By John Bocker
DENVER – I’m continuously amazed when I meet with business leaders who think about loss prevention and risk management but don’t actually implement a program to combat these concerns. Every organization, big and small, retail to restaurants and cannabis to manufacturing, all should have a “loss prevention” culture integrated into their organization.
So what do I mean when I say “loss prevention”?
Ok, let’s keep it simple.
Loss prevention is just that. Preventing losses throughout the various segments of your organization. Most, if not all companies can break this down into operational facets of the business that include Physical Security, Human Resources, Supply Chain, Operational Compliance, Cash Management, External Threat Control, Internal (employee) Controls, Guest and Employee Injuries and Workplace Safety.
Although most owners and business leaders leave the responsibilities for checks and balances to the CFO or controller, it’s really incumbent upon all company leadership to have an equal part in understanding and then enforcing policies and programs that support the company’s loss prevention mission.
Unfortunately, as business owners and leaders always have it in the back of their minds that unfortunate incidents such as burglaries, robberies, employee theft, fires and floods can actually occur, they actually postpone this reality and fail to plan or even create preventative programs to head off such issues from occurring in the first place.
Most companies are reactive to such issues while larger capitalized companies invest in preventative programs and people to stay ahead of the curves and the many unfortunate issues mentioned earlier. With the evolution of today’s software, technology, and simplicity behind physical security systems available to the general public, even small businesses can implement results-driven and visibly- structured loss prevention programs that deliver savings.
End-results are measured in real dollars that are saved from reduced inventory losses, prevention of burglaries and robberies, reduced workplace accidents and insurance cost, as well as a decreased loss of inventory, cash and revenue otherwise lost to would-be thieves both internal and external.
A well-planned loss prevention program should involve all of the following focus areas.
Let’s start with the business plant itself. Is the place of business secured, fortified properly against unauthorized access or intrusion, have the correct locking hardware and security protection installed with alarms and updated security CCTV where necessary?
Although this all requires capital investment, as the old saying goes, “an ounce of prevention is worth a pound of cure”. Keep in mind that criminals keep it simple. If a break-in looks easy, they’ll attempt it! The challenge is to create an “impression of control” that presents challenges and hurdles for bad guys. I’m often surprised at how easily companies have been compromised due to low-grade security features installed that were intended to protect hundreds of thousands if not millions of dollars worth of inventory, technology, workplace IP, company records, equipment, computers and of cause, money!
In today’s environment, a smash-and-grab burglary takes no more than two or three minutes to execute by unsophisticated and brazen groups of younger criminals set out with only one purpose in mind, which is to get as much as they can as fast as they can and not to be apprehended.
And a good physical security program doesn’t stop with the perimeter being secured. It extends into the store, warehouse or business for overnight security of valuables housed in display showcases, stock rooms, on the receiving dock and in your safes. In the technology world, it’s also critical to protect and backup IT infrastructure to prevent any authorized use or access.
Next come people, otherwise referred to as Human Resources. In most cases we need lots of labor to accomplish what needs to be done but finding great employees is sometimes a challenge. Good HR loss prevention involves completing background checks and reference calls for all employee prospects. I’m frequently consulted on issues and investigations where employees were hired based on a personal referral or other relationship and where criminal activity was not disclosed but could have prevented the inevitable ugly scenario from occurring. Background checks and reference calls play a major role in pre-screening your employees. And don’t be fooled! Many candidates know exactly how to manage themselves through an interview process and get hired! Information to do so is all over the Internet unfortunately. Very often a business owner is desperate to hire help, but such simple and cost-effective programs should be implemented to avoid this pitfall. Many reputable backgrounds check companies are available today on the Internet and provided outstanding services.
The supply chain creates many opportunities for theft and pilferage of goods. Basic loss prevention programs will include programmed checks and balances all along the way to include verification of merchandise received as ordered, matching receipts against purchase orders, managing in-house inventory on a regular basis to identify theft, pilferage and system irregularities, and spending extra focus on outbound shipments and third-party deliveries to ensure employees are not accidentally or intentionally misdirecting company goods elsewhere. If your company employs third-party vendors or has multiple delivery locations, it’s critical to stay on top of misdirected shipments, shortages as well as overages and have strict guidance for verifying carton quantities and contents against bills of lading and invoices.
If you’re a retailer, your loss prevention program must include outstanding customer service protocols to prevent shoplifting. Shoplifting of yesterday is not what it is today. Organized retail crime, otherwise known as “ORC”, has presented new critical threats over the last 15 years where teams of organized individuals (criminals) focus on specific categories of goods and target retailers in specific geographies to pilfer as much as they can as quickly as they can and to move on to another area without being apprehended. Organized retail crime today is expected to contribute hundreds of millions of dollars in merchandise loss from retailers including grocery stores, malls, strip-centers, health and beauty aids, and pharmacies. There really aren’t any publicly available goods that are excluded from the ORC target agenda. There are markets for stolen goods all around the world. We never would have thought of this occurring 20 or 30 years ago to the extent we see today. And no longer are these professional criminals stealing just to set up an on-line or back-alley store. ORC today includes shipping stolen goods around the world to markets that are just waiting for your stolen merchandise!
Next, a great loss prevention program will have many programs focused on internal operations and employees. Let’s tackle these separately. First, let’s discuss employee controls.
Multiple studies have shown over the last two decades that employees still contribute to the majority of a company’s losses. And the reason is simple – your employees are there everyday, understand the operation, have identified the gaps in compliance, validation and execution and have decided unfortunately to take advantage of such opportunities. I’ll save “why employees steal” for another blog.
There are many different ways to tackle this in a small and midsize business but there’s no better way to prevent losses than to hire the right person and then create a culture of high integrity. Talking about internal theft, trust, loyalty and honesty both one-on-one and in groups must be a part of every manager’s and every owner’s curriculum. And this should begin during the new-employee training session.
Not talking about honesty and integrity on an ongoing basis only leaves the employee to believe that either you don’t care about it, don’t know about it, or are simply not checking on it. Many owners and leaders will lie awake sleepless nights worrying about achieving sales, meeting budgets, improving profitability and saving expenses. And although most business leaders spend countless hours validating the organic processes of the business and their operational process through to their end product or service, their loss-prevention shortfall is often staring them right in the face. And I am referring to inefficient employee integrity.
It’s way too often that we read about an employee who embezzled more than $100,000 through illicit bookkeeping or check-writing schemes, by selling goods “out the back door”, colluding in theft with an outsider or processing fraudulent POS transactions on cash registers. Other profit-biting scenarios include simply giving away goods to friends or conspirators, not charging for product that otherwise should be run through cash registers, by hiding goods in the trash to be retrieved later, or simply stealing cash from the till or safe. A continuous system of checks and balances through all employee activities starting with timekeeping and supplies and all the way through stock keeping and POS processing, all need to be integrated into an effective and visible loss prevention program.
When it comes to burglaries and robberies, I often hear from clients that “employees know what to do”. But do they? Most employee handbooks or in-house safety guides do explain in writing how an employee should react to such scenarios, but a best practice includes actually role-playing with the employees, beginning with managers, to actually walk through the experience and create confidence in their abilities to react accordingly and safety if confronted with such an event. “Table top” exercises and training scenarios can help ensure the safety of guests and employees in such situations.
We all have the unfortunate pleasure of paying for insurance whether it is for personal, home, auto, business, etc. Losses from insurance quickly increase when claims are made and more so if negligence is identified. When the employees and management team all understand the burden of paying insurance and apply the same thought process to the business environment, we often see teams band together to create safer work environments for themselves, visiting guests and co-workers. A safety team, or safety committee, can comprise a few key individuals or many from across the organization. A best-practice loss prevention program for environmental safety includes tasking the safety team or supervisors with inspecting their environment, work practices, OSHA standards and equipment and peer-behaviors regularly to ensure less employee and guest injuries, lower turnover and ultimately an overall savings in insurance expense premiums, deductibles and claims.
Lastly and most important is bookkeeping and accounting. Although I’m not an accountant myself I have had great exposure in my career and have worked with extremely confident CFO’s, controllers, and accounting supervisors to implement valuable checks and balance systems to ensure that the cash flow activities into and out of the company was sound, cross verified by different individuals, segregated where necessary, and where irregularities or fraud was reported timely for investigative purposes and research before problems grew too big. Every company has seepage and losses but a great loss prevention program and culture of integrity, built from the top down and all the way to the front line, will ensure confidence, loyalty and profitability and fewer headaches for the long term.
John Bocker is a professional retail and hospitality business strategy consultant specializing in maximizing profitability, risk management, internal controls, employee integrity, training, and driving success! John is Managing Director at JB Group, LLC in Denver, Colorado where he partners with business leaders to exceed sales and profit expectations. Visit www.jbgroupco.com or call (720) 514-0609 for more information.