Loss prevention
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Loss prevention is a form of private investigation into larceny or theft. The focus of such investigations generally includes shoplifting, embezzlement, credit fraud, and check fraud. "Loss prevention" or "LP" is used to describe a number of methods used to reduce the amount of all losses and shrinkage often related to retail trade.
The objective is to maximize profits through reducing shrinkage. According to the 2001 National Retail Security Survey, retail operations suffered an average annual shrinkage percentage of 1.75% in 2000. Although most retailers experience a shrinkage percentage of less than 2%, some smaller retailers often experience monthly and annual average shrinkage percentages as high as 20%. According to a study by the National Retail Security Survey 30.6% of shrinkage comes from shoplifting, 46% from employee embezzlement, 17.6% from administrative error, and 5.8% from vendor fraud. 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. Recently several associations such as the Retail Industry Leaders Association are offering new educational certification programs specifically for loss prevention. Among larger retailers there is a recent trend to include worker and customer safety programs into the traditional loss prevention job structure.
[edit] Types of Loss Prevention Investigations
[edit] Shoplifting
Shoplifting is one of the most common property crimes in the United States today. Anyone can be a shoplifter, an important fact for loss prevention investigators to understand. Those who focus on stereotypes such as race and age generally have a difficult time detecting shoplifting. Statistically, shoplifting occurs at approximately the same rate each day of the week and December is the only month in which convenience stores suffer appreciably increased losses. The 12-17 age group is statistically the most active shoplifting group in relationship to its size, followed by the 18-29 age group.
According to the 2004 17th Annual Retail Theft survey conducted by Jack L. Hayes International, 689,340 shoplifters were apprehended by 27 of the major U.S. retailers. This figure was a 4.86% increase from the 657,414 shoplifters apprehended in 2003. In 2004, $70,039,564 was recovered from shoplifting apprehensions, compared to $68,927,833 in 2003. In 2004, the average dollar value for a shoplifting apprehension was $101.60.
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 among 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 than 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 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 stolen any merchandise.
Investigators must use their best judgment when establishing probable cause. Most retailers today have established certification programs which a loss prevention employee must pass before they can make arrests. These programs usually consist of a buddy system, which pairs a new investigator with an experienced investigator. These programs usually span several months.
One common method of bypassing steps is establishing the selection of merchandise. This is usually done by noting what a suspect was holding when first observed. If seen later with several items they did not have before, it may be reasonable to assume that the merchandise belongs to the retailer. Many feel that good judgment is the key to making successful apprehensions. At times not all conditions can or will be feasibly met to make an apprehension. However it is still possible to prevent the loss.
Some investigators have been known to attempt forms of consent searches in an attempt to obtain probable cause without legally detaining a person. It may be explained to the customer that "we need to check your receipt to be certain you were not double charged," or some other reason. However such techniques, while not contituting false arrest, may still result in the firing of a loss prevention investigator if they are a violation of company policy. Others feel all steps must be met before any action is taken. This second approach is used to protect the company from lawsuits resulting from "bad stops" which insult innocent shoppers.
The strict adherence to the rules of apprehension have also come about as some criminals try to defraud the loss prevention industry by "egging on" or pretending to steal as a way to get LP officers' attention, while others in the store are doing the stealing. Alternately, some people simply try to get themselves arrested falsely, for the purpose of suing the company. However, most companies allow investigators to use required measures in order to stop and detain shoplifters. This often includes the use of force while employing handcuffs.
[edit] Embezzlement
Employee embezzlement is the theft or taking of property or funds entrusted to an employee by an employer. The most common type of retail embezzlement is cash theft. Other types 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".
According to the 2004 17th Annual Retail Theft survey, 63,289 employees were apprehended for dishonest activity. This is an increase of 4.01% or 60,850 employees over the figures of 2003. Retailers recovered $42,468,681 from incidents stemming from employee dishonesty in 2004, an increase from 2003's of $40,025,937. The average case value for an apprehended dishonest employee in 2004 was $671.03. This figure is notable, since it is nearly seven times the value of the average shoplifter apprehension.
Employee embezzlement is usually handled by investigators who generally have five or more years of experience in loss prevention. 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 an electronic journal in which the gift cards are logged.
The passing of merchandise is usually discovered through the use of an exception report in which a particular employee is shown to have a unusual amount of voids or no-sales. Generally merchandise is rung up by an employee and subsequently voided out. The merchandise is then passed to a person at the counter, usually a friend or family member of the employee.
Other forms of employee theft that are discovered via the use of exceptions reports are discount and commission fraud. Discount fraud is the fraudulent use of an employee's discount to reduce the price of merchandise for someone else. Generally this is done by an employee passing their discount card to a friend. Commission fraud is usually accomplished by ringing large return purchases back to another employee or recent ex-employee.
Merchandise theft is often investigated though the use of CCTV cameras and investigator observations. The items stolen by employees tend to be small items which either have a high dollar value or are edible. Stockrooms have a particularly high level of employee theft and are often investigated using CCTV. Loss prevention often tours stockrooms looking for "stashes", out-of-place merchandise, and price tags. Typically a covert CCTV camera is placed in the areas of high opportunity for theft.
A recent trend with larger retailers is to actively pursue prosecution against employees who are embezzling. This is because employee embezzlement cases usually carry a far higher case value than do shoplifters, and, in most jurisdictions, embezzlement is codified as a felony offense. This can lead to lengthy investigations that may last for months. Still, particularly in small dollar cases, many retailers believe that they will never recover their losses; they often release employees suspected of embezzlement outright.
[edit] Credit card theft
Stolen credit cards find their way into retail stores as much as or more than online retail websites. This is usually for several reasons. Retailers have generally relaxed their procedures for checking credit cards, to shorten customers' time spent at the cash register. Also, purchasing merchandise first-hand afford a credit card thief some anonymity, as opposed to providing a mailing address for an online sale.
Credit card theft is generally investigated by loss prevention personnel who receive a tip from a local police investigator investigating a stolen card. Typically the use of a stolen card can be easily found using the store's electronic log, which will specify the register at which the stolen 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. Today, most retailers are not liable for the use of stolen cards, unless they have chosen to override the chip and PIN and accept a customer's signature when they could have accepted a PIN. However, retailers today frequently establish 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.
Some of the inherent problems with in-store credit lie in proper employee training. Temporary cards are regularly given out to customers who forget to bring in their own card. Mail fraud may also be used to intercept cards, and the use of these cards may go unnoticed for days if a clerk fails to check ID or if the true card holder never calls in a complaint. Also, in the opinion of some experts[[Fact|date=March 2007}}, many retailers make adding a new name to an existing account far too easy.
[edit] Check fraud
Check fraud is generally accomplished in one of two ways. The first is writing a check 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 is done by suspects who are experienced in forgery. The second method is check kiting, in which the suspect writes a check for a high dollar purchase, then withdraws the funds from the account before the check clears. Check kiting is usually done when suspects establish a fraudulent bank account under a false name.
Retailers reserve the right to reject a check for any reason. Most low-level store employees have no experience in detecting forgery and check kiting, and thus these stores are very prone to be the target of such fraud. Typically when checks are rejected by store management, the suspect raises the issue with the manager, in hopes that they will pass the check. Commonly those who create fraudulent checks hire minorities to make their purchases. When a check is rejected, a common scare tactic to get the retailer to accept the check is to claim racial bias.
Sometimes an experienced investigator can detect obvious forgery by examining the check or by calling the bank to verify that the account actually exists. When a false check is passed, investigators can sometimes salvage it by taking it to the bank before the suspect has the opportunity to withdraw the funds. Typically check fraud is done by a large group of non-local individuals who travel from state to state. Purchases are usually made in the late afternoon right as banks are closing. When an account actually exists, fraudulent or not, the suspects are usually able to withdraw the funds before the retail store can detect the fraud.
[edit] Safety and loss claims
Over the past decade, most large retailers have begun incorporating safety programs into their loss prevention programs. One or just a few workman's compensation or general loss claims can cost a store as much in lost profit as shoplifting. Retailers are beginning to take a harder stance towards negligent violations of safety protocol by employees. Often the outcome of an investigation of an employee's unsafe actions can result in their termination from employment. Some loss prevention programs consider employee safety investigations the same as internal theft cases. Increasingly, loss prevention managers are being held accountable for reducing both workman's compensation and general loss claims as part of their performance review.
Among the industry leaders in loss prevention safety programs is Sears, which includes safety audits, safety committees, safety certifications, and thorrough safety investigations into their loss prevention programs.
[edit] Margin Loss and Sweethearting
Loss prevention departments are becoming increasingly more involved in investigating losses which affect the margin of products and services. Typical areas of investigation include the overriding of PLU prices, price matching from competitors, and reduction of service fees such as delivery or protection agreements. While unintentional margin loss is reduced by educating employees and managers, the term for intentional margin loss is "sweethearting." Sweethearting generally occurs when an employee promises a deal to a customer in order to close a sale, or otherwise reduces the price of merchandise for dishonest reasons. Sweethearting investigations involve research into employees' finding competitor price matches to give to customers; overriding prices for their customers, friends, and themselves; and markdown of fees such as delivery and protection agreements.
[edit] Attempts to professionalize loss prevention
Mnay retailers have established centralized command structures in an attempt to control loss prevention. Typically the centralized command structure consists of the a floor or low-level investigator who is paid as an 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 a significant period of time and is salaries. The District Loss Prevention Manager is the next level, in charge of overseeing the operations of several stores within a geographic area. Generally the District Manager has a college degree in combination with significant amount of loss prevention experience. Some retailers, such as the 99 Cent Only Store, have hourly district investigators with the authority to terminate or prosecute any store employee or manager with probable cause.
Various problems have plagued the loss prevention industry over the years. Loss prevention departments have been accused of favoritism towards investigators and in some cases even an employee who may be dishonest. Some investigators have been known to make up apprehensions or merchandise recoveries to advance themselves within the field. The most prevalent problem is known as "LP blacklisting", in which a particular investigator would be barred from employment due to the tight-knit nature of the loss prevention industry. Recent attempts at professionalism within the industry have gone a long way to eliminate these issues.
Some retailers have gone so far as to change the name of their loss prevention departments to "Assets Protection." AP departments usually include more aspects of the private security industry by using more visible means of deterrence, such as uniformed door guards. Some companies believe that the term "loss prevention" has a stigma attached to it and that "assets protection" sounds more politically correct. There has been a recent trend in the industry to move back to less restrictive means of reducing external loss, due to recent increases in shoplifting.
[edit] Problems with investigators
A common frustration among loss prevention professionals is the perception of being seen as glorified form of security, often by the same retail executives who employed them. Both industries typically do use the same or similar equipment. Loss prevention professionals see themselves as being proactive, while the security industry is often reactive in nature. The line between security and loss prevention has become increasingly blurry with the recent advent of uniform door guards and preventive measures to control safety, shoplifting, and embezzlement.
Another problem facing loss prevention today is the wage associated with entry-level investigators. Investigators often find themselves in dangerous situations caused by retailers who do not provide sufficient training or the necessary equipment to deal with and leave investigators unable to react appropriately. The compensation scale for the front-line investigator has not changed since the mid 1990's. Most investigators in the US are paid under ten dollars per hour making them feel under valued and less motivated. Budget reductions, that often take place due to the loss of profits, often target the in-house loss prevention departments, because they are seen as a support function that has no direct relation with sales. The result is the reduction of the manpower required to make detentions safely for both the shoplifter and the investigator. Sometimes investigators decide that the potential danger associated with the position is not worth it for near-minimal wage and thus quit, refuse to make arrests or, worse yet, act dishonestly.
It will require the retail industry as a whole to re-evaluate its stance on what makes a company profitable to end the downward spiral, of its own making, and bring the loss prevention investigator to the level of respectability and value of years past.
[edit] Bag checks and false arrest
The legality of bag checks by retailers is often questioned. The reason for bag checks is simple: it's cheap and it works. Most retailers use Electronic Article Surveillance (EAS) to determine when a bag check should be conducted. EAS sensors are placed on high dollar items to deter shoplifting; however, items containing large amounts of metal have been known to set off EAS alarm towers.
Retailers can only legally search a customer's bag without probable cause if the customer consents. Usually an investigator requests that the door personnel search a bag because a sensor set off an alarm tower, or because of what they or other employees have seen in the store. If store personnel use force to detain a customer to look in their bag, it may become a false arrest. In some instances, refusal by a customer to consent to a bag search will result in the customer being "trespassed" (asked to leave and warned not to return under penalty of criminal trespass prosecution) or losing their membership from a store.
[edit] Felonies, misdemeanors, and local laws
Laws pertaining to shoplifting vary from state to state. Generally most state laws include an exclusion of limited liability 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 incidents of false arrest and excessive force.
Laws vary from state to state pertaining to when a shoplifter can be stopped and apprehended. 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, concealment is not a crime and a suspect must exit the store before an arrest can be made.
Some state laws can lead to unusual and severe charges being brought against a shoplifter. In Arizona, a shoplifter can actually be charged with felony third-degree burglary. In California, a person can be charged with attempted robbery if they use physical force while attempting to shoplift. In some jurisdictions a person convicted of shoplifting multiple times may face a felony sentence following conviction.
Most retailers follow a generalized corporate guideline which serves as a national blanket policy for the arrest of shoplifters, although some smaller retailers still decide their own policies on a store-to-store basis. 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.
In most states, shoplifting is only considered a felony when merchandise in excess of $250 is stolen. Some states classify shoplifting as fa elony offense regardless of price. In some states the dollar amount for shoplifting to be considered a felony is $2,500. Most felony shoplifting suspects, however, are only charged with misdemeanors by police, in order to process them through the criminal justice system more efficiently. Many misdemeanor shoplifters are released by loss prevention investigators after the recovery of the merchandise. Generally these shoplifting suspects are not charged with any crime and are trespassed by store management.
One common example of false arrest is the detainment of an individual based only on speculation of concealment and not an eyewitness to the act. False arrests can be costly to companies and often result in lawsuits or large monetary settlements. Settlements are preferred by companies wishing to avoid the negative publicity of court cases. Some jurisdictions render partial immunity to merchants and their employees from being liable for a false arrest as long as they have probable cause to detain.
[edit] Equipment, tactics, and technology
[edit] CCTV camera systems
CCTV is an abbreviation 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 view 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 to using videotapes. Many systems now include a computer server that contain video for months at a time. One drawback of many of these digital recorders is their inability to move and view more than one fixed area of the store. However, new digital cameras overlooking registers have greatly increased the number of internal cash thefts being resolved.
CCTV is one of the most effective tools ever used, not just by loss prevention, but the security industry in general. Firms which offer leases on such systems have brought costs down to a point where the franchise owner can consider it economically justifiable. A quality CCTV system, including a video recorder and monitors (at least one of which is visible to the public), is a proven deterrent with many related benefits, including protection from employee theft. A well-advertised visible system also acts as a holdup deterrent, and, when thefts do occur, prosecution is simplified.
[edit] Covert CCTV cameras
Covert CCTV cameras are a fairly recent innovation within the loss prevention industry. These cameras are small and compact and can be easily moved from area to area. Covert cameras can be easily made to look like fixtures or boxes in a stockroom. Most covert cameras are undetectable by the average employee.
[edit] Electronic Article Surveillance
Electronic article surveillance (EAS) is a deterrence system used by retailers to deter shoplifting. EAS involves the use of electronic security towers and electronic security tags. Sticker tags are placed on items throughout the store and are disabled at cashier registers by scanning them over a magnetized strip or label deactivator. If the tag is not disabled it will activate the alarm tower, which is generally located at the entrance to a retail store. Hard security tags are removed with a device called a detacher. EAS labels are extremely effective in deterring amateur shoplifting, but most professionals require a combination of hard tags, labels, and ink tags to keep them in check. Even with the most elaborate anti-shoplifting systems some goods will be lost; this is possible with booster bags or simply a "grab and run".
[edit] Serial numbers
Serial numbers are now being commonly placed on high-value merchandise. If loss prevention departments record the serial numbers, they can subsequently track stolen merchandise recovered by the police. Recording serial numbers is usually only done by larger retailers, due to the fact that they have district investigators who investigate organized shoplifting over a certain geographic area.
[edit] Electronic journals
Almost every large retail institution has some form of electronic journal which records all its transactions. Information such as credit card numbers, gift card numbers, refunds, and merchandise voids is gathered at the point-of-sale. These journals can then be used to view and print facsimiles of receipts or checks.
[edit] 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 contained in the register does not match what the cash audit says it should have. Shortages are used to begin and close cash embezzlement cases that are investigated by loss prevention departments. 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 suspected employees.
[edit] Two-way radio sets
Almost all loss prevention departments have some form of two-way radio communication. This technology is used by investigators to help two-man teams follow a shoplifting suspect in conjunction with the CCTV camera system or to summon assistance when apprehending a shoplifter.
[edit] Point of Sale
Point of sale is a form of electronic journal that allows the loss prevention investigator to see a transaction as it is occurring live. This system is either displayed on a computer screen or on a monitor linked to the CCTV camera system. This system has assisted investigators in closing employee embezzlement cases pertaining to merchandise passing, merchandise voiding, and discount fraud.
[edit] Exception reports
Exception reports are compiled on an annual basis into a report. Usually the reports are received monthly or bi-weekly. They include information on cash audit overs and shorts, no-sales, flagged returns, employees ringing themselves up, fake employee numbers used to avoid commission docking, and merchandise voids. Exception reports have dramatically reduced the amount of time an investigator needs to detect a possible sign of employee embezzlement.
[edit] Ink tags
Ink tags have been around for several decades and are most commonly used by clothing retailers. Special equipment is required to remove the tags from the clothing. When the tags are forcibly removed, one or two glass vials containing permanent ink will break, causing it to spill over the clothing, effectively destroying it. Ink tags fall into the loss prevention category called benefit denial. As the name suggests, an ink tag denies the shoplifter any benefit for his or her efforts. Despite this, shoplifters have found ways around them, such as duct-taping the holes through which the ink comes out and then removing the tag with pliers, resulting in little to no damage of the merchandise.
[edit] Dual Resonator EAS stickers
Dual Resonator EAS stickers are usually placed on small items such as shaving razors and cold medicines. These items are popular items to sell at swap meets. Dual Resonator EAS stickers are printed on thin paper and are difficult to remove. Usually the sticker includes a retailer's company logo and serves as an indication to would-be buyers that the merchandise has been stolen.
[edit] Dummy domes
Dummy domes have become prevalent in all forms of retail loss prevention. Dummy domes do not contain cameras, although they are identical to those that do. Dummy domes can be strategically placed to herd shoplifters into a particular location or can be used as a deterrent to shoplifting.
[edit] Ceiling mirrors
Ceiling mirrors were once a staple of the loss prevention industry. Now, for the most part, they have been relegated to convenience stores. Mirrors allow loss prevention investigators to watch activity in a high-theft area without being seen. Some loss prevention departments have been known to use mirrors to increase the range of their camera systems.
[edit] Refund checks
Refund checks are aimed at possible fraudulent and high-risk refunds. The customer is told they will receive a check in the mail instead of receiving cash or store credit during the actual return. This tactic is typically employed in instances where a customer does not have a receipt or there is prior knowledge that the return may be questionable. Generally a loss prevention manager or operations manager will have to approve the release of a refund check. This tactic works well because fraudulent refunders usually will not call the store to complain when they do not receive their check in the mail.
[edit] Bottom of Basket
Bottom of Basket loss (BOB), occurs when an item is placed on the lower tray of a shopping cart and the cashier forgets to check the lower tray for items, resulting in the item not being paid for. What makes this form of shrink unique is that it may happen intentionally or unintentionally. All estimates for the dollar amount lost in this manner are over $2 billion US per year in North America alone, or $7 per checkout lane per day. There are a few products on the market to help prevent this loss. The most common are mirrors mounted across the checkout lane. Some stores have camera systems pointed at the lower tray with monitors for each cashier. Neither of these systems work effectively because the problem not visibility, but the inattentive cashier.
A newer type of system actively monitors the checkout lane and alerts when an item is detected on the lower tray of the shopping cart. One such system is HIDEAlert, which uses IR sensors to detect the shape of a shopping cart, then scans the lower tray for items. The alarm will trigger when anything is on the lower tray including products, bags, or coats, but uses technology to distinguish the difference between a shopping cart and a person or bag passing through the lane, in order to accurately activate and begin scanning for items. Some systems have more false alarms than others; for instance, HIDEAlert can determine if an object is actually on the cart and not beside the cart or in the next lane over, this, among other technologies, helps eliminate false alarms.
[edit] Consent searches
Consent searches are widely used in law enforcement and are still present in loss prevention today. By asking a customer to consent to a search of their belongings, such as shopping bags and receipts, any illegal search or seizure requirements can be circumvented. Consent searches in some instances can be used to build on previously existing facts to establish the probable cause necessary to detain a shoplifter. The extreme end of establishing probable cause through a consent search has been eliminated except with a few smaller companies who still utilize it.
In modern loss prevention, consent searches are most often used by warehouse retailers such as Costco and Sam's Club. The warehouse retailers have made consent searches of their customers' purchases a part of the membership agreement. Although a customer may refuse to consent to a search of their purchase from a legal standpoint, the warehouse retailer does retain the right as a private business entity to strip the customer of their membership or issue a verbal trespass. Warehouse retailers have been able to utilize consent searches to lower their prices on goods and reduce external shrinkage at the same time.
[edit] Viewing towers
Although the necessity of viewing towers has been largely eliminated by CCTV camera systems, they still exist today. A tower is usually a centrally located observation platform raised above the sales floor. An investigator can spend time in the tower with searching for shoplifters or investigating employees, much in the same manner as with CCTV.
[edit] Integrity shops
A common example of an integrity shop is marking a large-denomination bill and placing it in a cashier's drawer. The goal is to see if the bill disappears from the drawer or doesn't reach its appropriate destination, such as a cash office. The information gained from an integrity shop can be used to initiate investigations or conduct interviews that could possibly reveal dishonest activity or outright theft. This is also a good way to find out if an employee is attempting to embezzle.
