Where there are cash, stock and people, there can be fraud.
That’s true in retail, and it’s true in a specialised part of retail: vending machines. Mark Rowe reports.
One of the first things Brian Tustain says: "Whenever you have a business that involves stock and cash and people, you are subject to an amount of shrinkage. It’s a terrible term, but if you want it in plain format, it’s theft and fraud." Brian is the chief executive of Associated Vending Services (AVS), a buying group owned by its members – a co-operative, in a word – of 27 member companies in the UK and Ireland with a combined turnover of £110m a year. Members range in size from plcs to companies with a handful of workers. No-one knows, truthfully, what the level of theft and fraud is, Brian continues. "An honest estimate amongst our own members, and it is an estimate: they reckon it’s between eight and ten per cent of turnover. And being an estimate it could be well out. But even if you took the lowest figure, from 27 companies, that’s a lot of money." To do only the simplest sums, eight to ten per cent of £110m is, well, millions. This is despite the companies having the latest retail systems for tracking Mars bars or whatever products are in stock. Hence AVS sought advice and was introduced to commercial investigator David Kearns, of Expert Investigations, featured in a two-part article in Professional Security last year.
Brian describes the bringing in of David as a breath of fresh air: "Suddenly we began to look at the problem from a completely different angle. When you start looking, you realise that actually you are a lot more vulnerable in those three aspects, stock, cash and people, than you think you are. It would be wrong of me to go into individual cases, because of confidentiality. We have had some extremely sound and practical advice that we could not have got anywhere else; and where there have been specific incidents which have needed dealing with, on a case by case basis, we have found that David and his team have really gone into it very thoroughly, very professionally, and have nearly always come up with the answer and the solution. And the one thing that David has taught us is that where we have been fortunate enough to ding the guilty partner or people, then you have to have very hard evidence and very specific evidence to go for prosecution and that in ultimate terms is where you need, particularly in our type of business, you need to be a really no-nonsense, zero-tolerance employer in that respect. And for that you need first rate evidence, to secure successful prosecutions."
So much for the merits of a business group bringing in a specialist in investigation. What of the particularities of the vending machine industry? Brian explains that vending machines are basically mobile retailers, automatic retailing. "And that’s where your problem starts, because your stock and your cash are never in the same place for very long. In fact where you would like them, in your warehouse and the bank, I am afraid the practicalities and the logistics of our operation do not permit that. So the moment stock and cash literally leave the safety of our premises, we are subject to all sorts of potential thefts. And that’s where David’s team has been able to give members very specific advice and practical advice." Even to give a small example: a member might find it worthwhile to check on a Friday afternoon the loose change conversion machine at their local Sainsbury’s store. If a member of staff has a pile of coppers and silver he is pouring into the machine, has the employee come by that pile lawfully, or siphoned off the cash from vending machines, a few at a time, all week!
Brian explains that you can put vending machines into two categories: Closed, and public. Public ones may be in hospitals, universities, leisure centres, airports, railway stations … there the machines are available to anyone for as long as the site is open, up to 24 hours. Closed sites are workplaces, schools, and institutions with regular users, apart from maybe authorised visitors. The biggest danger from a loss point of view can be – thinking back to the trio of stock, cash and people – the company’s own employees. Where food and drink are vended, the products are very sellable. And what can be more easily usable to a thief than coins? The other theft faced by a vending company is staff stealing time. Does the company know where its staff are, all the time? Again, Brian adds, David’s investigators have been useful in helping members who suspect that something is wrong, monitor the whereabouts of both healthy staff and the long-term sick. Brian says to David: "You have found some very interesting occupations some long-term sick staff have been involved in." In other words, so-called sick workers in fact doing work for themselves while their employer pays. And besides the consultant-investigator bringing a national perspective to problems, and offering basic cures, Brian offers praise for the investigators’ customer service – where there has been a ‘cry for help’ from a member, response from David has been immediate, normally the next day. David points out that AVS members are very good at running their own businesses, but stock and cash loss may be alien to them. The cause of the loss may be the vending machine operative, caught selling stolen products at a school gate; or the cause may be a senior member of the company, perhaps fraudulently buying equipment for their own use. Brian agrees: "Theft and fraud can occur at all levels." David goes on: the senior person buys equipment on the company books, running a successful business for themselves. This may be beyond the skills of the company director to deal with. What’s more, it may be psychologically besides commercially difficult for a director to come to terms with suspicions of a (trusted, long-standing?) member of staff doing frauds. Less dramatically, but adding up to a substantial fraud nonetheless, a £70 box of coffee that fits into a rucksack may be going out of the premises regularly; or crates of the stuff may be going out the gates hidden in a van. David’s investigation might involve installing a covert camera; also, much work would go into a risk assessment for a company, in its warehouse, the ways it distributes stock, and carries cash. The aim: to reduce the opportunities for theft. David stresses that an investigation of a suspected crime takes four aspects: prevention, detection, disruption and disinformation – making life harder for the criminal. The risk assessment, then, might suggest fitting CCTV; or re-arranging of the warehouse, to move the valuable items elsewhere; spot-checks of private and company vehicles; a change to cash-counting procedures. And there are outside influences to contend with: given that many AVS members are based on industrial estates, they could be prone to break-ins. A risk assessment in this case might call for protection of a company’s IT systems, because if computers are stolen, can the company keep running? Does the company have its data backed up? There is, besides, a company’s duty of care to staff, if for example staff are carrying cash in public places and at risk of robbery.
The investigator-consultant can offer perspective on crime trends. As David says, types of crime change. Whereas a burglar may have to turn stolen white goods into cash, or simply find some goods too large to steal from a property, the drug-using community depends on cash, to buy drugs. The criminal’s profit margin, if you like, from stealing cash for drugs is greater. This has led to the cash handlers of this country, the likes of G4S and Loomis (formerly Securitas) to look to its procedures, to defend against the sort of criminals who will ram a bulldozer into a cash machine. Because not so many industries deal so much in cash any more – even pubs are seeking to take electronic payments. Vending machine operators, too, are looking to go cashless as soon as they can, for various reasons, besides loss prevention. Meanwhile, the vending machine operator faces the sheer volume of cash stored on a site.
Given all the risks, then, what are the pros and cons of the consultant-investigator entering a business overtly – turning up in a suit, signing ‘security’ in the visitors book and asking to be shown around, an unspoken message to people; and covert – that you hope the suspects do not know about? David answers that AVS members may be like any other business that asks for an investigator: the company may not be large enough to have a security manager, of if a company does have a security manager, the person may not have the resources to do everything – such as knowing how to install a covert camera. David recalls the case when he was called in because of suspected theft of coins in a cash counting room. To explain briefly, the volumes of coins at a vending machine operation are so great the cash is not counted by hand but poured into a hopper, which filters the coins by size. David’s investigators installed a covert camera in a vending machine, standing in another room, that could view through a window the staff counting the cash. It then becomes a matter of what the company tolerates – because an employee putting £1 at a time in his pocket might not sound much, but it can add up to hundreds of pounds each week. So to answer the question: yes, there are times for doing something covertly, whether by surveillance or observation. Another example: if an employee is suspected of running ghost machines in company time. That is, an employee steals stock from a warehouse and runs it like any other machine, but purely for the employee’s profit. On the other hand, an overt investigation – whereby investigators introduce themselves, maybe do a stock-check themselves, and seek any loopholes in procedures – sends a message too. The message being: that the employer sees the potential for wrong-doing, and is keeping on top of it.
Brian adds that David has been involved in two seminars run for members on fraud and shrinkage. Brian recalls that the first was a ‘shocker’, meaning that members were shocked and alarmed to realise how much they might be losing to shrinkage. The second seminar a year on was more about exchange of information on how to run a business, securely. But as Brian admits, no-one will admit ever to tying the problem down, for good; because as you close one door (that is, opportunity for crime), another one opens. Or, you can closing and opening doors literally: what of premises security if a delivery driver can walk to reception and ask to use the loo, and walks out another way with a box of coffee or Kit-Kats?! And what if the van driver collecting the waste cardboard, the bin-men, anybody, know of these loopholes, and do the same? But to repeat, the criminal (let alone the biggest criminal) is not only or necessarily the blue-collar man, the fork lift truck driver, but the man in a suit. At this point David makes the point of deploring the attitude of business crime as victimless. Losses in the vending industry matter, given the profit margins on the likes of crisps and sweets.
To turn to retailers and security manager readers: do they need to worry about losses from vending machines on their concourses, in their canteens? No, the responsibility for the machine is the vending company’s. But Brian makes a case for the rise of vending machines in retail, both in terms of what they sell and who puts them where. The machines are already common – you can buy besides food and drink, cigarettes and condoms. Vending machines offer 24-7 retailing, maybe in places not normally associated with retailing, or a particular high street retailer. Brian suggests a future of high street names taking a small part of the high street where they would not take a whole shop, instead installing their name and a vending machine, for anything from a DVD to umbrellas. The vendor has none of the staff costs of a 9am to 5pm retailer, except the cost of replenishing the machine.
Or take a hotel: rather than accept losses or have customer arguments about the mini bar, put in a vending machine for drinks, socks, toothpaste, disposable razors, at premium prices. Clearly to do investigations in the specialised sector of vending machines, like so many others in life, the investigator has to pick up the background, the jargon, even, so that the client does not to forever have to explain everything. There is, besides, something to be said for the wider perspective that the investigator can bring. David recalls a case mentioned in last year’s article: if there is theft of precision ball bearings, or flat-pack furniture, it is more possible to track the stolen goods, because the market for those goods is limited. Not so for vended coffee or bottled water, let alone the cash slotted into the machines. Small amounts are difficult to trace, yet the amounts stolen, if regular, can hit a business. That all adds up to greater temptation.
About David Kearns
The MD of Expert Investigations has a police background. Coventry-based, his company has a Birmingham branch office and plans to open another in Marylebone. Visit www.expert-investigations.co.uk
About Associated Vending Machines Limited
An association of vending operators covering the UK and Ireland. Visit www.avs-uk.co.uk
