requests the door personnel to search the your bag based upon what they have seen in the store. These searches are consensual only and legally you can walk right past anyone who requests to look inside your bag or check your receipt, this includes police officers as well. If store personnel uses force to stop and checks your bag that is false arrest. In addition if store personnel tells you that they "need or will search you or bag" that can also be considered in some cases false arrest.

Generally its not a good idea to challange the bag check or reciept checking proceedures of your local retailer. Usually it is a waste of time and in some instances it will result in you being trespassed or losing your membership from a store.

Felonies, Misdemeanors, and Local Laws

Laws pertaining to shoplifting vary from state to state. Generally most state laws include a exclusion of limited liablity for retailers to conduct searches of persons they believe to be shoplifting. Simply put retailers are allowed by law to detain and question shoplifting suspects for a reasonable amount of time for the purpose of recovery of merchandise. However, these laws generally do not apply to false arrest and excessive force incidents.

Laws very from state to state pertaining to when a shoplifter can be stopped and apprehended. For example in Arizona concealment of merchandise is considered a crime and a shoplifter can be stopped as soon as concealment is established. In states like California however, concealment is not a crime and a suspect must exit the store before a arrest can be made. Most retailers follow a generalized corperate guideline which serves as a blanket policy for the arrest of shoplifters nationally. Generally these policies state that a shoplifter can only be stopped and arrested after they leave the store. Some retailers like Macy's and Wal-Mart have been known to use local laws pertaining to shoplifting to their advantage.

Generally in most states shoplifting is only considered a felony when merchandise in excess of $250 is stolen. Some states however, classify shoplifting as felony offense regardless of price. In some states like Wisconsin the dollar amount for shoplifting to be considered a felony is $2,500. Most felony shoplifting suspects however, are only charged with misdemenors by police to process them through the criminal justice system more efficentily. Many misdemenor shoplifters are released by loss prevention investigators after the recovery of merchandise. Generally these shoplifting suspects are not charged with any crime and are trespassed by store management.

Equipment and Techinology

CCTV camera systems: CCTV is a abbrevation for Closed Circuit Television. CCTV camera systems are common to almost all loss prevention departments. The obvious benefits of CCTV camera is that the investigator can gain a better veiw of a suspect, record incidents, and not reveal themselves to shoplifting suspects. Some retailers use two-man teams in which one person uses the CCTV camera system to detect shoplifters and a floor man follows the suspect and apprehends them. CCTV camera systems have been drastically modernized in the last decade. Most systems now record digitally as opposed using video tapes which was more common in the past.

Electronic Article Surveillance (EAS): EAS is a deterence system used by retailers to deter shoplifting. EAS involves the use of electronic security towers and electronic security tags. The tags are placed on high dollar items throughout the store and are disabled at cashier registers by scanning them over a magnitized strip. If the tag is not disabled it will activate the alarm tower, which is generally located at the entrance to a retail store. EAS is effective in detering amateur shoplifting, but most professionals can easily bypass the system.

Serial Numbers: Serial numbers are now being commonly placed on high dollar store merchandise. If loss prevention departments record the serial numbers they can subsquently track stolen merchandise if it were to be recovered by the police. Recording serial numbers is usually only done larger retailers due to the fact that they have district investigators who investigate organized shoplifting over a certain geographic area.

Electronic Journals: Almost every large retail institution has some form of an Electronic Journal. An Electronic Journal records all the transactions that occur in a retail store. Information such as credit card numbers, gift card numbers, refunds, and merchandise voids is gathered as merchandise is bought. The Electronic Journal is an indispensable tool in detecting employee embezzlement.

Cash Office Audits: A cash office audit is usually conducted by a common retail employee who counts up the cash from transactions at the retailer's registers. A shortage occurs when the dollar amount added from the register does not match the total the cash audit says it should have. Shortages are used to begin and close cash embezzlement cases that are investigated by loss prevention departments. Generally cash office audits include information pertaining to which employees used a particular register during the day. This information is used by loss prevention investigators to narrow the field of employees in their investigation into the shortage.

Two-way radio sets: Almost all loss prevention departments have some form of two-way radio communication. This technology is used by investigators mainly to help two-man teams follow a shoplifting suspect in conjuction with the CCTV camera system or to summon assistance when apprehending a shoplifter.

Point of Sale: POS or Point of Sale is a form of electronic journal that allows the loss prevention investigator to see a transaction as it is occurring live. Typically this system is either displayed on a computer screen or on a monitor that is linked to the CCTV camera system. This system has proven valuable in assisting investigators in closing employee embezzlement cases pertaining to merchandise passing, merchandise voiding, and discount fraud.

Exception Reports: Exception reports are compiled on a annual basis into a report. Usually the reports are received monthly or bi-weekly. The reports include information on cash audit overs and shorts, no-sales, and merchandise voids. Exception reports have dramatically reduced the amount of time a investigator needs to spend to detect a possible sign of employee embezzlement.

Common Misconceptions

Contrary to popular all loss prevention investigators are not all young white males. Many of the best investigators are fact been over the age of fifty or are female. Typically these two demographics blend in better with their surroundings because they don't fit the stereotypical investigator mold.

Uniform door personnel generally have no authoritity from retailers to make arrests. Typically uniformed personnel are entry level security guards that are hired as a deterant to theft. Generally they only can make arrests upon approval from a investigator or store manager. However, some retailers now hire off-duty police officers who can and do arrest shoplifters without company approval.

Contrary to popular belief Loss Prevention like any other type of investigations is generally boring and tedious work. Most of the time is spent scanning for shoplifters or reviewing transaction data in hopes of finding a suspect. Typically most retail store only apprehend two to four shoplifters a month. Although some stores in the Detroit and Oakland area that apprehend fifty or so shoplifters a month.

Some people think of the Loss Prevention industry and the Security idustry as one in the same. In reality Loss Prevention is a form of private investigations and Security is a preventive deterence industry that employs watchman type policing methods. However, both industries typically use the same equipment like two-way radio sets and CCTV camera systems.

Common Shoplifting Scams

Money Laundering

Although the act of counterfeiting currency is a far more serious crime then the act of shoplifting, counterfeiter have found an easy method to launder the fake bills they produce and profit by stealing merchandise at the same time. Typically a counterfeiter will use a large dollar bill like a fifty or a hundred to purchase an item that may be only twenty dollars or less in value. If the currency is accepted the counterfeiter successfully launders the fake bill and receives merchandise and legitimate currency as change. Most retailers now require their cashiers to check larger bills with a counterfeit pen. That said most cashiers usually do not follow this procedure due to several factors, one being the fact that they are generally pressured by their supervisors to rush customers through the checkout line.

Receipt Matching

The receipt matching scam involves using receipts to match merchandise codes from the receipt to items in found in a store. Most retailers use company specific merchandise codes on their merchandise so store personnel can identify the location more quickly and efficiently. Additionally the merchandise is used to verify merchandise that was purchased at a particular retailer during a return. This information is printed onto the receipts of purchased merchandise.

Typically shoplifters will search either retailer’s parking lot or trashcans looking for receipts that have a high dollar item on it. The shoplifter then enters the store and compares the code on the receipt to the codes printed on the merchandise in the store. Once the shoplifter finds a match they will take the merchandise to the return area and receive money for. Typically to avoid detection shoplifters will use a piece of paper with the merchandise code they are looking for written on it.

Fake Returns

Sometimes shoplifters will actually gather an item from the selling floor and try to receive money for it without a receipt at the return station. Although this method is not as fool proof as the receipt matching method, it is very effective particularly when done to an inexperienced cashier. Usually the shoplifter will start complaining to the cashier about their inability to return the merchandise. Typically the shoplifter will state that they lost their receipt or threaten the cashier by stating that they want to talk to their supervisor. To avoid confrontation the cashier will ring up the return and give the shoplifter dollar value of the merchandise.

Cash Drawer Theft

Cash drawer theft is usually attempted by a shoplifter purchasing a low dollar item and giving the cashier a large bill or by asking a cashier to change a large bill. As the cashier is counting change the item the shoplifter will attempt to create a distraction. One such is telling the cashier that the cashier is giving the shoplifter the wrong amount of change. Once the cashier looks down to recount the change the shoplifter will reach into the cash drawer and grab what they can. The cashier then hands the shoplifter back the change and shoplifter leaves the store. Usually cash drawer theft is not detected until audits of the register are completed and show a shortage. To combat cash drawer theft many retailers will not accept bills larger then twenty dollars or will not give out change at a cashier register.

Shopping Cart Magic

Shopping cart tricks are often disregarded by Loss Prevention personnel. Typically older or professional shoplifters usually attempt this scam. The scam works in the following way. When the shoplifter first enters the store they locate an empty shopping cart. The shoplifter finds the item they are looking for and typically place on the bottom or under the baby seat. The shoplifter then continues to gather a small dollar amount of merchandise and places it in the shopping cart. The shoplifter then brings the shopping cart to register and removes all the merchandise with the exception of the item they wish to steal. If the cashier is not paying attention the shoplifter will usually be able to get the merchandise past them without much effort. After paying for the smaller dollar items the shoplifter leaves the store and successfully pulls off the scam. The most prevalent method used to combat this scam is the use of door personnel who are trained to ask for receipts for high dollar and un-bagged merchandise.

Ticket Switching

Ticket switching is among the oldest shoplifting scams that retailers have faced. Typically the shoplifter finds an item on clearance and removes the clearance tag. The shoplifter then finds a high dollar item and applies the clearance tag to it. The shoplifter then brings the high dollar item to an unsuspecting cashier and pays for it at a clearance price. Most retailers today now utilize electronic barcodes that when scanned will ring up the correct price. Usually when the shoplifter challenges the price a cashier supervisor will refuse to ring up the item at the clearance price. Some more cleaver shoplifters are now utilizing modern printing and digital technology to copy low dollar bars codes for retail merchandise packages. These shoplifters then print bar code labels that will actually ring up at cashier registers.

Shopping Cart Passing

Shopping cart passing is usually attempted by a two-person group of shoplifters. The first shoplifter will gather the desired merchandise into a shopping cart and take it to the register. The cashier will then ring up all the merchandise and place it in bags. Once the total is rung up the first shoplifter states that forgot their wallet in their car. The first shoplifter will then exit the store and most cashiers will put the shopping cart off to the side and resume ringing up customers. At this point the second shoplifter moves in and grabs the cart and walks out of the store with the stolen merchandise in bags.

Bag Switching

Bag switching methods are generally attempted by a group of two shoplifters. Typically the first shoplifter will have a large bag and gather a large amount of merchandise quickly to get the attention of a Loss Prevention Investigator. Once the first shoplifter knows that they are being followed they will conceal the merchandise into the bag. The first shoplifter will then switch their bag with the second shoplifter, who usually has a matching bag that is already filled with items that don’t belong to the retailer. Often the Loss Prevention Investigator will miss the switch and arrest the first shopplifter. Subsequently, the first shoplifter may claim false arrest and receive a gift card from the retailer.

References

Tom Fearer