Employee crime: To catch a thief

it’s relatively easy to catch a shoplifter with security guards and CCTV footage, but what happens if the culprit is the person sipping tea in your head office or warehouse?

The average amount stolen in incidents involving retail employees stole per incident in Europe in 2009 was €2,535 (£2,082), compared with €128 (£105) stolen by shoplifters, according to the Centre for Retail Research’s Global Retail Theft Barometer.

Dishonest employees were the second largest source of retail shrinkage in Europe, accounting for €9.9bn (£8.1bn) or 30.5% of shrinkage. This is second to shoplifting at €15.3bn (£12.6bn), which accounts for 47.5%. In the UK, employees were responsible for 36.4% of retail shrinkage in 2009, second again only to shoplifting.

It is not just shopfloor workers who pose a potential security risk. Head office staff and distribution centre managers are often well placed to commit more serious crimes.

“Senior people in an organisation are in a better position to commit fraud. With their power over computer systems, they can carry out bogus investments to their own companies,” says retail security expert Professor Joshua Bamfield of the Centre for Retail Research. “Crime in distribution centres is a real problem and not as well researched as store-level crime. Retailers know a lot about how shops run, whereas distribution centres are a different sort of operation that includes outsourcing to third parties.”

One fashion retailer’s head of security says that a quarter of fraud cases in his company are linked to theft through distribution centres and head office. And distribution centre workers tend not to be whistle-blowers. He says: “I’ve never had a call from the distribution centre, which worries me. It’s a different culture to head office; they are quite protective of their own world and they don’t like people coming in [to monitor them].”

This defensive attitude of distribution centre staff was witnessed when the retailer in question introduced 100% spot-checks on deliveries at the beginning of last year, after stock shortages raised suspicions. The checks helped identify where stock losses were occurring - in one instance in Russia, where border guards were helping themselves to stock.

Checks are now high on the retailer’s list of priorities. “I don’t trust internal teams to check themselves and am thinking of bringing in teams from within the company not linked to the distribution centre to make checks,” the head of security added.

Locating where exactly in the supply chain problems are occurring is key.

“We are keeping an eye on international distribution. We use lots of carriers,” the head of security at a large fashion group says. “We had a problem in Paris, where stock was checked off and sat around in a loading bay. The question was whether it went missing there, or during delivery to the department store.”

After the issue was resolved, his staff became better informed about delivery and the process was tightened up.

Working in collaboration with other organisations can help in the fight against employee crime. Online marketplaces can be an avenue employees use for selling on stolen goods. Concealing a seller’s identity is particularly easy online, which assists corrupt employees to fence stolen goods on sites like eBay or through their own ecommerce businesses.

“It’s hard for retailers to identify [online] perpetrators and hundreds of thousands of pounds can be lost before a problem is spotted,” Bamfield says.

Suspicious minds

EBay is working with retailers to help identify individuals making suspicious transactions, according to security industry sources. Software links eBay’s database and the retailer’s data mining system, allowing retailers to see seller activity in particular postcodes and match that with the purchasing activity of staff in those postcodes, a retail security executive explains.

A security technology supplier confirmed it had a relationship with eBay. “Giving away details of how it works would jeopardise it,” says the supplier’s managing director. “People are always surprised when we catch them on eBay. We’ve had a couple of instances where retailers have gone public about it and this has defeated the purpose.”

EBay would not comment on this particular relationship to retailers, but a spokeswoman explains: “Ultimately it’s the retailers’ issue to protect their own stock. We get involved in removing items from the site when police are involved in the investigation.”

But if fraudsters think using eBay poses a risk of detection to them, they will just go and sell it elsewhere, the technology supplier explains.

Technology is no cure-all for loss prevention executives and whistleblowing commonly delivers better results. One fashion retailer tells Retail Week that all of its leads come through that line. His advice is to “avoid expensive systems as much as possible and rely on good, old-fashioned honesty. We have to follow suspicions up even if it sounds peculiar otherwise the credibility of the system is undermined and it becomes useless. It’s about spreading this culture of awareness through staff”.

Technology can help collate the data trail that is used in courts as evidence to prosecute perpetrators. Aurora Fashions group head of security Mitch Haynes says: “We have a data mining system and a case management system to help secure civil recovery and investigation costs.”

Case management software helps retailers prioritise investigations, identifying which cases are worth pursuing. It can log the case they’re working on, distribute workload and estimate the cost of investigation against the cost of fraud. High street mobile phone retailers, DIY stores and clothing retailers are all using this software.

The ability to demonstrate how much is recovered can help retailers’ security teams secure future funding, security systems provider Checkpoint Systems global product manager Simon Edgar says.

Share and share alike

Such software also helps retailers see what is happening across their business. “It is designed to operate across national borders and capture weak business procedures before they happen in other countries. Investigators used to work in silos, because they didn’t share information,” Edgar adds.

The detailed overview of an operation it delivers allows a small team, like the six or seven people in the Aurora Fashions investigation team, to review cases across the group in the UK, Ireland and internationally, in a large operation monitoring 9,000 staff members working for the business.

Data mining systems can actually act as a deterrent to employee crime.

“Since the data mining system was installed two years ago, there was initially a big increase in apprehensions, when we were identifying 10 or 15 cases a month. Now we only get only two or three apprehensions a month, because staff know we are monitoring the system,” Haynes explains.

So, it is not just the technology that can be used to flag up causes for suspicion, but awareness of systems in use that act as a deterrent to employee fraud. It is clear that people intent on committing crime will seek an unmonitored avenue in which to do so. A culture of whistle-blowers, data collection, linked systems and strong third-party relationships makes it difficult for fraudsters to see a clear path to making crime pay.

The challenge for retailers is to give potential wrong-doers just that impression and, by their actions, persuade them that they will not succeed in committing crime and getting away with it.