An opinion on internal fraud, by Khuram Kirmani, CEO of IDM Software.
Earlier this year, Lidl was accused of spying on its staff by recording details of employees’ daily activities. The retailer remarked that so-called ‘spying’ had only taken place in stores with extremely high shrinkage – a problem which has cost them _80 million over the past year. But is spying on staff really the most effective way for retailers to tackle the problem? I for one believe not.
Internal shrinkage remains one of the largest threats to the retail industry, costing Europe’s stores _8,389 million and accounting for almost 44.6% of all stock losses in 2007 alone. According to PricewaterhouseCoopersโ (PwC) latest Global Economic Crime Survey, the greatest risk to retailers is theft by staff or customers and they need to ensure that security systems for monitoring such crime are effective and most importantly, in place.
Although staff fraud is now widely recognised as a concern, when combined with the losses caused by employee error and process weakness/abuse the result is a high priority issue that must be tackled in order to preserve a retailerโs hard earned profits.
Over the past 13 years I have worked with some of Europeโs leading retailers in their fight against loss. From their experiences, I have learnt that to effectively reduce internal loss, retailers must employ a solution that integrates all aspects of security monitoring, rather than focusing on one specific aspect.
However, internal loss and fraud by their very nature are tough nuts to crack. Just as you get to the root of one problem other potentially more damaging threats are silently eroding your hard-earned profits elsewhere. Understanding why staff steal is essential to tackling the problem, but you also have to be able to adapt quickly. Otherwise, the crafty fraudsters will think of alternative measures, learn how to beat the system and you’re back to square one again.
The problem is constantly evolving and thatโs where complexities arise. For example, the growth of organised crime within retail, driven by gangs who have employees and customers collaborating against the retailer is becoming an increasing concern.
So, why is internal loss a perennial problem for retailers? Well:
? The retail environment is complex. It is necessary to take into account tens of thousands of SKUโs with stores in a variety of areas, staff from different demographics, fashions, trends, the economic conditions, the weather. All of which affect retail performance.
? The fraudsters constantly change their modus operandi.
? There is a shortage of resources in most LP departments.
? There are huge volumes of data available but a lack of actionable information.
But most importantly it is a people problem, which makes it unpredictable, dynamic and continually evolving. Whilst many retailers do currently have a number of tools available to them to help identify the low hanging fruit of staff fraud, the majority of loss prevention professionals are in need of a solution that is much more holistic, both in terms of the data sources it combines and the retail departments that it brings together.
So what else can be done? Well, over the past 20 years we have been continually developing ‘Train of Thought Analysis’, a technique which puts a powerful data mining solution that combines information from numerous sources into the hands of those best placed to manage the problem, without any constraints or need for extensive IT training and support.
I am in full agreement with PwCโs view that retailers are among those hardest hit by economic crime and in my opinion, now is a perfect time for retailers to focus on tackling internal loss. Over the years, I have seen the effects it can have on overall shrinkage levels and if left unchallenged, staff theft and internal loss will grow rapidly, particularly in todayโs worsening economic conditions. Having a powerful data mining solution in place will help protect profits and continue to drive a positive cultural change in the long run.
