E
Electronic Article Surveillance (EAS)
“Electronic article surveillance” (EAS) is the tem used to describe retail antishoplifting protection systems for apparel and packaged consumer products. These systems have been successfully implemented in hundreds of thousands of stores worldwide over the past 40 years. In short, an electronically detectable element (tag/label) is either pinned or affixed via adhesive to the item to be protected. Transmitters and receivers are placed at store exits to detect the presence of the tags as shoppers leave the stores. At the point of purchase, these tags are either removed or rendered inoperative so that the customer may exit the premises without setting off an alarm. If someone were to attempt to leave the store with items containing “live” electronic elements, the detection equipment at the exit would sound an alarm, and store management could take appropriate action.
These systems have proven to be an effective psychological and physical deterrent to shoplifting. In recent years, technological improvements have provided more reliable, smaller, and less expensive products.
The apparel industry was among the first markets for EAS. The primary method of protecting clothing was (and still is) the application of reusable plastic tags at the store or somewhere in the distribution chain. The original tags were large, heavy (27 grams), and costly ($1.40 each), and were pinned to the garments by store personnel as the merchandise was placed out on the sales floor. Even though they were obtrusive and could damage apparel if misapplied, these tags were tolerated because they effectively thwarted shoplifters and reduced inventory losses.
Over the years, the size, shape, and weight of the tags have been steadily reduced. At present, the lightest tag weighs about 7 grams, and the least expensive tag can be purchased in large quantities for about $0.15.
In the past 20 years, thin, label-like electronic circuits have been designed to provide a similar deterrent against the theft of packaged products, such as health and beauty aids, cosmetics, hardware items, toys, electronic media, and other high-volume, high-risk items. The basic principles of use remain the same as with plastic tags, except that the labels are not generally removed at the point of purchase; they are electronically disabled (deactivated) so that they won’t activate an alarm as a customer exits the stores. These labels can be mass-produced at high volume for a fraction of the cost of plastic EAS tags. In addition, they can be applied to merchandise packaging using high-speed automated equipment and deactivated with little or no disruption to the checkout process.
Terminology
EAS industry jargon is not necessarily standardized. Following are definitions of major terms:
• EAS system: A pair of detection pedestals, or a single transceiver that transmits and receives the basic electronic signals. At certain times, the word “system” may be used to describe all the components of EAS in a store, not just the electronic detection equipment.
• Tags: The generic term used for individual EAS circuits of any technology. In some contexts “tag” refers to either a reusable or disposable product. Here, the term is used specifically to describe reusable plastic products, used for protecting apparel, containing an EAS circuit, a pin, and a locking mechanism. It will also be used to describe benefit denial products, such as ink tags.
• Labels: The specific term used to describe disposable paper/plastic laminated products, used on packaging, containing an EAS circuit and adhesive.
• Detacher: A removal device used for reusable plastic tags and benefit denial devices.
• Deactivator: A device used to destroy or distort the EAS circuit in a disposable EAS label.
• Circuit: The generic term used to describe the “working” component of an EAS tag or label.
• Source tagging: The generic term adopted by the industry to describe the affixation of disposable EAS labels onto merchandise at a convenient point in the manufacturing process, rather than after it reaches the retail store.
• Tag and label geometry: The term used to describe the basic shape and dimensions, or footprint, of a disposable label or the circuitry enclosed in a plastic tag.
• Contact and proximity deactivation: Contact deactivation is the act of incapacitating a label as it is touched by magnetic material—eliminating the circuit’s ability to respond with a recognizable signal. Proximity deactivation is the act of incapacitating a label at a distance—without directly touching the circuit.
Basic Technology Comparison
Worldwide, there are three EAS technologies with a significant share of the market: electromagnetic (EM), radio frequency (RF), and acousto-magnetic (AM). Each is capable of supporting conventional EAS usage, where tags or labels are affixed at the retail store, or source tagging. Additionally, retailers have chosen to include benefit denial devices, such as ink tags, as an adjunct to EAS programs. Since benefit denial products are an important segment in the North American market, basic information about the technology is included under the heading “Benefit Denial Devices” later in this section.
All types of EAS systems operate from a simple principle: A transmitter sends a signal at a defined frequency to a receiver. This establishes a surveillance field. When an EAS tag or label enters the field, it creates an electronic disturbance that is detected by the receiver. By design, each EAS technology has its own method by which the tag disrupts the signal. Each of the three major technologies occupies a particular space on the frequency spectrum and has its own set of strengths and weaknesses imposed on it by the laws of physics. While they may be similar in appearance and function, and provide the same general benefits, the technologies could hardly be more different.
The electro-magnetic (EM) transmitter creates a low-frequency (between 70 Hz and 1 kHz) electro-magnetic field between the two pedestals. Hertz (Hz) is a measurement of wave cycles per second, and 1 kilohertz is 1,000 cycles per second. The field continuously varies in strength and polarity, repeating a cycle from positive to negative and back to positive again. With each half cycle, the alignment of the magnetic field between the pedestals changes. EM EAS “circuits” are made of a strip of wire cut to a specific length. When the circuit enters the magnetic field created by the transmitter, its magnetic characteristics are changed, and the wire generates a momentary signal that is rich in the harmonics of the base frequency. In layman’s terms, a harmonic signal is a precise integral multiple of the base signal from the transmitter. The receiver detects the harmonic signal, and an alarm is sounded. Unfortunately, the circuit’s signal strength is so weak that the pedestal width restrictions are a maximum of 36 inches. The narrower the pedestal width, the better the receiver can “hear” the harmonic transmission from the tag. A transceiver (combination transmitter and receiver) is available, but effective detection is limited to about 24 inches. Label deactivation is achieved by magnetizing segments of the wire.
For radio frequency (RF) systems, the transmitter sends a signal that sweeps back and forth between certain frequency ranges. Currently, the most popular center frequency is 8.2 MHz, with a sweep range of between 7.4 and 8.8 MHz (megahertz = millions of cycles per second). A swept transmit signal is required because tight frequency tolerances cannot be precisely controlled during high-speed manufacturing of disposable EAS labels. The transmit signal energizes the EAS label, which is composed of an etched aluminum circuit containing a capacitor and an inductor, both of which store electrical energy. The EAS circuit in a plastic tag is composed of a tuned coil of wires and a capacitor. When connected together in a loop, the capacitor and etched circuit (or coil) can pass energy back and forth, or resonate. Matching the storage capacity of the two components controls the resonant frequency. The target center frequency, which is at the midpoint of the sweep, is 8.2 MHz. The circuit responds by emitting a signal that is detected by a wideband receiver, meaning a receiver that monitors for signals over a wide frequency range. The wideband receiver is required because of the lack of precision in the mass manufacturing of EAS labels. It is useful to think of this wideband receiver as fishing net carried by a shrimp boat (very large). These nets catch much more than just shrimp. Similarly, a wide band receiver picks up more than just the tag signal. The strength of the RF transmission from the circuit depends on the aperture of the loop (diameter). The larger the loop diameter, the wider apart the pedestal can be mounted. Reusable plastic EAS tags may have a loop diameter of as much as 3 inches—allowing adequate detection at almost 2 meters. The standard label size is about 2 inches square, limiting the practical detection distance to about 4 feet or under. A few of the RF EAS manufacturers have introduced a transceiver that can be mounted either as a pedestal or underneath flooring, but detection is limited to about 3 feet.
To support deactivation in disposable RF EAS labels, a dimple is added to the etched capacitor. The purpose of the dimple is to encourage a short circuit, which is caused by a strong burst of a signal of the same frequency used in detection. This burst causes an arc, which completes the short circuit. Permanent circuits in plastic tags cannot be deactivated. Deactivation can be achieved at a maximum distance of around 12 inches from the circuit.
RF reusable plastic tags are also available with a transponder, instead of the conventional tuned coil. A transponder is made up of a ferrite rod antenna for reception/transmission and a capacitor—forming a resonant circuit. Thin wire is wound around the ferrite. These products can be detected by AM transmitters/receivers, but the performance characteristics differ from those exhibited by acousto-magnetic material.
The acousto-magnetic (AM) technology, offered exclusively until 2003 by ADT (trade name is Ultra*Max®), contains a transmitter which sends a signal at a frequency of 58 kHz, but the frequency is sent in pulses. The signal energizes the circuit, and when the transmission ends, the circuit responds, emitting a single frequency signal like a tuning fork. The circuit’s transmission is at the same frequency as the system’s transmission, not a harmonic like the EM system. While the system’s transmitter is “off” between pulses, a narrow band receiver detects the circuit’s signal. A narrow band receiver can be used because the AM tag frequency tolerance is just 600 Hz. Compare this with the 1,400,000 Hz tolerance required with swept RF. In the fishing analogy used earlier, a narrow band receiver would be akin to a handheld casting net. Very little other than the target fish will be caught.
AM technology supports both a reusable plastic tag and a disposable, deactivatable label. The “circuit” is a strip of precision-cut amorphous alloy metal called METGLAS®, with exceptional magnetic properties and a noncrystalline structure—like glass. When aligned atop a magnet, the METGLAS® vibrates when it is exposed to the transmit signal. Since the signal is pulsed, when the transmit signal stops, the METGLAS® continues to vibrate. The accurate frequency response of the tags and labels results from the precision cutting of each strip. This “acousto-magnetic” effect, where resonance and magnetism create a unique signal, helps to explain why AM technology is somewhat immune to false alarms from objects that imitate similar electronic characteristics.
AM reusable plastic tags are available with a transponder, instead of acousto-magnetic material. A transponder is made up of a ferrite rod antenna for reception/transmission and a capacitor—forming a resonant circuit. Thin wire is wound around the ferrite. These products can be detected by AM transmitter/receivers, but the performance characteristics differ from those exhibited by acousto-magnetic material.
Apart from the physics involved, label geometry plays an important part in the detection and deactivation performance of AM tag/label circuits. A clearly defined cavity is required to guarantee that the resonance can take place when the circuits receive the signal from the transmitter. AM disposable labels must contain enough of a height dimension to ensure vibration.
In addition to the METGLAS®, AM disposable labels contain a bias magnet which is made from material similar to razor blades. The AM deactivation process actually increases the intensity of the bias magnet, thereby attracting the METGLAS® and inhibiting it from resonating. This effectively deactivates AM disposable labels. The labels can be deactivated by touch on a pad containing magnetic material (similar to deactivation in EM systems) or by using an electro-magnet intensify the magnetic properties of the metal bias strip inside. The requirement for magnetic field changes creates some issues at the point-of-sale. For example, the deactivators can erase information on bank and credit cards.
EAS Source Tagging
Starting in the late 1980s and early 1990s, Sensormatic/ADT and Checkpoint began working in partnership with retailers, consumer product manufacturers, and packaging experts to develop automated, integrated systems to affix disposable EAS labels somewhere toward the beginning of the product manufacturing process—either by a distributor, packaging provider, or the manufacturer itself. The key perceived benefit to the retailer was to transfer the cost of EAS label procurement and the merchandise tagging itself to a “source” in the manufacturing process where the process could be accomplished most cost effectively. The EAS companies saw source tagging as a “razor and blade” strategy, with the EAS system as the “razor” and the labels as the “blades”—eventually generating endless recurring revenue from label sales. Both companies began marketing source tagging to the largest retail chains in North America, reasoning that once a few nationally recognized retailers adopted the strategy, others could easily follow.
The EAS market is neatly divided into two major subsets according to merchandise type: packaged products (commonly referred to as “hardlines”) and apparel. In the developmental stages of source tagging, most of the effort was directed toward hardlines because both EAS manufacturers had developed reasonably inexpensive disposable labels that could be integrated into the packaging process fairly easily. Historically, reusable plastic EAS tags that aren’t suitable for source tagging have protected apparel. Efforts to develop security products for apparel that would be suitable for source tagging started in the mid 1990s.
EAS executives had three main objectives in the early marketing of source tagging. First, they had to convince retailers that source tagging was the most effective method of implementing an EAS program. They used a two-pronged approach: the elimination of tagging labor and the prospect of lower shortage and incremental sales as items were preserved from theft and sold instead of stolen. If retailers accepted that logic, then it would be easier for retailers to install EAS detection equipment in all stores (a prerequisite to source tagging). Second, they had to get the retailers to use their influence over merchandise manufacturers to get them to accept the burden of label procurement and placement. This turned out to be a difficult task and gave rise to the Consumer Products Manufacturers Association’s efforts to forestall source tagging. Simultaneously, the EAS companies lobbied merchandise manufacturers to embrace source tagging as a customer service. They argued that accepting the task of source tagging would eventually result in more shelf space, or a wider assortment. Third, the EAS companies established in-house organizations whose purpose was to facilitate the actual process of source tagging among the partners. Resources were devoted to establishing standards; assisting in the design, development, and procurement of high-speed tagging equipment; entering into licensing arrangements with packagers and purveyors of specialty security equipment; and providing other necessary assistance to both retailers and manufacturers. In addition to in-house source tagging management, both EAS manufacturers have funded and supported trade association groups that function to promote source tagging and educate retailers, manufacturers, packagers, and other interested parties. The Sensormatic/ADT-sponsored organization is called the Source Tagging Council, and the Checkpoint-sponsored organization is called the RF Inventory Management Conference. Each of these organizations schedules user group meetings where all pertinent source tagging issues are discussed.
Early Successes
Both Sensormatic/ADT and Checkpoint had early success in convincing a “marquee” retailer to implement a source tagging program. Sensormatic’s classic case study is The Home Depot, U.S.A., and Checkpoint’s is Eckerd Corporation. Both embarked on source tagging programs at approximately the same time—1993. Home Depot’s source tagging program is the model on which most other AM programs have been built. Home Depot probably has more source tagging experience than any retailer in the world. The chain installed EAS for the first time with the proviso that absolutely no tagging would take place inside Home Depot stores. Any and all tagging had to be achieved somewhere in the manufacturing or distribution chain. Home Depot accomplished its goals by establishing a three-phase program. The first phase consisted of the topical application of EAS labels to the outside of packaging. The second phase mandated that the labels be concealed within the packaging. And the third phase suggested (rather than mandated) that EAS labels be incorporated within the merchandise itself, not just the packaging. Currently, Home Depot has converted the vast majority of vendors to phase two tagging, which has become a de facto standard.
At the outset, Home Depot started the program by isolating stock keeping units (SKUs) that incurred high shortages. Targeting SKUs was one of the most practical methods to justify source tagging because isolated shortage statistics could be shown to the manufacturer. Home Depot was saying, “Look at our shortage statistics for your power tool. We’re losing money and we want you to help both of us make more money by applying the EAS label for us.” As time passed, however, Home Depot realized that focusing on the SKU was an inefficient method of source tagging. In the first place, shoplifters tended to stop stealing the source tagged item, but they began stealing similar products made by vendors that were not yet source tagging. Home Depot management saw this trend reflected in its inventory shortage statistics. Second, Home Depot routinely adds and drops vendors and SKUs, so isolating high-shortage items became more difficult—particularly for seasonal or promotional merchandise.
Recently, Home Depot has broadened its perspective by source tagging by merchandise category. In other words, when management discovers that a particular type of merchandise has become a target for shoplifters, it endeavors to have all like merchandise source tagged—not just the SKUs with high shortage. This shift in philosophy has provided Home Depot with several benefits. First, category source tagging management is easier to administer than SKU or vendor management. Second, broadening the tagging guidelines to include all “at risk” items serves as insurance against high inventory shortage. For example, thieves learn that every power tool is tagged, not just a specific brand. This prevents a low-shortage item from becoming a high-shortage item in the future.
Eckerd Corporation was the drugstore division of J.C. Penney. It was sold to CVS and the Jean Coutu Group in 2004. At the time its source tagging program was started, however, it was an independent public corporation. Under Checkpoint’s guidance, Eckerd established most of the same management parameters that were used in Home Depot. There are two concepts for which Eckerd is most noted. It was the first chain to assign a merchandising executive the responsibility of managing the source tagging efforts for the entire chain. This was, and continues to be, a key aspect of a successful program. The manager is able to serve the interests of parties—the Eckerd buyer responsible for the merchandise, the merchandise manufacturer, and the loss prevention department. It has been a vital benefit to the smooth operation of the program. The second concept is called “fractional tagging.” In cases where the EAS label is concealed under the product packaging, Eckerd’s allows manufacturers to source tag a preset fraction of the merchandise, say 33%. Since the security label is concealed within the packaging, it is logical to infer that shoplifters would not know which items are protected, and the deterrent qualities of the system will remain intact. In practice, fractional tagging has worked well and has helped lower the per-unit cost of the merchandise.
The Economics of Source Tagging
Since the mid-1990s, retailers have been assessing the value of an investment in EAS based on a classical cost versus benefit analysis. Will the reduction in inventory shortage offset the costs? As the EAS industry has matured, improved product offerings have broadened the scope of the asset protection role and changed the basic business model. Originally, a retailer’s economic decision with respect to EAS was (a) to invest or not and (b) choose a technology. An EAS program was strictly an internal decision, requiring no outside help from others—except the EAS vendor. Circumstances have now changed. Many retailers are now long-term users of EAS, and technological advancements are forcing conversions from old to new systems.
Additionally, the recent emphasis on source tagging has created an “open system” requirement that was unnecessary in the past. “Open systems,” in this context, means the collaboration among EAS provider, retailer, and merchandise manufacturer to work in harmony to ensure the success of the program. Retailers desiring to start a source tagging program must embrace a “wholesale adoption” mindset for the EAS program. EAS should be installed in all stores at the outset. Excess profit contributions from the high-volume, high-theft stores should be used to subsidize the smaller, less-theft-prone units, so the entire chain enjoys the economic benefits of source tagging: the elimination of tagging labor costs, the assimilation of tagging cost out of expense and into the cost of goods, and incremental sales from the role of EAS as a capable guardian of the merchandise assortment.
These developments have altered the risk-to-reward equation and complicated the EAS business model and the cost-justification process. Perhaps the most drastic alteration is that merchandise manufacturers are now, in a sense, EAS users in that they buy tags directly from EAS vendors and apply them to merchandise for retailers. Going forward, a much wider array of business issues must be addressed by groups other than the retailer. The more obvious issues are
• Can a new technology replacement EAS system be cost justified?
• Due to the requirements of source tagging, can EAS be cost justified in all stores, regardless of need (as defined by unacceptable shortage levels)?
• What are the economic issues facing merchandise manufacturers? Can they be quantified, and do the benefits outweigh the costs?
• How does the merchandise manufacturer’s source tagging business model impact the wholesale cost of the merchandise?
These complexities are forcing all participants to revisit the issues surrounding ROI calculations. The simple arithmetic of “payback” undertaken in years past isn’t sophisticated enough to provide the proper economic answer. Several major financial issues must be fully understood to obtain a full understanding of source tagging:
• EAS is difficult to cost justify for all locations at current pricing structures. The vast majority of EAS users apply the technology of their choice to high-theft items in stores exhibiting an inventory shortage crisis. They obtain a return on capital investment on a store-by-store basis. As a rule, they do not freely spend the money on EAS if the pro forma ROI calculations in an individual branch store don’t justify the expenditure. The Home Depot case in which EAS was installed chainwide at the inception of the program was clearly an exception. Few other North American retailers have been as innovative. For source tagging to be universally recognized as the appropriate platform for EAS, the store-by-store mindset must be changed.
• Individual equipment procurements are depreciated for up to 10 years. New purchases are added regularly, increasing the equipment replacement time horizon. The useful life of EAS equipment generally exceeds its “accounting” life. After the depreciation schedule ends, continued EAS protection is essentially “free.” This inhibits technology conversions. In fact, The May Department Stores Company has successfully slowed its conversion from MW to AM.
• North American retailers generally favor operating a single technology in “user” stores. It is too costly to manage competing systems. Consequently, EAS tag and label procurement and the concomitant tagging labor costs are generally the retailer’s highest variable costs associated with an ongoing (non-source-tagged) EAS program. In high tagging volume situations, or in areas with high wage rates, these costs significantly dampen the ROI. From the perspective of the retailer, source tagging provides the opportunity to transfer these costs directly to the merchandise manufacturer. The absorption of source tagging costs creates a new set of inventory management problems for merchandise manufacturers. They must now procure EAS labels, redesign the manufacturing process to absorb the tagging process, and perhaps procure capital equipment for high-speed, automated tagging. The most onerous problem, however, is in the segregation of tagged versus untagged inventory. When a merchandise manufacturer commits to source tagging, three subsets of a single SKU must be managed: untagged, RF tagged, and AM tagged. The magnitude of these costs, and the lack of a clearcut way to recover them, has been the single biggest stumbling block in gaining manufacturers’ support for source tagging.
Benefit Denial Devices
In the late 1980s and early 1990s, as the first-generation electronic article surveillance products matured, they began to lose their effectiveness, and losses from shoplifting began to rise precipitously. At the time, retailers were beginning to realize that the existing EAS technologies weren’t deterring as many thieves as they had previously. The rewards of successful theft had begun to exceed the risk of detection from the EAS alarm. Retail loss prevention executives began searching for better solutions, and they were willing to try something more radical. Thanks to two enterprising and visionary security equipment manufacturers—Colour Tag of Sweden and Security Tag Systems, Inc., of the United States—the concept of “benefit denial” was born and commercialized.
Thieves routinely steal personal property or retail merchandise either for personal use or to sell the items for cash. The radical idea behind benefit denial is to provide physical protection that would destroy an item instead of allowing thieves to obtain any economic benefit from it. Dr. Read Hayes, the well-known retail security consultant, coined the term “benefit denial” in early 1993, and it has become the universally accepted name for a growing category of security products used in retail and nonretail item-level protection.
There are a few noteworthy examples of benefit denial devices in society at large that explain the concept and that acted as catalysts for the products developed for use in retail.
• Exploding dye packs used by banks to identify stolen currency. Robbers who attempt to spend the currency can be readily identified.
• Clothes hangers in many hotel room closets have closed loops and ball joints that allow separation between the loop and the hanger, so the entire unit cannot be stolen and used in any conventional closet.
• “Breakaway” electronic switch connectors that disable car radio/CD players if they are removed from the dashboard of the vehicle.
• Car security systems that disable a vehicle’s electronic fuel pump a few seconds after a theft attempt.
History
The benefit denial phenomenon in retail loss prevention began in the late 1980s when Colour Tag’s original system was introduced at a trade show in Europe. Spawned by the bank dye packs, Colour Tag developed a “dye pack” to protect apparel from thieves. The original tags were heavy, large, and expensive (about $6 each). While this design set the current industry standard by using pharmaceutical-grade glass vials, the dye was toxic and the vials were filled under pressure. The tags were rugged and were able to withstand the rigors of repeated use within retail stores. Unfortunately, they were too well engineered and were difficult to break with force, but easy to defeat with common implements, such as a paper clip. When the tags did break, however, the garments were indeed ruined, as the vials tended to explode. As with conventional EAS tags, Colour Tags were removed at the point of sale. The “remover” was a portable air compressor that usurped precious space at the checkout stand, required a dedicated electric outlet, and cost $800.
Notwithstanding the safety, liability, and operational issues surrounding the product, and the general lack of understanding of the deterrence concept behind the idea, Color Tag successfully marketed the products in several European countries, and a few visionary American retailers conducted small-scale trials.
Security Tag was a small manufacturer of EAS and access control products. In 1989, its founder returned from a European trade show with samples of the Color Tag and commissioned a more user-friendly design. To succeed, Security Tag management had two tasks. First, the original products were unsuitable for the American retail market place and had to be redesigned. Engineers had to devise a product that was cost effective, easy to affix and remove, would withstand the rigors of apparel retailing without accidental breakage, did not exhibit the safety and liability issues evident in the Color Tag product, and still damaged apparel during tampering. Equally as importantly, Security Tag’s marketing organization had to develop a working definition of the deterrent qualities of benefit denial products and full descriptions of the relevant features, functions, and benefits.
Through these efforts, the terms “ink tag,” “inkmate,” and “benefit denial device” became part of the retail loss prevention lexicon. The first benefit denial product, Inktag I, was introduced in the summer of 1991. Over the next 3 years, Security Tag introduced second- and third-generation ink tags and products designed to mate with EAS tags. The company also applied the benefit denial principles to make products to protect other retail merchandise, such as jewelry, neckties, and leather products. The program became so successful that by the time it was acquired by Sensormatic in 1993, Security Tag had set the industry standards and become the world’s largest producer and seller of benefit denial devices.
By the late 1990s, several other companies began to either develop new benefit denial concepts or copy existing ones. These products are made and sold by at least six different security equipment providers, including ADT/Sensormatic, Checkpoint Systems, Inc., EAS SensorSense, Unisen, and Universal Surveillance Systems, among others.
Over time, the ink tag, and its derivatives, has become a popular and effective anti-shoplifting countermeasure. According to a 2004 study of EAS market penetration conducted regularly by a well-known security equipment manufacturer, among the top 25 department store chains in North America, over 68% of the branch stores use benefit denial devices in some form, but only 48% of the stores use EAS (all technologies). By this measure, benefit denial products have penetrated more department stores locations in 15 years than EAS has penetrated in 40 years.
Ink Tags
The original retail security version of a benefit denial product was designed as a two-piece reusable plastic tag without an EAS circuit. One side contains the locking mechanism. The other side contains the pin and one or more glass vials containing a nontoxic, nonflammable dye or stain. The best-designed products also include an internal breakage mechanism that aids in the breakage of the vials and a diffusion pad that disperses the ink onto the fabric after the vials break. This product was originally designed to deter shoplifters in stores without EAS and is known as a “standalone” ink tag. Typically, the tag has a warning label printed on one side.
Combination Ink/EAS Tags
The most popular benefit denial product for apparel is known as an “inkmate.” It is a one-piece reusable plastic tag that contains the pin an done or more glass vials containing a nontoxic, nonflammable dye or stain. The more effective products also contain an internal breakage mechanism and a diffusion pad that aids in the dispersal of ink on the fabric. These products are substitutes for EAS pins and are “mated” with reusable EAS tags to form a double deterrent. They are much more popular than conventional standalone ink tags because of their compatibility with EAS systems.
Loss prevention executives soon realized that the combination of EAS and benefit denial forced the thief to “do something” with the tag inside the store or run the risk, however insignificant, that the alarm would cause a problem as he left the store. This turned out to be a very powerful deterrent. The inclusion of inkmates added longevity to inferior and first-generation EAS technology. In fact, the success of the inkmate caused at least one major U.S. department store retailer to delay a conversion to second-generation EAS technology—a strategy that is employed to this day.
What began as a case of “field expedience” turned into a lasting legacy of benefit denial for apparel retailers. The combination of an EAS tag mated with ink provided a device that offered the physical security of a clamp, the threat of an EAS alarm, and the certainty that tampering with the tag would ruin the merchandise. The EAS/ink combination remains a “capable guardian” of apparel.
Specialty Tags, Clamps, and Harnesses
Specialty benefit denial tags (not necessarily containing ink vials) have been designed using a variety of methods to protect other categories of merchandise. A small, magnetic release “padlock” was designed to protect jewelry, lingerie, and eyewear. Other lock and clamp arrangements protect accessories and various types of sporting goods.
A stainless steel clip was designed to protect neckwear, lingerie, and scarves. This device, shaped like a man’s tie clasp, clamped onto a portion of a necktie and was held in place by a plastic locking mechanism. A similar device shaped like a money clip was made from specially bent stainless steel. A special hand tool, shaped like a pair of pliers, was required to both affix and remove the tag. It protected small leather goods.
At least two manufacturers provide wire harnesses that are wrapped around consumer packaging to prevent thieves from taking the product from the package. These products can be either EAS or non-EAS inclusive. They have gained a measure of popularity in the small electronics merchandise category. At least two manufacturers offer a benefit denial device that clamps CDs, DVDs, game software, and other media products to their primary packaging.
In an effort to emulate the switches employed by the auto industry to deter auto theft, a patent has been issued on an electronic device that disables video game players that were not properly deactivated at the point-of-sale.
DiLonardo, R.L. (1993). Fluid tag deterrents. Retail Business Review. June.
DiLonardo, R.L. (1997). Source tagging issues and answers.
DiLonardo R.L. The economics of EAS. Loss Prevention Magazine. 2003;November-December:21–26.
DiLonardo R.L., Clarke R.V. Reducing the rewards of shoplifting: An analysis of ink tags. Security Journal. 1996;7:11–14.
Embezzlement: 17 Rules to Prevent Losses
1. Never hire an applicant unless his background has been verified.
2. Know your employees to the extent that you may be able to detect signs of financial or other personal problems.
7. Inspect all canceled checks.
9. Audit your financial transactions.
10. Control special and exceptional financial transactions.
11. Control all disbursements.
15. Control blank checks and any other negotiable instruments.
16. Periodically “SALT” cash registers and cash bags to see whether overages are reported.
17. To check your controls and checks and balances, purposely introduce “errors” into the system to see if, when, and by whom they are reported.
Emergency Planning for Retail Businesses
Background
Emergency planning for retail businesses is essentially the same as it is for any other kind of business. To be sure, the retail trade has its own jargon and terminology; however, the basic principles of emergency planning apply regardless of the type of business. Even though there are hundreds of different types of retail businesses from large department stores to kiosks and push carts, the planning principles remain the same.
Why plan for emergencies? This short anecdote will give an answer to the question. The former country director (vice president) of a large international corporation told me this story. War was looming. The country he was in was a target of the forces planning an invasion. The lease for the corporation’s main manufacturing facility was up for renewal. The company planned to have a meeting of its governing board to approve the renewal of the lease. In the meantime, the country was invaded. Although no damage was done to the company’s facilities, the international borders of the country were closed. Therefore, the outside directors from a variety of countries covered by this international corporation were unable to travel to this country to have a meeting. Thus, the lease was never approved. It soon expired. The result: The large international corporation had to close down its operations in that country until the international borders were reopened 4 years later. What went wrong? The answer is something very simple. There was no plan existing that would have allowed the local country management to approve the renewal of the lease under emergency conditions and for the duration of the closing of the international borders. These same conditions could apply to a retail store chain which had its main storage and distribution center in a country which had to close its international borders because of a belligerent situation; no goods in, no goods out, no one authorized to take action to ameliorate the situation, no governing board to approve or disapprove an action.
Keep It Simple, Stupid
The most important thing I believe I have learned from emergency planning experience is to keep things simple. You cannot imagine the failures I have seen because plans were too complex for retail security managers to carry out and even more complex for line and store managers to carry out. I have seen emergency plans 2 inches thick gather dust on store managers’ office shelves because the plans were too complex to be carried out expeditiously. Because of their complexity, emergency plans became obsolete, as the difficulty of keeping them updated and current was just too great to be practicable. When plans are not read or implemented under emergency conditions, things always go wrong. There is a generally-accepted principle in business called KISS, which basically stands for KEEP IT SIMPLE, STUPID. There is a saying in the Navy, “Ships are designed and built by geniuses to be operated by idiots.” Although that is an exaggeration, the key element is obvious. The other side of the coin tells us if a plan is too complex and impracticable, it is folly to expect it to be carried out efficiently if at all. Therefore, what follows applies the KISS principle throughout. You can take these simple suggestions and apply them to any kind of retail business.
The Basic Emergency Plan
The basic reason for creating emergency plans in retail businesses is to keep enterprises functioning even under extreme emergency conditions. Management has to be able to shift from normal, day-to-day operations to an extraordinarily stressful environment while keeping the enterprise running with reduced resources in communications, transportation, manpower, and funds. If the company is national or international, the emergency conditions create additional burdens in operating on a 24-hour basis across multiple time zones. A basic plan can be created that will be tailored to the size and complexity of the organization. A “mom-and-pop” store will have a very thin plan; an international store chain will have a thicker plan, but everyone must resist the temptation to make the plan more complicated just because it is longer. What follows is the outline of a basic plan that can be used to shift to emergency, sustained operations by any size company.
Outline of a Plan
The following outline can be useful to help publish an emergency plan in the corporation as a General or Special Instruction or their equivalents applying to every element of the enterprise. There should be separate, simple sections covering every principle of emergency operations that can be reasonably anticipated.
Purposes of the Plan. Purposes of an emergency plan are to provide a means of transition from normal to emergency operations efficiently, to delegate emergency authority, to assign emergency responsibilities, to assure continuity of operations, and to provide authorizations for actions contained in the plan.
Execution Instructions. The board of directors or its equivalent delegates authority to execute the plan as an operations instruction. Logically, this can be done in the following order: chief executive officer (CEO), officers who report directly to the CEO, local managers, and senior managers of branches of the enterprise. The plan may be executed partially under these conditions: bomb threat, kidnapping or hostage taking, severe weather, or flood. The plan may be executed fully under these conditions: civil disturbance, major riot, insurrection, explosion or major fire in corporate facilities, severe earthquake causing major structural damage to a corporate facility (store, warehouse, distribution center, office building, etc.).
Command and Control. The principal center for command and control is the corporate office. If the enterprise is a group of stores, then the alternate principal center should be the nearest branch office, or, in case there are no branch offices, the nearest store to the emergency condition that is not directly affected by the emergency directly. The controlling person should be the one nearest to the emergency; i.e., a person who can easily travel to the scene of the emergency, take control, and render reports to the corporate office of the conditions observed and actions taken. Corporate board resolutions must be in place at all times to give the person on the spot the authority to implement the plan and carry on actions to benefit the corporation. Only the chief executive officer of the enterprise should be allowed to countermand instructions to persons in the emergency area who are under the command and control of the enterprise’s local authority. The chain of command must be absolutely clear: Regardless of his corporate rank, the local person in charge of the emergency area has absolute authority to carry out actions beneficial to the enterprise in accordance with general policies of the enterprise. He is supervised by the chief executive officer (or in some organizations, the chief operating officer), who can countermand orders only when they are clearly not beneficial to the operation of the enterprise in the local emergency area, which could be anything from a single store to many stores, warehouses, and distribution centers. The chief executive officer assures that there is an emergency operations line item in the budget of the enterprise. The line item should take into account security, emergency planning, training, and special funds for operating under emergency conditions. The local person in charge coordinates with local fire, police, and other emergency agencies; informs persons in the emergency area of their various roles according to the plan; and disseminates applicable portions of the plan. Corporate and district managers should have already conducted training, rehearsals, and reviews of insurance against potential loss or obligations resulting from destructive events. Such actions should be started as soon as the corporate office has promulgated the plan. Every person who might be in a managerial or supervisory role in carrying out the emergency plan must have at least one backup person—two are better—trained to be backup(s) and emergency replacement(s).
Continuity of Management. The local manager of the emergency area shall determine which units of the enterprise in the area shall remain functioning. Some criteria for such a decision are availability of local public utilities at the site(s)—e.g., water, sewer, fire suppression, electricity; damage to structures, conditions in streets, availability of emergency medical assistance; morale and welfare of employees; etc.
Coordination and Liaison When the Plan Is Fully Implemented. The local person in charge is responsible for coordinating with local, state, and federal officials. To help with security and around-the-clock operations, it is advisable to keep a list of reliable private security agencies in the areas where the enterprise has facilities. At least one private security agency should be on retainer to help out in emergencies. A private security service can take on the task of coordinating with fire, police, and other emergency services. The person in charge should designate a company employee to be responsible for coordination with adjacent or nearby firms and facilities suppliers. One person only should be authorized to coordinate relations with news media.
Communications. You should expect breakdowns in communication systems for hours, days, or weeks. Alternate communication measures should be arranged before an emergency. If land-line telephone systems go down, you can substitute voice messages and email sent by computer through cell phone towers or satellites. Citizen band or other public band radios can be used locally. It may be necessary to employ messengers, employees, or professional messenger services to travel to the nearest operating communications areas to communicate with corporate offices. One employee per day can be designated to hand-carry important and urgent messages by automobile or airplane.
Personnel. Local and regional managers should maintain an informal list of the secondary skills of employees within their normal areas of responsibility. The secondary skills may become very useful in case of emergencies. For example, a stock clerk may be an emergency response medical specialist off-duty and can apply those skills to help injured fellow employees when necessary and when no other medical support is available. Local and regional managers should conduct periodic training, internally or by contract, to ensure minimum skills are available to operate under emergency conditions. No one knows when, where, or what kind of emergency may occur; therefore, at least rudimentary lists should be kept at the local and regional level of notification procedures, reporting points, and transportation resources. These lists should be kept simple and up-to-date. There should be procedures in place to brief other employees of the daily situation when under emergency conditions. There should be a procedure for notifying employees of evacuation routes in case it is deemed impossible to continue operations in a certain location or area. It should also be expected that when a major natural disaster strikes, most, if not all, employees will feel compelled to give their first priority to the safety of their families and not to the mission of the enterprise.
Utilities. Every corporate facility should have at least one standby generator in expectation of failure of the public electrical power system. Large facilities can use generators powered by natural gas that come on automatically when electrical power fails. Alternatively, there can be a permanent standby diesel-powered generator at large facilities. Small facilities should have small standby generators and an ample supply of fuel for generators to last for several days of operation. Battery-powered lighting such as emergency lights and flashlights should be available for emergencies. Flashlights powered by induction (shaking) can have a long shelf life and are handy in emergencies. Candles should never be used when the water utility has failed. To prepare for failure of the public water supply, 5-gallon containers of water can be kept on hand and be exchanged periodically to keep them fresh. Such emergency water sources can be used also to flush toilets.
Security. As discussed earlier, private commercial security forces that have been retained on a standby basis should be procured on an active contract basis by corporate elements when conditions warrant it. Security forces on a standby, as-needed basis should be invited to participate in all rehearsals of the security plans. Keep in mind that private security forces will be going through almost the same personnel crisis as the employees of the enterprise in the emergency area. If and when security forces are contracted, they should be put under the command and control of the person in charge of the area where the emergency conditions exist. Depending on the nature of the emergency, simple, letter-sized plans can be drawn up in advance to help coordinate the enterprise’s employees with the security augmentation. A contract guard agency can assist in the preparation of such plans. In large corporations, there may be a professional security manager who can assist lower elements in preparing such plans. These letter plans become operational directives when an emergency condition is in being. The person in charge of the emergency area may designate a corporate employee to assist him in the following: establishing liaison with local law authorities and reporting to police all actual or suspected acts of espionage, sabotage, or terrorism. Establish alternate record storage sites for all corporate elements. Screen all applicants requesting employment for possible security risks. Brief all new employees on general security procedures and security consciousness.
Fire Prevention. All new employees should be briefed by their supervisors on techniques of and the need for fire prevention. Designate a fire marshal in every enterprise facility no matter how small. The fire marshal should be made responsible for fire detection and suppression. Detectors that recognize the various traits of fires should be installed in all enterprise facilities, especially rooms that are normally not occupied during normal business hours, such as cooking areas, photocopy rooms, conference rooms, visitors’ offices, etc. Post fire extinguishers in conspicuous places and have fire extinguishers checked and filled by an outside contractor at least once a year or as often as local ordinances require. Store copies of electronic and paper records critical to operations, large amounts of cash and securities, and insurance policies in fire-resistant containers with the longest fire rating period available. The best place to store such materials is at an off site location.
Here is another anecdote to illustrate the importance of offsite locations. The place is a factory in a foreign country. The security consultant recommended the company make backup copies at least once daily of all computer records. The factory was later expanded and modernized. A contractor accidentally started a fire. The fire destroyed the central computer system and the manager’s office. Instead of using an offsite storage facility, the manager had kept the backup copies of the computer records in his office. All records, originals and backups, were destroyed. The company moved its offices to an adjacent site. To restore its records, the company had to depend on records kept by its customers, clients, and suppliers to determine its accounts payable and receivable. Tax records helped to fill in the gaps in data.
Emergency Supplies. In addition to items previously listed, designate persons to be responsible at each enterprise facility for procurement and caring for an industrial-type medical supply and first aid kit and a toolbox with common hand tools for emergency mechanical and electrical repairs.
Testing the Plan. The purpose of tests is to assure completeness of the plan and to correct weaknesses found in carrying out the plan. Tests should not be announced in advance except under extraordinary circumstances. Regional and local managers should have partial tests of the enterprise’s emergency plan conducted as they see the need, except that there should be, at a minimum, a full test of the plan every 2 years.
Customizing the Plan. Plans can be supplemented by materials (addenda, enclosures, attachments, annexes, etc.). Each supplement discusses a single topic and usually contains material that changes from time to time. By committing transient information to supplements, you can rewrite materials without having to rewrite the whole emergency plan. Following are examples of some material covered in supplemental documents:
• Civil Disturbance. Civil disturbances, riots, and insurrections can occur almost anywhere, even in small towns. Such events can cause severe disruptions of communications and transport, interruptions to the supplying of utilities—water, gas, electricity; shortages of food and like problems that can have serious effects on even the simplest of operations. Normal access routes may be blocked; therefore, employees must plan for alternate routes to reach the corporate facilities where they normally work. Wallet-size emergency identification cards can be issued to assist employees in getting through police lines and to travel to and from the work sites and their homes. Use of such cards should be coordinated in advance with local police authorities by regional managers. Employees should be warned by supervisors not to get involved in discussions or arguments with dissident persons, as this may make employees and the enterprise targets of violence.
• Bomb Threats. Bombings and threats of bombings are too frequent to ignore. You might recall the bombing of the Federal Building in Oklahoma City, the bombing of the U.S. Forest Service Office in Carson City, the letter bombings by a crazed serial bomber, the bombing of the World Trade Center in 1993, and the destruction of the World Trade Center by passenger aircraft used as aerial bombs in 2001. The mere threat of bombing can cause consternation and distress. Each time a school gets a bomb threat, the school has to be evacuated and searched. In 1995, the mere threat of a bomb closed down the air mail facility at Lost Angeles International Airport. How would such occurrences affect your enterprise? If a bomb threat is received, the senior person in the facility (store, warehouse, distribution center, office) calls the police. When a special bomb threat number is available, keep it on file; otherwise, use the general police emergency number (normally 911 in the United States). There are basically three methods of attacking with a bomb outside of open warfare: putting a bomb in a motor vehicle or adjacent building, putting a bomb in a letter or package, and suicide bombing. Before calling the police, however, attempt to get the following information: date and time of a threat; any clues which might aid the police in identifying the location of the caller and the telephone number; any mention of the location, type, or time of detonation; voice characteristics—male or female. What kinds of background noises are there at the caller’s end of the line? Are there machinery noises, traffic, radio, TV? Do you believe the caller is sincere? Call the police and give them the information you have. Follow their advice. Local human resources people, managers, and supervisors should keep records of discharged employees, especially those who may have threatened to “get even.” If there is reason to believe the threat is sincere, or if a bomb is discovered, the senior person present should order an evacuation of the enterprise’s facility, or that part of a facility controlled by the enterprise. The corporate office should have a standard, clear, simple procedure published to managers at all levels well in advance about when an evacuation may be ordered. If an evacuation order is issued without due cause or clumsily, panic may occur. In an evacuation, use stairs because elevator shafts are prime locations for explosive devices. Warn other facility occupants. The local manager (store, warehouse, distribution center, office, etc.) should keep track of the results of threats or actual bombings in the local area, including actions involving nonenterprise facilities. Knowing the underlying reasons for threats and bombings of other facilities is important because they may indicate your own facilities could be future targets.
• Letter Bombs. Letter bombs are sometimes employed against businesses. If any such bombings are occurring in the local area, the local manager should institute a procedure for screening incoming mail and packages. Get prior advice from local police. Characteristics of letter bombs are origin outside the country; return address, none or fake; addressee is by name; and size, letter size but thicker or simply a large, thick envelope. Trigger devices: envelope—triggered by pressure release activated by cutting open or tearing open an envelope; package—triggered by an electrical circuit breaker activated by opening the package or cutting the tape.
• Countermeasures: awareness, alertness, care; separate mail facilities; X-ray, and similar procedures. Take photographs of the letter or package for identification and follow-up.
• Recommendations. Keep in mind that an attacker picks the time and place of a bombing or calling in a bomb threat. It adds an extra protection against revenge bombings if discharged employees or laid-off persons are given the most care possible not to offend their dignity or to treat them disrespectfully. Can you protect against car bombs and suicide bombers? The answer is clear. A retail establishment can build in so much security that it looks like a fortress. People do not like to shop in fortresses. However, in a warehouse, distribution center, or office, especially when the enterprise controls all the space immediately around it, there can be strict security against most kinds of threats. Persons must agree to surveillance, even searches to get into the facility. How open an office, warehouse, or distribution center may be depends on its type and location. Many retail enterprises would not survive unless they foster a welcoming and open image. Preparing in advance to cope with a variety of threats can help control damage and loss, but the amount of security must be balanced against the retail enterprise’s image, which is part of its marketing program.
• Earthquake. In most of the United States, the prospect of a serious earthquake is remote. In some parts of the country, earthquakes happen fairly often. In many foreign lands, there are regions where earthquakes are common. It is wise to have an earthquake plan just in case. After an earthquake, outside assistance may be cut off. Employees in the earthquake zone may have to “make do” with what is on hand. When serious damage occurs, the damaged enterprise facilities should be shut down so employees can get to their homes and families. However, leaving the facilities and going into the streets may be more hazardous than staying in the building. Bridges and telephone lines will be damaged. There will be fires. Debris will block roads. Because of the enormous physical forces generated, an earthquake can be the most terrifying experience possible. Therefore, cool heads must prevail. Other than the forces of nature, panic is the worst enemy during an earthquake and afterward.
• Severe Weather and Flood. After a severe storm (rain, snow, ice, wind) or flood, if employees are still in the enterprise’s facilities, they should be released as early as possible to get to their homes before access routes are cut off. When the decision is made to maintain operations, as many employees as possible should be released. If employees are at home, they should be informed through a planned notification procedure whether they should report to work.
• Explosion or Major Fire. If an explosion or major fire occurs in one of the enterprise’s facilities, operations should be transferred to the nearest enterprise unit. In case of explosion in a store, the whole operation cannot be transferred; however, the “back office” functions can be transferred to another site. Although sales will probably need to be suspended, some store personnel will be necessary for helping in cleanup, restocking, and preparing for reopening. If there is a small fire, it should be fought using available extinguishers. However, small fires have a way of getting out of control. Use common sense. Call the fire department for assistance at the earliest possible time. Even if the fire has been extinguished when fire department elements arrive, the fire experts can determine if the fire is still smoldering and what further needs to be done. No attempt should be made to fight a major fire or operate where there has been an explosion. When ordered to do so by the senior person on duty in the facility, all persons onsite should obey fully a command to evacuate the premises. Do not use elevators as evacuation routes. Practice fire and explosion emergency procedures to keep order in case of evacuation.
• Kidnapping and Extortion. This part of the plan sets forth a methodology that can be used to help protect senior executives and their families from kidnapping and extortion. How many of these methods are used and what their composition will be should be determined by the situation existing at any particular time. Some factors determining vulnerability are public exposure; residence; business and social status; finances; political situation; and the type of organization. Kidnapping and extortion are more prevalent in some foreign countries than in the United States, so special precautions need to be taken for executives of the enterprise living in those places. The United States Department of State maintains country profiles that can be used to keep current information on conditions in foreign countries. If management in the enterprise feel executives need special protection, then they should contact professional security consultants and the Department of State. Other countries also publish data on conditions in other countries (e.g., Australia). Many of these publications can be found online. Professional security consultants can provide advice on travel, protection of children, and home security. If a kidnapping occurs, the crisis management team (CMT) is activated to conduct negotiations and to coordinate with police authorities. If a kidnap or extortion call should come into the enterprise at any level, the information should be passed immediately to the head of the CMT.
• Crisis Management Team. The crisis management team (CMT) should be activated in case of a long-term emergency situation that can threaten the basic structure of the company. The term “crisis” applies only to situations beyond the scope of ordinary business, e.g., a kidnapping of a key official of the enterprise or a major explosion, flood, or fire at one of the enterprises’ facilities. The CMT analyzes threats, develops responses to threats, organizes the responses to the threats, and assigns human resources and material assets to cope with the threats. In situations in which a designated person is in charge of a certain area or facility of the enterprise during an emergency that has risen to a crisis, the role of the CMT is to make human and financial resources available to the person in charge. The CMT does not interfere with the operation in the field but pushes resources down to the emergency area through its relationship with the governing board, its chairman, and the chief executive officer. Members of a CMT must be assigned permanently to it as an extra duty and be trained to minimize losses to the assets of the enterprise. People working on the CMT will be stressed to their utmost because of emotional drain connected with responsibility for human life, dearth of information, time constraints and pressures, strategic implications for the enterprise, and public and employee relations. A decision must be made at the highest corporate level as to the functions of a CMT in a crisis. Some specific functions to be considered are public relations, communication, negotiation, legal matters, control of financial assets, leadership, and health of persons involved in a crisis. The leader of the CMT is responsible for leading, orienting other members on their duties, keeping up on all past and current threats to the enterprise, and training in and simulating crises. There should be created a CMT charter that is then approved by the governing board of the enterprise which specifies the references and authority to delegate and from where it is derived, usually a specific paragraph contained in corporate statutes. Some items to be included in a CMT charter are under what conditions the charter takes effect, which is usually a delegation of authority from the governing board to the CMT; assignment of persons to the CMT from the various functional areas comprising the enterprise, e.g., finance, insurance, store operations, human resources, public relations, security, communications, and legal; the authority to commit company resources; and the primary mission of the CMT, which is normally protection of assets, both human and material. See the addenda to this section for a sample resolution delegating authority to a CMT.
• Contract Security Services. Under certain circumstances, it may be necessary to employ contract guard services to assist the enterprise in continuing operations when there are emergency conditions. Contract guard services may already be employed throughout the enterprise. If so, then it is a relatively simple matter to expand their contract to include the additional emergency services. If there is no contract guard service being used, one should be on permanent retainer in each region of the enterprise to provide services under emergency conditions. Guard services can assist in helping to coordinate with fire and police services; providing after-hours office security and fire checks; identifying and registering visitors; preventing unwanted visitors from entering; keeping a log of events; providing bodyguards; providing backup communications; and providing replacement personnel for around-the-clock operation. Regional managers should keep a list, including contact names and telephone numbers, of local contract guard agencies having the capability of providing the needed services on relatively short notice. A sample letter order to the guard service is contained in the addenda to this section.
Summary
In this section, we have seen the planning process for emergency plans and why we plan for emergencies. We reviewed the KISS principle, which reminds us to keep things simple so that anyone can read, understand, and carry out the plan as an operations document. We put forth an outline of a plan that covered every subject from execution instructions to the use of contract security services. At every step of the process, we have seen the necessity for having one person in charge of all corporate assets and actions to deter damage to the enterprise from natural and manmade disasters. When an emergency becomes a crisis, we have seen how a crisis management team can function to deter losses in the enterprise and to protect not only its physical assets, but its human resources as well. Keeping emergency plans simple and up-to-date helps protect the corporation from losses.
Published Works Consulted
Protection of Assets Manual. (2007). Some elements adapted by permission, copyright American Society for Industrial Security International.
Ryan, J. H. (1995). Before the bomb drops,” Management Review, August. Some elements adapted by permission, copyright 1995, American Management Association, www.amanet.org.
Recommended Sources for Further Information
ASIS Disaster Preparation Guide. (2003). American Society for Industrial Security International. Call: 703-519-6200.
Sample Emergency Plan. U.S. Department of Homeland Security. Download available at www.ready.gov.
Call-Em-All Voice Broadcasting Service. www.call-em-all.com.
ADDENDUM A: SAMPLE CRISIS MANAGEMENT TEAM CHARTER LIMITED DISTRIBUTION—CLOSE HOLD
Title: Delegation of Authority to the Crisis Management Team RESOLUTION OF
The Board of Directors, First Ark Corporation
On this____________th day of__________, 200X, the Board of Directors of First Ark Corporation hereby delegates to the Crisis Management Team, organized at the corporate headquarters office in Ararat, Pennsylvania, the following powers in accordance with Article____________of the Corporation Statutes:
To analyze, develop responses to, organize responses to, and fix responsibility for responses to threats to the Corporation that create long-term emergency conditions. A long-term emergency condition is defined as one that threatens the life of an executive of the Corporation or his or her family, or that threatens the existence or ability to function of the Corporation, or one of its parts, due to the following types of circumstances: war, civil disturbance, riot, insurrection, bomb threat, major natural disaster, explosion, major fire, kidnapping, extortion, or loss of physical contact with a subsidiary.
The Crisis Management Team shall take authority under this resolution to commit Corporate Resources up to $______________.
ADDENDUM B: SAMPLE LETTER ORDER FIRST ARK CORPORATION ARARAT, PENNSYLVANIA
TITLE: Letter of Instruction: Contract Security Services
This Letter of Instruction is made in accordance with the retaining agreement between First Ark Corporation and Chronos Security Services dated ______________.
Chronos Security is authorized immediately to carry out duties for First Ark Corporation in the area of Manhasset, New Jersey, which is now operating under emergency conditions. Your point of contact is our person in charge of the area, Johnny N.
Spott, who can be reached at______________cell phone and at 2120 North Concorde St., Manhassett, NJ.
Chronos Security Services is authorized to provide the following services for Mr. Spott:
• Helping to coordinate with fire and police services and providing after-hours facility security and fire checks.
• Identifying and registering visitors. Preventing unwanted visitors from entering.
• Providing around-the-clock watchman service. Notifying responsible persons when there are unusual occurrences.
• Keeping a daily log of events. “All OK” or its equivalent is not a valid log entry.
Signed____________, Manager, New Jersey Operations, First Ark Corporation
Author’s note: The following piece about the Oreck vacuum cleaner business’s response to the Katrina disaster is not retail LP specific but is deemed of value here in this Emergency Planning “section” of the book. You are directed to the thrust of an important message and that is the value and importance of employees in helping survive a catastrophic event. Remember, employees are our most important asset!
One-on-One with Tom Oreck
When Tom Oreck took over the family vacuum cleaner business seven years ago, his biggest challenge was to transform the firm from an entrepreneurial “one man band” founded by his father, David, in 1963 into “a symphony orchestra.” Under the elder Oreck’s guidance, New Orleans-based Oreck Corporation had steadily grown into a national brand known for its lightweight, powerful vacuums. As it prospered, the company acquired a manufacturing plant eighty miles east in coastal Long Beach, Mississippi.
Tom Oreck took center stage with solid grounding in every aspect of the business. “I like to tell people that I rose up the ranks through the sheer force of nepotism,” he deadpans with self-deprecating humor. He made HBS his last training stop before taking over as president and CEO in 1999. Since then, the privately held firm has expanded its home-cleaning product line, opened nearly 500 company stores, and doubled sales (it doesn’t disclose figures). The future looked bright—until last August 29.
That’s when Hurricane Katrina almost ruined everything. In the storm’s aftermath, Oreck, 54, faced a crisis he never imagined possible: Katrina knocked out operations at the New Orleans headquarters and the Long Beach plant, pushing the business to the brink. Advanced planning saved vital data and operations, but Oreck credits employees with actually saving the company. Incredibly, the Long Beach facility, where half of the company’s 1,200 employees work, reopened just ten days after Katrina wrought destruction of “biblical proportions” on the Gulf Coast community. Oreck recently talked about that experience and the future.
“Our first responsibility was to our employees—period. The business could wait; the people could not.”
Were you prepared for Katrina?
We had always planned on the possibility that either our New Orleans headquarters or our Long Beach facility could be taken out by a hurricane. One of the things we didn’t anticipate was a storm that was massive enough to take out both locations simultaneously.
Ahead of the storm, we backed up and shut down our computer systems and transferred all the data to a site in Boulder, Colorado. The building next door to our Long Beach plant is our call center. We shut that down and transferred that function to third-party centers in Phoenix and Denver. We also did a planned shutdown at the plant and moved certain critical components off-site.
From the Houston hotel where you evacuated with your family, how did you learn that the Long Beach plant withstood an almost direct hit?
In a day or so we got a report from one of our employees who had chain-sawed a path through trees on the roads to check on the plant. He found it was damaged but not destroyed. Once we heard that, we knew we were going to be able to put it all together again. We told people, “If you had a job at Oreck before the storm, you still have a job at Oreck.” And we continued to pay people even as we were trying to put things together.
What was your reaction when you heard that the levees in New Orleans had been breached?
Our employees had evacuated New Orleans, as they had in advance of previous storms. I left my home with only three changes of clothes. And when I heard that the city was filling with water, I thought, “OK, returning is not a matter of days any longer. This is months. Who knows, maybe never.”
Did you ever consider declaring the business a total loss?
As bad as it was, and as great as the uncertainty was, there was never a question about whether we were going to get up and running. No one on the management team ever said, “What’s the point? This is a lost cause.”
The first thing we did was try to find our people. And of course, one of the problems was that cell phones didn’t work. So we immediately set up an 8 a.m. company-wide conference call on an 800 number. We did that every day, seven days a week, for more than two months until we were back in our New Orleans office. Any employee could dial into the conference call. And we did what you’re supposed to do, which is to give people the facts. That communication was vital.
What role did the company play in helping its employees recover?
Our first responsibility was to our employees—period. The business could wait; the people could not. The Long Beach plant’s parking lot was turned into what we called Oreckville. We very quickly purchased trailer homes from all over the country and brought them in. We delivered food and water by truck almost immediately. We brought in trauma doctors, and we brought in insurance specialists to help people make insurance and FEMA claims.
When you reopened the Long Beach plant on September 9, did everyone get right back to work?
The first thing we did when the lights went on [powered by hastily purchased generators from Florida] was invite employees and their families to a cookout. The idea was that in the middle of this train wreck people could do something normal that would give them hope.
You clearly put people ahead of the business in the aftermath of the storm. Had that been part of your advance planning?
The people issues involved in this were certainly the one thing we had not been prepared for. It never occurred to us that we would have to deal with such personal devastation. We put people first because it was the right thing to do. As a result, they saved our business. That’s the bottom line. We did the right things for our people, and they in turn saved the business. I’m not overstating it. If our employees had not done the heroic things they did here [in Long Beach] and elsewhere, Katrina could easily have put us out of business.
How did you keep the New Orleans headquarters operations functioning?
There was no power in New Orleans, but more importantly, there was no access and no housing. Within five days of the storm, we were operating in an IBM business recovery center in Dallas, where we sent about 120 employees and their families. We had 100 computer terminals there, and they were connected with our backup computer system in Boulder.
What’s currently your biggest challenge?
At our Long Beach plant, we are still understaffed. Labor is scarce, and there is tremendous competition for the labor that’s available. Even with a dramatically smaller staff than we had before Katrina, December was the biggest shipping month in our history.
In New Orleans, a big issue for us is recruiting. It’s very difficult right now to recruit white-collar talent to New Orleans. That may change, but for now that’s an issue.
In the aftermath of Katrina, have you considered moving manufacturing inland or onshore?
Because of the way we go to market, there’s a real need for significant flexibility and nimbleness. That kind of nimbleness is impossible if you’re dealing with an overseas manufacturer.
We now understand the vulnerability we have, and by the next hurricane season we will have a second manufacturing facility away from the coastline. That does not mean we’re less committed to this region, or the plant, or the people here. We actually need a second site for growth.
Are you optimistic about the future of New Orleans?
The future of New Orleans and the region depends upon the politicians being redirected by the citizens and the business leadership. If real reform can take place, then this city and this state can flourish. If not, the future will not be pretty.
Did your HBS experience help prepare you for the challenges you have faced since taking charge of the company?
HBS was probably the most significant educational experience I ever had. It really did have a dramatic impact on who I am and who I have developed into as a businessperson. I can’t stress how important I think it was in helping me transition into this job
HBS (Harvard Business School) Alumni Bulletin, Soldiers Field, Boston, MA 02163.
Emergency Exits
Every store has emergency exits, including small storefront retailers with only front and rear doors. For the sake of illustration, in the small store, that back door should serve as the “emergency exit” and remain accessible for egress at all times. And so it is with any size store. The multilevel stores with stairwells which empty down on the street level with emergency exit doors and one-story stores with emergency exit doors should be locked to ingress traffic but must be designed to allow unimpeded egress with only one motion or little effort, e.g., equipped with “panic hardware” or “panic bars.”
Because some thieves prefer to exit stores through emergency doors, loss prevention agents or store operations personnel have been known to chain those exits to prevent thefts, but that course of action violates fire codes and subjects the store to fines or exposure to civil suits under certain circumstances.
There is an exception to “unimpeded” egress, and that’s the installation, if fire regulations in the area permit, of delayed egress locks on these doors. Typically, the delay time once the exit bar is hit is 15 to 30 seconds, which allows some time for loss prevention/security to respond or allows time for a CCTV camera installed for this purpose to capture the image of the person attempting an unauthorized exit through the door. The culprit may still escape with stolen merchandise, but at least the event is known and some evidence is available for subsequent investigation. And it should be noted that these time-delayed locks, electrically controlled, are designed to immediately unlock in the event of fire.
Clearly, the size, location, and history of crime at the store dictate the decision to employ this strategy. If less sophistication is appropriate, the next level would be such doors wired to a central enunciator reflecting which door was opened but allowing immediate exit, with an audible siren, with or without camera recordation.
Care must be taken to avoid plunger-type switches or exposed screw heads which would allow the signal-transmitting device to be compromised, preventing the sending of an alarm that would normally be sent if and when the door is opened. Such care is best exercised by regular inspection by LP personnel.
Irrespective of the level of security in place at these exits, signage is important. Red or green lettering (or white letters on a red or green background) should inform the reader that the door is an emergency exit only, and depending on the level of security, the sign can indicate the consequences of exiting (unless it’s an emergency). The Department of Homeland Security has issued regulations which will eventually require photoluminescent material (non-electrical-powered) for all emergency exit signs.
Emergency exits in stairwells frequently are viewed as available space for excess stock, and consequently, boxes and rolling racks tend to find their way there for storage. Loss prevention personnel should monitor this condition and report to store management if discovered. Fire regulations require that emergency stairwell exit routes be kept free of any obstructions and prohibit their use for storage of any materials.
The inquisitive LP agent, engaged in inspecting the store, will look for any signs the emergency exit is being used. The presence or absence of dust and cobwebs, evidence of tampering, bare metal in otherwise rusty or dark screw heads, etc., could indicate the security system in place is being compromised; i.e., someone is coming and going through that door, and corrective action is required.
Employee Fraud
Employee fraud remains a huge problem for retailers. Employee fraud makes up a portion of employee theft, which remains the largest contributor to shrinkage in retail. Rather than simply taking goods, employee fraud requires the employee to manipulate records in the retailer’s terminal system. The terminal system will believe that the transaction was legitimate and make adjustments to inventory numbers. During a physical inventory, item numbers used in fraudulent transactions will be short, even though the actual goods were not removed from the store. Rather, the employee benefited by receiving cash, a refund to a credit card, or a merchandise credit.
Like just mentioned, employee fraud will not be noticeable by missing merchandise or cash. Therefore, security checks and balances such as parcel checks will not be effective. Many times, good checks and balances will drive a desperate employee to commit fraud, because of the perceived inability to gain money or merchandise by simply taking it. Creating the perceived inability is good for loss prevention because, while employee fraud requires a more sophisticated approach to theft, it is easy to trace through transaction analysis and exception reporting. Fraud creates a paper trail that, once discovered, is easy to investigate. Direct theft of money or merchandise does not leave a paper trail and, therefore, is more difficult to detect and investigate. Hence, good loss prevention standards will make employee theft more apparent.
Employees are limited to the type of fraud they can enact, due to their limited access to inventory records. As mentioned earlier, it is easy to detect, and there are relatively no innovative approaches for the employee to use. Employees commit fraud because they perceive that they can get away with it. This is mostly due to the fact that the fraud seems sophisticated and innovative to them. Most think that they have developed a method of theft which loss prevention is unaware of. Since no cash will be missing and they won’t be walking out with unpaid merchandise, it will appear legitimate. And yes, the transaction will be one that happens regularly through the normal course of business, but employees will always leave signs of dishonesty in the transaction. It is the investigator’s job to find the common signs of dishonesty and put together a case.
Investigators will need some tools to conduct their investigations. Gone are the days when the investigator was armed only with receipt journals to put together a case. Today, many sophisticated tools that are available and widely used allow the investigator to analyze, date, and pinpoint fraud quickly. Following are a few tools that aid investigators:
1. Exception Reporting: Exception reporting is a valuable tool that can group and sort data based on the user’s specified criteria. Most often, reports are generated based on type of transaction, such as refunds without a receipt. Reports can also be generated to narrowly define types of transactions, such as refunds with original receipt from same day. Exception reporting is a must in any large store. The sheer volume of transactions would be overwhelming for an investigator to sift through manually.
2. Electronic Journal: An electronic journal allows the investigator to enter in transaction ID numbers and view an exact replication of the receipt in electronic form. The receipt normally contains valuable data that the investigator needs to conduct an investigation. Some exception reporting software has this feature built in.
3. CCTV: While it is not absolutely necessary to have CCTV for an investigation, it certainly helps. Video evidence makes the investigator’s case much stronger and allows for an absolute confirmation of theft. Digital video recording makes the investigator’s job much easier because it allows him to look at archived video of transactions from previous days. When video is paired with exception reports, the investigator has a very powerful set of tools, a set of tools that will allow him to identify a suspicious transaction and verify it with video in a matter of minutes. While DVR technology is being adopted quickly, it may be some time before it becomes a staple for investigators, however.
4. Terminal Overages and Shortages: Plotting overages and shortages has been a technique used for many years, but it remains a must-have for an investigator. Identifying overages and shortages will not only point out obvious removals of cash, but will also provide subtle hints of fraud.
5. Many More: The investigator will use various different tools for information gathering. These could range from associate files to time-clock records. Different cases will require the investigator to use an array of different resources to develop the case.
These tools are only as good as the investigator using them. No loss prevention tool will identify fraud for you. The investigator will need to use his analytical skills to develop and build a case.
As mentioned previously, dishonest employees leave signs of dishonesty in fraudulent transactions. The investigator will use these common signs to narrow down suspicious transactions and develop the case. Many of these signs are the same in most fraudulent transactions, but some are specific to the type of fraud.
We’ll look in detail at several types of employee fraud, what to look for, and how to build the case. We’ll start with cash refund fraud, and then look at credit fraud, merchandise credit fraud, and different types of fraud with voids.
Cash Refund Fraud
Cash refund fraud is normally performed by those employees who want cash. Employees could need cash to pay bills, pay debt, or simply satisfy their greed. No matter the need, dishonest employees can put the cash to work immediately. The employee will simply ring a refund transaction for cash, enter an item number for some merchandise, enter original purchase information, and pocket the cash from the refund. This will not create a cash shortage but will create an inventory discrepancy even though no merchandise was taken. The biggest obstacle for the employee is the concealment of the cash. Normally, the employee will make an effort to hide the cash in his palm while concealing it. Sometimes, the employee may take a change bag or deposit bag to a stock area or restroom to conceal cash. The need to disguise his actions makes the employee sloppy when taking the cash, often leaving the most common sign of a cash refund fraud—the small overage or shortage. We’ll cover some other indicators of cash refund fraud in addition to how to build the case.
What a cash refund may look like:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Store # 4455 Date: 03/04/2006 Time 9:30AM Trans # 4444
Original Receipt: Store 4455 Date 03/01/2006 Term # 1 Trans 3421
| Item 00915564 | − 26.00 R |
| Subtotal | −26.00 |
| Tax | − 2.60 |
| Total | −28.60Cash |
What to Look For
1. Small overages and shortages: Rarely will an employee take 27 cents or will a register have $1.37 extra money in the drawer. These small overages and shortages are valuable to the investigator when dealing with cash refunds. As mentioned previously, the employee’s effort to make concealment as discreet as possible will often lead to the investigator’s biggest clue of cash refund fraud. In the employee’s mind, the store won’t mind a small shortage and will certainly not be worried with an overage, so he will take an even amount of cash. For example, an employee may ring a refund for an item at $26.00, but the register will add tax, bringing the total refund to $28.60. In an effort to be discreet, the employee may take just $28.00 or even $29.00. In his mind, the store won’t mind the 60 cent overage or the 40 cent shortage. The investigator can take the overage or shortage and compare it to refunds for that day to determine if fraud may have occurred. Any cash refund with an overage or shortage correlation should be considered suspicious and investigated further.
2. Physical signs of employees keeping track of excess cash: When an associate processes multiple cash refunds, he will often need to keep track of how much cash “belongs” to him through the fraud refunds. Employees can do this by keeping a tally sheet, laying out items to indicate dollar amounts, or by placing “his” cash in a separate area of the register. The investigator may notice any of these when auditing a register. If any of these clues are noticed, the investigator should immediately research cash refund transactions for that day.
3. No original receipt cash refunds: Most stores don’t allow cash refunds without a receipt, and in those that do, it should not be common. In some cases, managers can override the policy, or associates are empowered to allow it in certain circumstances. Without the original transaction information, the investigator’s job becomes more difficult. The investigator should monitor all no receipt cash refunds closely to identify trends or other indicators in the transaction that would indicate dishonesty.
4. Same-day cash refunds: Cash refunds processed the same day as the original purchase should be looked at. Employees may be memorizing, writing down, or printing copies of the original purchase to process a fraud refund later. In some cases, the investigator can observe this behavior by notes at the register of the evidence of duplicate printing of transactions. This may not happen the same day, but it is easier for the employee to keep track of or memorize when he acquires and uses the information in the same business day. By using legitimate original transaction information, the employee can conceal the fraud better. Some same-day refunds are legitimate due to a price adjustment or the customer wanting to use a different form of payment, buy they should be monitored closely. Normally, employees committing cash refund fraud will have more cash refunds than honest employees.
5. Keyed merchandise item numbers: When an employee takes original transaction information from a legitimate purchase, he often needs to refund the exact items from the original purchase. Employees may not have or may not want to go through the trouble of locating the same item in order to scan it for the refund, so they hand-key the item number. By hand-keying the item number, they can process the refund without any merchandise present at the register. Dishonest employees tend to think this adds to the discreetness of the transaction because it appears that they are simply using the register to pull sales numbers, etc. There are legitimate reasons to hand-key a refund, such as the barcode won’t scan or the tags are missing from the merchandise. However, these instances should be rare. The investigator can use hand-keyed items to build the merits of the case.
6. Customer names and addresses: Some register systems require the employee to enter the customer’s name and address to complete the refund. When fraud refunds are processed, the employee will normally use one of the following:
The investigator should monitor the names used for cash refunds and compare them against the associate database to determine if a refund was given to a family member. If an investigator is suspicious, he may validate the address to ensure that it was not fabricated. Another method would be to send postcards to the address used with a message similar to “We are sorry that the merchandise you returned on X date was not to your satisfaction. We hope we may continue to serve you in the future.” At the bottom of the postcard, you should include the message “If you did not return merchandise on the date listed above, please call (phone number to the loss prevention office).” If the customer calls claiming that she did not process the refund, the investigator will want to examine the refund for possible fraud.
7. Refunds which don’t match original transaction information or the original transaction does not exist: At times, the dishonest employee will use transaction information that does not match the items returned, or the dishonest employee may use phony original transaction information for the refund. These instances should signal the investigator to look at additional cash refunds from this employee.
8. Ringing employee was not working: To cover their tracks, dishonest employees may use other employees’ ID numbers to ring fraudulent transactions. In their mind, any suspicion will be placed on the other employee. The investigator can use employee time clock records to determine if the ringing employee was actually working. Just because the ringing employee was working doesn’t mean that another employee didn’t use his ID number.
Building the Case
The investigator will need to use all the preceding indicators to determine whether a cash refund is fraudulent. Sometimes, there are legitimate explanations to these indicators, but the more dishonest indicators you find, the more likely fraud has occurred. The following can serve as a checklist for investigating cash refunds:
• First, locate the refund receipt by media or electronic journal.
• Is this a no receipt refund?
• Does the original transaction not match the refund?
• Are the item numbers hand-keyed?
• Is there an overage or shortage correlation?
The more times you answered “yes” would indicate how suspicious the refund is. Transactions that meet many or all of these indicators are rarely legitimate.
Many of the indicators mentioned here apply to investigating all fraud refunds, but cash refunds do have a few unique indicators that a investigator will want to use to develop their case.
Fraud Refunds to Third-Party Credit Cards
A third-party credit card is any credit card not issued and controlled by the store it is used in. The most common third-party credit cards are Visa, MasterCard, Discover, and American Express. Nowadays, these cards can be used to pay for just about any good or service. This flexibility makes fraud credits to the cards very attractive for employees because they can use the credit to shop anywhere. Not to mention, with so many employees with large amounts of credit card debt, it is also an easy way for employees to pay the balance on the card.
Employees may ring fraud refunds to credit cards for themselves, family members, or friends. It is processed like any other fraud refund by ringing a refund, entering some items numbers and original purchase information, and then entering the credit card number of the card to be issued the refund.
What a third party refund may look like:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Store # 4455 Date: 03/04/2006 Time 9:30AM Trans # 4444
Original Receipt: Store 4455 Date 03/01/2006 Term # 1 Trans 3421
| Item 00915564 | −26.00 R |
| Subtotal | −26.00 |
| Tax | − 2.60 |
| Total | −28.60 Visa # k XXXXXXXXXXXX4535 |
What to Look For
Indicators may be repeated from previous examples because some indicators remain the same regardless of the type of fraud.
1. No original receipt third-party refunds: Most stores don’t allow third-party refunds without a receipt, and in those that do, it should not be common. In some cases, managers can override the policy, or associates are empowered to allow it in certain circumstances. Without the original transaction information, the investigator’s job becomes more difficult. The investigator should monitor all no receipt third-party refunds closely to identify trends or other indicators in the transaction that would indicate dishonesty.
2. Same-day third-party refunds: The investigator should look at third-party refunds processed the same day as the original purchase. The employee could have purchased some merchandise legitimately but refunded it fraudulently later the same day. In addition, the employee could sell merchandise to a friend or family member and allow that person to leave with the merchandise, only to refund it fraudulently later that day. In the case of an employee sale and refund, the investigator should examine the employee parcel log to see if the employee checked the purchase to take home. The employee could easily run the purchase through the parcel check system because he will have a legitimate receipt from the purchase. Some same-day refunds are legitimate due to a price adjustment or the customer wanting to use a different form of payment, but they should be monitored closely. Normally, employees committing third-party refund fraud will have more third-party refunds than honest employees.
3. Keyed merchandise item numbers: When an employee takes original transaction information from a legitimate purchase, he often needs to refund the exact items from the original purchase. Employees may not have or may not want to go through the trouble of locating the same item in order to scan it for the refund, so they hand-key the item number. By hand-keying the item number, they can process the refund without any merchandise present at the register. Dishonest employees tend to think this adds to the discreetness of the transaction because it appears that they are simply using the register to pull sales numbers, etc. There are legitimate reasons to hand-key a refund such as the bar code won’t scan or the tags are missing from the merchandise. However, these instances should be rare. The investigator can use hand-keyed items to build the merits of the case.
4. Refunds which don’t match original transaction information or the original transaction does not exist: At times, the dishonest employee will use transaction information that does not match the items returned, or he may use phony original transaction information for the refund. These instances should signal the investigator to look at additional refunds from this employee.
5. Ringing employee was not working: To cover their tracks, dishonest employees may use another employee’s ID number to ring fraudulent transactions. In their mind, any suspicion will be placed on the other employee. The investigator can use employee time clock records to determine whether the ringing employee was actually working. Just because the ringing employee was working doesn’t mean that another employee didn’t use his ID number.
6. Partial or full match of credit card name and employee’s name: As mentioned earlier, employees will normally ring fraud refunds to their own credit card or a family member’s credit card. Therefore, the name on the credit card may match their full name or their last name. In the case of a full name match, the investigator should be very suspicious. If it’s a last name match, the investigator should determine if this person is related to the employee. Employees with common last names will match customers more frequently, making the investigator’s job a bit more difficult.
7. Keyed credit card numbers: Much like keying item numbers, the employee may key credit card numbers for a refund in an attempt to be discreet. By doing this, the employee will not have to produce the physical credit card to issue the refund. The employee may do this because he doesn’t want to be seen swiping the card, or the card may have left with the friend or family member who took the original purchase. Sometimes, employees key credit card numbers because the card will not swipe, or they simply don’t want to bother asking the customer for the card. The investigator should use keyed cards to build on a case, but not build from it.
8. Cards with more refunds than purchases: The investigator may run across some credit cards that have been issued more refunds than purchases have been made. An employee may be fraudulently refunding items without a receipt to the card or refunding original transactions multiple times. Some exception reporting software has a built-in report that will alert the investigator of cards with more refunds than purchases. Some customers may purchase merchandise with other forms of payment or different credit cards and later have a refund issued to one card, creating more refunds than purchases. In this case, the refunds are legitimate. The investigator can determine if other forms of payment were used by checking the original transactions used for the refund.
9. History of refunds with employee: If a credit card has several refunds mostly with one employee, this may signal that the employee is fraudulently issuing refunds to that card. This is especially true if the card is used for purchases with various different other employees, but all of the refunds are performed by one employee. This should be very suspicious to the investigator.
Building the Case
The investigator will need to use all the preceding indicators to determine if a third-party refund is fraudulent. Sometimes, there are legitimate explanations to these indicators, but the more dishonest indicators you find, the more likely fraud has occurred. The following can serve as a checklist for investigating third-party refunds:
• First, locate the refund receipt by media or electronic journal.
• Is this a no receipt refund?
• Does the original transaction not match the refund?
• Are the item numbers hand-keyed?
• Is the credit card number keyed?
• Does the last name of the customer match the employee’s?
• Was the ringing employee not working?
The more times you answered “yes” would indicate how suspicious the refund is. Transactions that meet many or all of these indicators are rarely legitimate.
Many of the indicators mentioned here apply to investigating all fraud refunds, but third-party refunds do have a few unique indicators that an investigator will want to use to develop his case.
Fraud Refunds to House Credit Cards
House credit cards are those issued by the retailer that can be used only at said retailer. Many department stores issue their own credit cards. Some retailers require that their employees use their house credit card to receive their employee discount. The discount is normally taken off at the credit center rather than at the register.
Investigating house credit card fraud is similar to investigating third-party fraud. The investigator should use all the indicators from the third-party fraud section, but there are some special considerations for house cards.
No receipt refunds to house credit cards are generally acceptable because they are much like store credits. The investigator will have many more legitimate transactions to sift through because there will be many more no receipt refunds to house cards than third-party cards. On a positive note, the investigator will probably have access to all employee accounts and have special access to statements, etc., from those accounts.
Fraud Refunds for Store Credit
At many retail stores, store credits are issued when a customer cannot produce an original receipt for the merchandise that he would like to return. These store credits can be in the form of a paper voucher or an electronic card much like a gift card. The refund amount is placed on the card, and the customer can spend the balance in the store. Most stores require the customer to provide a driver’s license so that the employee can enter the name, address, and driver’s license number into the register. This personal information can be used to trace refunds or even deny refunds to a particular customer. Most store credits are issued to legitimate customers who misplaced their original sales receipt, but employees may obtain fraudulent store credits to purchase merchandise for themselves or sell the credit for cash.
What a refund for a store credit may look like:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Store # 4455 Date: 03/04/2006 Time 9:30AM Trans # 4444
| Item 00915564 | − 26.00 R |
| Subtotal | −26.00 |
| Tax | − 2.60 |
| Total | −28.60 EMC # 7685342037464535 |
What to Look For
Indicators may be repeated from previous examples because some indicators remain the same regardless of the type of fraud.
1. Ringing employee was not working: To cover their tracks, dishonest employees may use another employee’s ID number to ring fraudulent transactions. In their mind, any suspicion will be placed on the other employee. The investigator can use employee time clock records to determine whether the ringing employee was actually working. Just because the ringing employee was working doesn’t mean that another employee didn’t use his ID number.
2. History of refunds with employee: If a customer name has several refunds mostly with one employee, this may signal that the employee is fraudulently issuing refunds to that customer. This is especially true if the card is used for purchases with various different other employees, but all the refunds are performed by one employee. This should be very suspicious to the investigator.
3. Employee discount card used in connection to the redemption of the store credit: Even though an employee may have fraudulently received a store credit, he will rarely give up his employee discount. Many times the employee will use the store credit in conjunction with his discount card. When this happens, it should be very suspicious to the investigator, especially if a different name was used to obtain the store credit. This would most likely be the result of the employee using a phony name. The investigator will need to match the store credit used to the originating refund to determine if the employee using it may have issued it or used another employee’s ID number to issue it.
4. Phony information used for store credit: Occasionally, an employee will fill the name and address fields with obviously made-up information, such as John Smith 222 Main Street. This could be due to laziness or a fraudulent refund.
5. Customer names and addresses: Some register systems require the employee to enter the customer’s name and address to complete the refund. When fraud refunds are processed, the employee will normally use one of the following:
The investigator should monitor the names used for refunds and compare them against the associate database to determine if a refund was given to a family member. If an investigator is suspicious, he may validate the address to ensure that it was not fabricated. Another method would be to send postcards to the address used with a message similar to “We are sorry that the merchandise you returned on X date was not to your satisfaction. We hope we may continue to serve you in the future.” At the bottom of the postcard, you should include the message “If you did not return merchandise on the date listed above, please call (phone number to the loss prevention office).” If the customer calls claiming that he did not process the refund, the investigator will want to examine the refund for possible fraud.
Building the Case
The investigator will need to use all the preceding indicators to determine if a refund is fraudulent. Sometimes, there are legitimate explanations to these indicators, but the more dishonest indicators you find, the more likely fraud has occurred. The following can serve as a checklist for investigating refunds for store credits:
• First, locate the refund receipt by media or electronic journal.
• Does the last name of the customer match the employee’s?
• Was the ringing employee not working?
• Is there a history of refunds with this employee?
• Was an employee discount card used in conjunction with the redemption of the store credit?
The more times you answered “yes” would indicate how suspicious the refund is. Transactions that meet many or all of these indicators are rarely legitimate.
Many of the indicators mentioned here apply to investigating all fraud refunds, but refunds for store credits do have a few unique indicators that an investigator will want to use to develop his case.
Fraud Voids
Voids are common transactions in retail stores. The necessity to void may arise for several different reasons. After the sale is finished, a customer may decide that he does not want the merchandise, he would like to pay for it differently, or the prices were rung up incorrectly for the purchase. Employees may also void a sale before it is finished for the same reasons. Either way, the void cancels the sale as if it had never happened. Inventory records remain the same, and payment taken or refunded is canceled from the register’s count.
Employees may also use voids to commit fraud by cash, check, or credit card. By voiding a cash sale that a legitimate customer paid for and left with the merchandise, the employee can take the cash paid for the sale without the register showing the shortage. The reason is that the register assumes the customer did not take the merchandise and the cash was given back to him. If the employee does this fraudulently, the cash will not be short, but the inventory records of the merchandise taken by the legitimate customer will be. Normally, the dishonest employee will keep transaction numbers and amounts of cash sales that he would like to fraudulently void until he perceives is a good time to take the cash. A manager’s code or key is normally required for the void. The employee will give the manager a phony reason for voiding the cash sales. At that point, the employee will only need to wait for a good time to conceal the cash.
Employees may also cancel the transaction before it is finished if they notice that the customer is paying cash. This is easier for the employee because a void during the transaction normally doesn’t require a manager’s approval. The employee will take the cash and make change but without ever finishing the sale. The register assumes that no transaction took place. Therefore, the cash given by the customer is not in the register’s records. The associate will normally leave the cash in the register until he thinks he has a good opportunity to conceal the cash without being noticed.
Employees may also void transactions that were purchased by themselves, friends, or family members. The employee will have a legitimate receipt for his purchase, and the friend or family member will have already left the store. These voids can originate from cash, credit card, and check sales. When an employee plans to fraudulently void a friend’s or family member’s cash or check sale, he typically doesn’t take any tender in the first place. Since the employee plans to void the transaction, there is no need to put the cash or check in the register. The employee may also have his own purchase voided. Even though the transaction was voided, the employee will have a legitimate receipt to check the package through the door pass log and leave the building. The investigator should always check non-rerung employee voids against the employee package log.
What a cash void may look like:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Store # 4455 Date: 03/04/2006 Time 9:30AM Trans # 4444
| Item 00915564 | 26.00 |
| Subtotal | 26.00 |
| Tax | 2.60 |
| Total | 28.60Cash |
| Tendered | 30.00 Cash |
| Change | 1.40 Cash |
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Store # 4455 Date: 03/04/2006 Time 9:30AM Trans # 4464
| Item 00915564 | 26.00 R |
| Subtotal | 26.00 |
| Tax | 2.60 |
| Total | 28.60Cash |
| Tendered | 30.00 Cash |
| Change | 1.40 Cash |
| POST VOID |
What to Look For
Indicators may be repeated from previous examples because some indicators remain the same regardless of the type of fraud.
1. Small overages and shortages: (Cash voids only) Rarely will an employee take 27 cents or will a terminal have $1.37 extra money in the register. These small overages and shortages are valuable to the investigator when dealing with cash voids. As mentioned previously, the employee’s effort to make concealment as discreet as possible will often lead to the investigator’s biggest clue of cash void fraud. In the employee’s mind, the store won’t mind a small shortage and will certainly not be worried with an overage, so HE will take an even amount of cash. For example, an employee may ring a fraud cash void for an item at $26.00, but the register will add tax, bringing the total refund to $28.60. In an effort to be discreet, the employee may take just $28.00 or even $29.00. In his mind, the store won’t mind the 60 cent overage or the 40 cent shortage. The investigator can take the overage or shortage and compare it to cash voids for that day to determine if fraud may have occurred. Any cash void with an overage or shortage correlation should be considered suspicious and investigated further.
2. Physical signs of employees keeping track of excess cash: (Cash voids only) When an associate processes multiple fraud cash voids, he will often need to keep track of how much cash “belongs” to him through the fraud voids. Employees can do this by keeping a tally sheet, laying out items to indicate dollar amounts, or by placing “his” cash in a separate area of the register. The investigator may notice any of these when auditing a register. If any of these clues are noticed, the investigator should immediately research cash refund transactions and cash voids for that day.
3. Partial or full match of the voided credit card name and employee’s name: (Credit card or check voids only) As mentioned earlier, employees will normally ring fraud voids using their own credit card or a family member’s credit card. Therefore, the name on the credit card may match their full name or their last name. In the case of a full name match, the investigator should be very suspicious. If it’s a last name match, the investigator should determine if this person is related to the employee. Employees with common last names will match customers more frequently, making the investigator’s job a bit more difficult.
4. Voids in which the original sale was not rerung: Most voids occur because the customer was not given the correct prices or would like to use a different form of payment. In these cases, the sale will be rerung for the same items at different prices or with a different form of payment. The investigator should look for voids that were never rerung.
5. Employees that ring more voids as a percent of transactions than other employees: Employees processing fraudulent voids will naturally process more voids than other employees. The investigator should look at employees that ring more voids as a percent of overall transactions. Exception reporting will generally be used to do this. There will be employees who ring a high percentage of voids by mere coincidence, but they will not be consistently among the top percentage from month to month.
6. Manager’s or another associate’s ID used: If strict controls restricting employees from having access to voiding transactions are not in place, an employee may use a manager’s ID or another employee’s ID to process the fraud void. The investigator should examine the possibility of an employee having access to voiding transactions with another employee’s ID number. If the investigator finds evidence of an employee using another employee’s ID number to process a void, it should be very suspicious.
7. Employees voiding their own sales: Some retailers allow employees to unilaterally process voids. If this is the case, the investigator should pay close attention to employees processing their own voids. This is especially true if an employee voids a purchase that he made.
Building the Case
The investigator will need to use all the preceding indicators to determine if a void is fraudulent. Sometimes, there are legitimate explanations to these indicators, but the more dishonest indicators you find, the more likely fraud has occurred. The following can serve as a checklist for investigating voids:
• First, locate the void transaction by media or electronic journal.
• Was there any overage or shortage correlation to the amount of the void? (Cash voids only)
• Are there physical signs of tally sheets at the register? (Cash voids only)
• Was the original sale not rerung?
• Was the ringing employee not working?
• Does the employee rank in the top of store by voids as a percent to total transactions?
• Did the original purchase belong to an employee?
• Does the name on the credit card or check match all or part of the employee’s name?
The more times you answered “yes” would indicate how suspicious the void is. Transactions that meet many or all of these indicators are rarely legitimate.
Stolen Credit Cards
Credit card theft has become a serious problem for retailers. It is very embarrassing for a retailer to have an employee fraudulently use a customer’s credit card. The retailer can spare some humiliation by investigating the employee and referring him for prosecution without the customer’s involvement. Credit cards are attractive to employees because they can be used just about anywhere to the extent of the limit on the card. The first act by the employee is to acquire the physical card or card number from the customer. Here are a few examples:
1. The employee may not offer the credit card back to the customer. Since the customer is accustomed to the employee handing back the credit card, she may not notice that it was never given back. The customer will then leave without her credit card. Many times, the customer will have a hard time remembering the last time she had it, and she will rarely suspect the retail employee of keeping it. Sometimes, the customer may erroneously leave it on the cash wrap. The employee may see it after the customer has left and keep it rather than try to return it to the customer.
2. Employees involved in more sophisticated credit card fraud may use an electronic device to capture the data from the card by simply swiping it. Such devices are widely available and easy to make.
3. Some employees will simply write down the number or make some sort of imprint of the card. Very few retailers print card numbers on receipts and journal tape, but that was once a typical place for employees to acquire card numbers. Employees may also use carbon paper, silly putty, or some other tool to make an imprint of the card. The investigator should look for these items during register audits.
What to Look for If a Stolen Credit Card Has Been Used at Your Store
• Determine from the cardholder the last legitimate purchases that were made.
• Look for keyed purchases. Keyed purchases are typically the fraudulent charges.
• Determine which employee rang the last legitimate purchase transaction. This employee will be the most likely suspect. If several employees rang legitimate purchases on the same day, the investigator should look at all of them as possible suspects.
• Any employee discount card used in conjunction with a stolen card will signal which employee is fraudulently using the card.
• If all the fraudulent purchases were rung up by one employee, it is possible that employee is the one using the card. He could be ringing the fraudulent purchases himself. The employee will assume that the investigator thinks someone else brought the stolen card to him to purchase merchandise.
• Missing media are signs that an employee was involved. If the investigator cannot locate signature slips from the purchase, it is likely that an employee with access to that register destroyed them.
If a credit card was used fraudulently in your store, it is most likely that someone from outside the store obtained the card and used it. On the other hand, keyed credit cards more likely indicate an employee because few retailers allow the use of just a credit card number. Whatever the situation, the investigator should ensure that a store employee is not involved, but if an employee is involved, the investigator should aggressively resolve the case.
Employee Handbook
Why do we need an employee handbook? An employee handbook (or a written employee guide or “Rules and Regulations”) setting forth the employer’s policies regarding employee behavior is essential for several reasons. If employees do not know the rules, they cannot justifiably be disciplined for disobeying them. Can you imagine any game or contest (sports, cards, spelling bee, etc.) being conducted without rules? It would wreak havoc and be unfair to the participants. So it is with employees. They must know the rules by which their employment and behavior will be judged. To assure that all employees know the rules, they should sign a statement indicating they have not only been given a copy of and read the rules, but that they fully understand them, and any rules which are unclear they must make an effort to get clarified. Such rules should be written in clear and concise language, leaving no room for more than one interpretation and understanding. Providing each employee a copy of the rules is recommended. Having the rules and policies reviewed by counsel is important to prevent any future claim of discrimination or creating any legal obligations with respect to continued employment under any circumstances.
Considering the documentation of loss prevention policies and procedures is an entirely different question. Obviously, some loss prevention policies should be included in the company’s rules and regulations handout, but the procedures outlining methods of investigation of suspected loss prevention violations should be in a document restricted to those whose job requires this sensitive information. (See also “Manuals for Security/LP: Protection of Contents.”)
Employee Purchases and Package Control
Procedures to control employee purchases and their corresponding employee discount will vary and depend on the mechanics and equipment used to record sales in general.
Stores utilizing computerized POS devices will normally deduct the employee discount “back office,” meaning that the sale is rung at the full retail price and the discount deducted by the computer when the employee’s statement is calculated. This also requires, of course, that the employee’s purchase be charged, since a cash purchase cannot be recognized by the computer as an employee purchase.
Other stores, not relying on computerized sales recordation, can be more flexible in handling employee purchases but should be no less stalwart in their control of these transactions. These stores may allow cash sales to employees and calculate their employee discount at the time of the sale, accepting the discounted price for the purchase in cash.
Why do we suggest that control of employee purchases is important? Because making employee purchases presents an opportunity for theft and/or abuse in a variety of ways. What do we envision as contained in the employee purchase procedure as demanding controls and verification? We suggest that the following elements of employee purchase procedures be subject to scrutiny and verification:
• Accurate current retail price;
• Accurate recording of price;
• Authorized discount recipient;
• Merchandise purchased matches above cited element;
• Employee receives only merchandise purchased;
• Merchandise purchased is secured in a designated location until removed from store.
Once the employee’s purchase has been properly made, what should happen then to that package of merchandise? Employees who are not working (day off) may maintain possession of their purchases and leave the store when they’ve finished shopping. Employees who make purchases in their own store while on duty or at lunch or a break must take their purchases to the designated security site for all parcels and packages and subsequent retrieval. We believe that purchases should be deposited in a secure storage area until employees retrieve them when ready to leave for home. Some companies permit employees with private offices to keep the purchases in their office until leaving for the day. All employees should be required to use the designated employee entrance when coming to or leaving work, and that procedure must also be followed when employees have a package coming into the store. The company rules should require employees to subject that package to inspection by security personnel if requested to do so. No packages should be allowed on the selling floor, register stations, stock rooms, or any workstation. The use of the employee entrance when entering or leaving the store whenever carrying any package of any kind (personal or company property) and having it subject to inspection should be required of all personnel, from the CEO on down.
We believe that the company’s rules and regulations should contain the following provisions, violations of which may subject the employees to various levels of discipline, including immediate discharge:
• Concealment or unauthorized storage of merchandise not purchased.
• Refusing a request to inspect personal packages or belongings, lockers, desks, files, or offices which are subject to periodic inspection.
• Marking down or discounting merchandise without proper authorization or selling marked down merchandise to a customer or any associate, including one’s self without duly authorized or recorded price changes.
• Failure to use the employee entrance/exit when
When in possession of packages, briefcases, backpacks, handbags, samples, or company property in your assigned store.• Failure to observe published package checking regulations or regulations for storage of personal belongings.
• Misuse of employee discount.
• Employees may have only one employee charge account.
• Employees may not borrow or wear any merchandise prior to its being properly purchased.
We recognize that the preceding rules and regulations may require modification depending on a given company’s situation; in smaller stores lacking dedicated LP, the simple presentation of the purchase to a supervisor should suffice, i.e., to just ensure the purchases made are known to management.
However, the spirit and intention behind our suggestions should not be abrogated. Employees enjoy a distinct benefit by receiving an employee discount, and their employer has every right to regulate the circumstances under which that privilege is exercised.
Employee Theft and Misconduct
It has been reliably reported that in 2005 employee theft was responsible for 47% of all retail shrinkage, amounting to over $17 billion annually.1 In spite of the increased sophistication of loss prevention techniques, including undercover agents, extensive use of CCTV, EAS, and employee screening devices, this amount tends to increase yearly.
To protect profit and shareowners, most companies take action to get dishonest employees off their payroll and out on the street. For years, if a dishonest employee claimed the company was overzealous in its investigation into his dishonesty or violated some of his rights by firing him, that employee would not have gotten very far in pursuing those claims.
Today, the courts are full of cases accepted by willing attorneys based on various theories of what has become known as “wrongful termination,” with underlying claims of false imprisonment/arrest, invasion of privacy, assault/battery, defamation, malicious prosecution, tortious interference with employment, and intentional and/or negligent infliction of emotional distress.
How can a company protect itself against the myriad of civil actions which often follow a righteous and justified termination for dishonesty?
In most jurisdictions, an employer may discharge employees “at will” at any time for any reason. However, unless employees are probationary or have otherwise signed a contract establishing their at will status, most employees at some juncture lose their at will status, and thus any termination must be for “just cause.”
Any termination for dishonesty must meet the proof “beyond a reasonable doubt” standard, which is best established by a thorough investigation, with documentary, audio, and/or videotape evidence if possible, and a written confession, provided it can be firmly established that it was purely voluntary and not the result of questionable or coercive tactics.
Terminations cannot be discriminatory! If you fire one thief and not the next, you are in trouble! All dishonest employees must be treated equally; all thieves, regardless of the amount of the theft, should be discharged. This same principle applies to misconduct for which the penalty is less than termination without prior warning. Consistency is the key: Treat all employees, both staff and executive, equally when it comes to discipline.
Since theft is a “specific intent” crime (i.e., the offender must have intended to steal), it is important that this element be firmly established. An employee who comes into possession of unpaid-for company property by accident or unknowingly cannot be terminated for theft (but may be justifiably terminated for some other policy violation, provided he knew, or should have known, such a violation was a terminable offense).
These situations are not infrequent. Susie Salesclerk inadvertently comes to work without her sweater or perhaps without her makeup. Joe Salesclerk forgets his tie or his belt. Susie is subsequently seen “borrowing” a sweater and Joe a tie. When they leave work at the end of the day, Susie is wearing the sweater and Joe the tie. Both are stopped and challenged regarding the unpaid-for merchandise. Both claim they had no intent to steal the items and intended to return them the next day. Should they be fired for theft? Probably not, lacking further information. Should they be terminated? Yes, for violation of the company policy against borrowing or wearing any company merchandise prior to it having been properly paid for.
Employees suspected of theft will normally, at some point, be questioned by loss prevention or other appropriate company official. Courts have been unanimous in their holding that the Miranda rule does not apply to such questioning unless such questioning is in the presence of or has resulted from a joint effort with law enforcement.
Employees who are part of a bargaining unit (i.e., union membership) may, under the terms of the union contract, be entitled to union representation when being questioned, if they request it, in any situation which may result in disciplinary action (see 1975 U.S. Supreme Court decision in NLRB v. J. Weingarten, Inc.). If the employee requests such union participation, the company has the right not to conduct any interview and base any action on the information available at that point. Interviews scheduled with an employee suspect need not be postponed if no union representative is available, and the union representative is present as a witness only—this representative has no right to counsel the suspect employee during the interview.
Under the rules of the Employee Polygraph Protection Act of 1988 (EPPA), a federal law, no mention of a polygraph may be made to an employee except under the most limited conditions; we recommend that the word “polygraph” be eliminated from loss prevention’s vocabulary.
As suggested earlier, we recommend that, at a minimum, employee interviews regarding dishonesty be tape-recorded (with the employee’s permission). Better yet, a videotape provides visual and aural evidence of the lack of any coercive techniques and the voluntariness of any confession.
The question of restitution by admitted dishonest employees deserves some discussion. If any employee offers to make restitution for the value of property stolen by him, it can be accepted provided the offer was voluntary and not the result of duress or other coercive means. Promissory notes are often used to obtain restitution. The promise, implied or overt, that the payment of restitution will negate any criminal prosecution is improper and, if done, will in all likelihood negate the restitution agreement. Obtaining restitution may, in fact, jeopardize criminal prosecution on the theory that the victim (the company) has been made whole. We suggest that offers of or requests for restitution be made through the courts if the matter is criminally prosecuted. A threat by the employer to prosecute if restitution is not paid is extortion in most jurisdictions and subjects the employer to criminal prosecution.
As stated elsewhere in this work, a witness should always be present during the entire dishonest employee interview process.
While this discussion’s thrust is about dishonesty, employers should keep in mind that other forms of misconduct are also legitimate areas of inquiry. Behavior such as insubordination, time card violations, misuse of company property (falling short of theft), and serious policy violations are all topics which may result in investigations, interviews, and ultimate discharge. The same precautions we urge for dishonesty cases also apply to other misconduct situations.
With respect to both dishonesty and other misconduct, it is essential that all employees are fully aware of the company policy respecting these issues and that the policy is in writing, clearly stated, and that the penalties for violation are also clearly annunciated. Employees must know the rules and penalties for violations. If the violation of a rule results in termination without a prior warning, this should be clearly stated. The steps in a progressive discipline procedure must also be made known to all employees and then consistently adhered to. It is desirable to get a written affirmation from all employees that they have both read the company’s rules and that they fully understand them.
Once a dishonest employee is off-roll and gone, the less said to others about the circumstances of that employee’s termination, the better. While the truth is an absolute defense to a slander or libel action, why provide the potential for such a lawsuit, which will be expensive and time consuming to defend?
Privacy during the investigation and interview phases of a dishonesty investigation is also vital, since a situation in which visual observations by noninvolved personnel leading to the conclusion that the subject was suspected of dishonesty may set the stage for an invasion of privacy suit. While questioning coworkers about their knowledge of information pertinent to the investigation is permissible, inadvertent or casual suggestions that “John” was responsible for a loss and “John’s” subsequent disappearance from the workplace should be avoided.
While a good faith, truthful response to an inquiry about a discharged employee from a prospective employer is permissible, blacklisting is not and is a crime in some jurisdictions. Responding to inquiries about former employees is fraught with all sorts of legal pitfalls, and such inquiries are best handled by trained professionals who practice “less is best,” and respond with date of hire, date of leaving, position, and rate of pay only.
While on the topic of lawsuits against the employer resulting from a dishonest employee’s discharge, we must mention documentation. It is uncontested that the best defense to a civil suit for wrongful discharge or any of its underlying torts is a properly and fully documented record of everything leading up to the discharge. Equally important is the ability to establish that employees know the company rules and penalties for violation of them by having their acknowledgment of that fact in writing.
Finally, unless a company has trained HR and LP personnel on staff, situations which involve dishonesty, investigations, discipline, and terminations may best be discussed with legal counsel for guidance along the way.
Entrapment
Webster’s Dictionary defines “entrapment” as “to lure into a compromising statement or act.” From time to time we hear of how a store entrapped a customer into shoplifting. Although enticing and attractive displays of merchandise may be alluring, they certainly don’t rise to the level of luring a person into stealing the desirable goods.
The essence of the preceding definition lies in the words “to lure.” The definition of “lure” is “an inducement to pleasure or gain.” “Inducement,” then, is the operative word. Entrapment then, in our retail loss prevention setting, would be the dynamics between two persons, wherein one induces the other into doing something wrong, like committing theft. I liken such inducement to the planting of a seed in the garden; i.e., one person plants the seed of the idea to steal in the mind of the second person, and the seed germinates and flowers into an act of theft.
Following are two scenarios involving employee theft. In one there’s entrapment. In the other, no entrapment. In which case do you see entrapment?
Scenario #1: The distribution center dock. Two dock employees, Charlie and Ben, are working on a Saturday with the dock supervisor, Mr. Last. Charlie, unbeknownst to anyone, is an undercover agent working for the loss prevention department. Normally, the center is closed on Saturdays, but this is an overtime exception.
At midday, Last decides he’s hungry and wants a pizza. He asks the other two if they’d like to share one—he’s buying. They’re game. Rather than walk through the empty facility, he opts to jump the dock, unlocks the gate which encloses the shipping/receiving area, and leaves the gate open for his return. The two employees stand on the dock and watch their supervisor’s car disappear into traffic. Charlie then says to Ben, “Look, Last won’t be back for at least 20 minutes. Why don’t you pull your van into the yard here, and we’ll both get a laptop computer. No one will ever know.” Ben likes the idea, jumps the dock, runs through the open gate, drives his van into the yard, and up to the dock, where two computers are loaded. The van is quickly returned to the parking area. Shortly thereafter, Last walks through the open gate, closes and locks it, and the three share lunch.
Scenario #2: Store’s Restaurant. Two janitors, Art (an undercover agent working with loss prevention) and Billy, who are regularly assigned to clean up the department store’s restaurant kitchen, are among the last employees to leave each night. Final chores include the garbage run using the service elevator down to the basement and dumpsters down there. After that run, all the elevators are turned off. While walking by the refrigerated “walkin-box,” Art notices the manager failed to lock the padlock. He comments on this security breach to Billy. Billy, in the final phase of dry mopping drops his mop and runs to the box, opens the door, looks in, and then whispers to Art to get a couple of large plastic trash bags. Art complies. Billy instructs Art to hold open the bag and in several trips in and out of the refrigerator deposits a half dozen steaks, two hams, and 10 pounds of butter in the bag. While whistling, Billy waves Art away from the door, closes it, locks the padlock, and takes the now-heavy plastic bag and slides it across the tile floor to the push cart containing several other plastic bags of trash and a garbage can. Billy places the bag containing the stolen food into a second bag, places that bag into the garbage can, pushes the cart onto the elevator, and deposits the trash and garbage in the trash area in the basement.
The two clock out and exit through the security door on the main floor. Billy drives down into the tunnel and retrieves the bag. Later, Billy gives Art only a ham, despite the fact Art claims he’s entitled to half the food, but Billy does promise to share more later. Art makes his report and turns in the ham to his supervisor as evidence.
Note the clear distinction between the two scenarios. In the first, Ben was the victim of entrapment. Charlie, the undercover agent, planted the seed of the idea to commit a crime in Ben’s mind. It wasn’t Ben’s idea; it was Charlie’s.
In the second scenario, there was no entrapment. Art found the door unlocked and told his coworker about his discovery. Even if the door had intentionally been left unlocked with the plan to inform Billy of the breach, there still was no entrapment because no “seed was planted” in terms of suggesting theft. Rather, Billy was given the opportunity to be honest or to be dishonest, according to his own choosing. Had Art said, “Wow, some idiot failed to lock this and we could take anything we want and no one would be the wiser,” then Art would have been guilty of entrapment. But Art didn’t. The idea to steal—where the light bulb went off—was in Billy’s mind. Billy had the choice of saying, “Lock it, and I’ll report this to the restaurant manager tomorrow.” But Billy chose to steal.
The bottom line, the key question to answer in either scenario is: Whose idea was it to commit theft?
Escort Policy and Procedure
Escort or escorting in a retail setting is usually limited to two kinds of tasks:
1. Providing an employee to accompany another employee engaged in some high-theft-risk activity such as drawing down excessive accumulated cash (a.k.a. “first deposits”) in POS devices or cash registers and transporting the cash to the cash office or making bank deposits; and
2. Providing an employee to accompany either another employee or a customer from the store to their vehicle in the parking lot, especially at night.
In the former, accompanying cash is as much to protect the cash carrier from any suspicions of some subsequent discovery of missing money and to serve as a second party who could be a deterrent and/or a witness to a robbery or robbery attempt. This “second” party need not be a loss prevention associate. This procedure should be included in the store’s cashiering and cash handling manual.
In the latter case, the escorting employee more often than not should be a security or loss prevention employee. If loss prevention is available, gender of the escort is unimportant. What is important is the company’s recognition of and response to expressed concerns female employees or customers may have for their safety in walking alone to their vehicle. What should not happen is a situation wherein an employee or customer specifically requests an escort and the request is not granted. If no LP associate or management person is available, a male associate from sales, stock, etc., should be called on to carry out this escort function. This procedure should be included in the loss prevention manual.
Ethical Dilemmas and Conflicts of Interest
Our ethical decision-making process is formed early in life and guided by our parents or people who are influential in our lives. Many of us growing up in the first half of the last century were Gene Autry fans. Gene Autry followed a code worthy of being mentioned in this work. The ethical principles found within that “Cowboy Code” are as applicable today as when first written in the 1940s:
The Cowboy Code—by Gene Autry
1. The Cowboy must never shoot first, hit a smaller man, or take unfair advantage.
2. He must never go back on his word, or a trust confided in him.
3. He must always tell the truth.
4. He must be gentle with children, the elderly, and animals.
5. He must not advocate or possess racially or religiously intolerant ideas.
6. He must help people in distress.
8. He must keep himself clean in thought, speech, action, and personal habits.
Deciding Between Right and Wrong: Listening to Our Inner Voice
“Conscience is the inner voice that warns us somebody may be looking.” —Henry Louis Mencken, “Sententiae,” This and That: A Mencken Chrestomathy, 1948
We all have it—you know, that inner voice that continuously talks to us. Thomas Magnum, of Magnum PI fame, had it. Our inner voice, developed early in life, is the mind’s loudspeaker—our moral and ethical subconscious. The inner voice is always right; it’s when we try to justify and rationalize that we make poor ethical decisions.
The workplace is full of ethical choices, and we are all aware of someone who has suffered a lapse of ethical judgment. Whether it is the associate obtaining “free items” from the lunchroom snack machine, punching an absent coworker’s time card, or the boss falsifying travel expense reports. People rationalize poor ethical decisions by concluding, “It’s due me,” “I work hard,” or “I’m not paid enough.” Sometimes a lapse in ethical judgment is a result of wanting to “save face” or not wanting to lose a job.
Many of us in loss prevention have known people who falsified reports to keep from getting into trouble or make themselves look better in the eyes of their boss. One case involved a shoplift agent who reported his supervisor for altering his shoplifter apprehension report. The supervisor, a district investigator who was directly involved in the apprehension, rewrote the report deleting his involvement because not all the requirements to make the apprehension had been met. The supervisor said he had changed the report because he did not want to lose his job.
Three Principles for Deciding Ethical Dilemmas
Not all solutions to ethical issues are addressed by a written company policy. You must think through the process of solving ethical dilemmas. We suggest there are three main guiding principles for deciding ethical dilemmas. Applying these principles aids in deciding not only ethical dilemmas in business life, but also the dilemmas we all face in everyday life. These guiding principles are
1. Is it legal? Will this action be against either civil or criminal laws? By taking this action, will you jeopardize yourself or your company in the eyes of the law?
2. Will I feel good about my decision? This is where your personal values become vitally important. Think carefully about how you will feel after completing or observing an action. Will it make you proud? Will you feel good if your decisions are published in the newspaper? Will you feel comfortable if your company knows about it? Will you feel good if your family knows about it? Is it morally right?
3. Is it within the principles of my company’s business ethics policy? Will your actions go against the principles established in your company’s business ethics policy? Is it fair to all concerned in the short term as well as the long term?
When deciding ethical dilemmas, take time to think out the problem because this is not the moment to make snap decisions. The courts may review the choice(s) you make for years to come, which could have a negative impact on your career, and deal a financial blow to your company. If your company’s ethics policy is unclear regarding a particular scenario, always “take a partner” when making these types of decisions. Seek aid in the decision-making process from a supervisor or a company executive because sharing an ethical dilemma with someone else helps; that person may examine your problem from another perspective.
The Need for Ethics-Based Policies
Regardless of size or the number of employees, every company needs to adopt a written policy regarding the ethical standards expected of its employees. Some of the excuses or rationalizations for not establishing an ethics policy include
If you find yourself in court defending yourself against an illegal action, those types of excuses will not bolster your defense. The U.S. Sentencing Commission, in connection with the Sarbanes-Oxley Act (Sarbanes-Oxley Act 2002), has adopted standards that limit liability if a company has implemented an effective compliance program. See United States Sentencing Commission, Guidelines Manual, §8B2.1 (a). However, the standard is high. The Commission wrote, “Establishing an effective compliance and ethics program is essential for an organization seeking to mitigate its punishment (including fines and terms of probation) for a criminal offense.” A key factor in determining whether an organization qualifies for a sentence reduction under the guidelines is a finding that the organization had, at the time of the offense, an effectual program to prevent and detect violations of law. Simply establishing a compliance program is not sufficient to gain this reduction.
Establishing a Business Ethics Policy
If your company is large and includes several large departments, you may want to consider adopting an overall corporate code and then separate ethical conduct codes for individual departments. Consider the following guidelines when establishing an ethical code of conduct:
1. What key behaviors are needed for adherence to the ethical values found in your code of ethics? Your policies should contain ethical reviews of laws, regulations, and behaviors needed for your specific business needs. A chain of retail pharmacy stores will have a much different ethics policy statement than that of a bookstore.
A pharmacy operates largely on public trust and its ability to accurately fill customer’s prescriptions. An incorrectly filled prescription could have a disastrous effect on a customer’s health and the business reputation of the drugstore chain.
2. Include a statement that requires employees to conform to your ethical policies. Here’s an example: “The Widget Company and its employees shall conduct Widget Company business affairs honestly, fairly, impartially, and in an ethical manner. Conduct that raises questions as to Widget Company’s integrity, character, or impartiality, which can damage its reputation, or creates the appearance of illegal, unethical, or improper conduct is prohibited.”
3. Tell employees whom they may contact or where they can go to find the answer to their questions. You may want to designate key management staffs who have received specific instruction regarding your company’s ethics policies. It is important that the same consistent message be delivered to all who inquire.
4. Make sure your legal counsel and key members of the organization’s structure review the proposed policies before publication.
When a company is establishing a business ethics policy, the following are some basic, but not all-comprehensive, commonsense guidelines that include some “real-life” examples.
Use of Company Assets
A business ethics policy of this nature ensures the use of company assets for legal and proper purposes. We in loss prevention have many assets available to us, including company vehicles, computers, and surveillance equipment. From my experience, the misuse of company-owned vehicles is one of the most violated policies.
Consider the employee who uses the company truck to move his family over the weekend or the associate who underreports his monthly mileage to keep from paying extra money for personal use. Examples include a company car turned in by a terminated senior member of management that had 15,000 more miles on it than he had reported on his last monthly mileage statement. He owed the company $1,350 for personal mileage.
Another is the employee who lived and worked in an area bordered, in close proximity, by multiple states. He went home for lunch, driving the company’s delivery vehicle in violation of company policy. He decided to take a 2-hour lunch, and later compensate for his time by telling his manager he had been hijacked, driven around, and eventually released by his captors. His “story” included being transported over state boundaries, which not only involved local police authorities, but also now included the Federal Bureau of Investigation. When interviewed by the FBI, he admitted to concocting the story because he was afraid to tell his manager that he had gone home for lunch and spent too much time. He was charged, convicted, and sentenced for filing a false report. Understandably, the company fired him.
Consider the delivery driver who left the store at 7:30 a.m. to start his morning deliveries to customers. His first stop was to pick up his “ride-along,” an ex-employee who had been terminated a few weeks earlier. He then returned to his residence and, after waiting an additional 20 minutes, picked up his wife and two children. (If you are counting—there are now five people in a truck cab meant to carry three people.) They then drove to the children’s respective schools dropping them off, then on to the grocery store where his wife shopped for 30 minutes.
After returning home, they unloaded the groceries and started for their first delivery … or so I thought. The driver and his “ride-along” drove to a deli, taking a long lunch break. At 11:30 a.m., the two started for the first delivery of the day. Later, when interviewed, the driver related that his wife wanted him to “spend more time with the family.” This traveling surveillance took place in New York City. Anyone who has conducted a traveling surveillance in NYC knows this can be difficult at best.
Proprietary Information
The business ethics policy ensures that there is no unauthorized use or disclosure of confidential or proprietary information. Consider the associate who has insider knowledge of a coming acquisition and quickly purchases stock to take advantage of the expected sudden price increase.
Ethical Business Conduct
Business affairs must be conducted in an honest, fair, impartial, and ethical manner. As an example, an employee received money from a customer for creating a second, false receipt showing the customer paid more for his purchases; the employee could then bill the customer for more money. Another employee overheard the conversation and told the employee who was accepting the bribe that he would tell the manager unless he received half of the money. Both employees lost their jobs, and the customer that the contractor wanted to overcharge (a globally recognized retailer) was notified of the illegal transaction. If we had chosen not to notify the retailer, we could have lost any future business with that company.
Accurate Recordkeeping
The business ethics policy ensures that all records and documents accurately reflect transactions. This reminds me of the manager who falsified his store’s inventory. He did it for several years in a row until he could no longer keep track of the inflated inventory. His management employees knew of the false inventories and failed to report the violations because they also financially benefited.
Relations with Vendors and Customers
Purchases should be impartial, honest, and fair, based on legitimate business reasons. Purchasing items or materials for your company and accepting payment from a vendor for doing so is a bribe and is illegal. Bribes in some foreign countries are tax deductible and reported as income.
Conflict of Interest
Conflict of interest is any activity that conflicts with an employee’s independent exercise of judgment. (A more complete definition of a “conflict of interest” is given later in this section). I have addressed many conflicts of interest regarding misuse of employee discounts, including the manager who purchased products using his liberal employee discount, only to be used on a family member’s commercial rental properties.
Then there was the manager who had a competing painting business on the side and hid it from his employer. During our store visit, it was obvious improvements made to the exterior of the building did not comply with company standards. The resulting investigation found that the manager owned a company that contracted for and performed the improvements, charging the building owner. He also stole from the company, using the materials on the project, and covered up the theft by altering his inventory. The case was further aided when the manager’s ex-wife called and added critical details to the investigation.
Compliance with Laws
Antitrust laws regulate your company’s relationships with its vendors, customers, and competitors. Generally, these laws prohibit agreements and activities that may have the effect of reducing competition. Equal Employment Opportunity laws prohibit discrimination against various groups, and include fair and equal treatment in hiring, compensation, promotion, training, terminations, and disciplinary action.
Trading in Securities with Material Nonpublic Information
The business ethics policy ensures that a person does not buy, sell, or trade while in possession of nonpublic information. Nonpublic information is information about a company that is not yet in general circulation.
Illegal or Improper Payments
The business ethics policy ensures employees are prohibited from giving or accepting personal payment to any person asking to do business with your company. One such example is grocery companies charging vendors for space and product placement within their stores. A store manager was charging vendors for prime space beyond what the contract called for and pocketing the money.
Safety, Health, and Environment Protection
The business ethics policy ensures that business is conducted in such a manner to protect employees, customers, and the public. Ignoring safety issues can be very damaging not only to the company’s pocketbook, but also its reputation. As an example, both a store and district manager ignored employee concerns regarding a broken wheel on a piece of power equipment. Both stated that they failed to report or have the equipment fixed due to the costs involved. They had advised store employees to “just be careful.” An employee was severely injured using the equipment, and consequently, the government heavily fined the company.
Relations with Government Employees
The business ethics policy ensures no business courtesies are offered to government employees. One such incident involves a company that offered contests to its customers. One particular contest offered a prize of a 2-week all-expenses paid vacation for two in the Bahamas. An official for a state university that did business with the local store filled out an entry blank and dropped it into the entry box. The official’s name was picked as the contest winner. It was explained to him that he was not eligible to enter or win the contest. He immediately understood, though I am not sure his wife did. Local, state, and federal governmental entities have enacted many exacting laws governing their employees.
Reporting Potential Unethical Conduct
Employees who become aware of suspected improper activities are responsible for reporting such behavior. The Sarbanes-Oxley Act has mandated companies provide avenues for employees to report wrongdoing. Most programs consist of a telephone hotline and/or computer-based reporting programs. A third-party reporting program is suggested because studies show that employees want to report wrongdoing but prefer to contact a third party.
Political Contributions/Holding Political Office
Employees must be prohibited from contributing to any political election on behalf of the company. Of course, there is no violation when employees contribute on their own behalf. A potential conflict of interest may occur when employees run for and hold local political office. Most companies encourage their associates to be actively involved in their local communities, but there is a fine line between balancing service to the community and employee conduct.
For example, an employee who wanted to run for mayor of his community filed a potential conflict of interest form. The decision was to support the employee and outline the steps or restrictions he needed to follow to avoid a conflict of interest. He ran for public office and, as a restriction, was advised not to campaign during working hours or display any political signage on company property. The employee won the election and held political office for several years. Did this employee receive calls during work regarding municipal business? I know he did but politely told callers he would call them back after he got off work.
Train Employees as to What You Expect
Along with any ethics/conflict of interest policy, there must be a commitment to train all employees as to exactly what conduct the company expects of its associates. A review of many high-profile retailers’ polices indicates that they do not include a yearly updated, classroom-style training program to ensure employees understand their ethics policies.
It is not enough to write a policy requiring employees to read and sign an acknowledgment form. It’s not uncommon for an ex-employee, during an administrative hearing, to claim, “I just signed a bunch of papers.” My own experience includes a manager who told me to “skip” and sign off on the ethics training program because it was just “common sense” and “boring.”
To hold employees accountable for their actions, companies need to have documented training conducted by responsible trainers. Security and/or human resource departments normally conduct ethics training programs and certifications because they are the groups responsible for interpreting their company’s policy and upholding decisions. The best programs are a collaborative effort between the two departments because deciding potential conflicts can be difficult and directly affect the employment and financial future of the employees. Certification training, covering all aspects of your company’s business ethics, and conflict of interest policy training must be documented and placed in each attending employee’s training file. During wrongful termination hearings, the ability to produce exact copies of the training program and attendance records leaves little room for speculation as to whether the employee received adequate training.
Identifying and Reporting Potential Conflicts of Interest
A definition of “conflict of interest” is any activity, financial investment, interest, association, or relationship, (including relationships with family members, relatives, friends, and social acquaintances) that conflicts with an employee’s independent exercise of judgment concerning employment. Although it is not possible to identify all possible situations, reasonable business judgment should be sufficient to evaluate most situations. Managing a potential conflict of interest starts with the employee notifying an immediate supervisor that the potential for conflict exists. When employees submit a potential conflict of interest, your goal is to help guide them through the process, and come to a conclusion that is fair to all concerned.
Many conflicts can be attributed to the employment of relatives working for the same company. Many businesses place restrictions on relatives working for the same company or, at least, the same business location. A basic rule to follow is a direct relative, including sibling, parent, aunt or uncle, even a first cousin, should not work in the same work location.
At the district or higher level, a manager should never be in the position of supervising a relative either directly or indirectly. Although a manager may not be the immediate supervisor, a potential conflict exists because he or she could be involved in deciding disciplinary action or the evaluation of job performance. At all costs, an appearance of a conflict of interest must be avoided.
At store level, when a direct relative conflict is discovered and employees have already been hired, it may be possible to relocate one of the employees to a nearby store. Where relocation is not feasible, restrictions should be placed on their business conduct. An example is two brothers working in the same business unit. It would be a conflict of interest if they were allowed to ring sales or supervise each other. These restrictions would be effective as long as both relatives worked for the same company.
Another example of a direct employment conflict is a chain of department stores that allows spouses to work in the same business unit. In one such store, the executive manager directly supervises his spouse, who, in turn, directly supervises the rest of the management staff. This employment arrangement has created an air of distrust throughout the store because employees “feel” there is preferential treatment. Whether or not preferential treatment exists, there is an appearance of an impropriety.
Some additional areas of potential conflicts include
• A conflict may exist if your employee acquires ownership of stock in a company that is also a customer of yours. This would not include nominal or noncontrolling interest in holdings of stocks, bonds, or securities. It is generally accepted that a less than 10% ownership is not a conflict of interest.
• Maintaining outside employment with or providing consulting services to any competitor, vendor, or customer. Some companies limit providing consulting services for 1 year after your employment terminates. In a service-related environment, consider the employee who also works for one of your best customers. If your other customers know of this employment relationship, they may think that the contractor is getting a better price on their purchases than they are.
• Soliciting, demanding, or accepting gifts, gratuities, services, or anything of value from or to any person in conjunction with the performance of their duties is a conflict of interest. Some companies place a dollar value limit on receiving gifts ($25–$100–$200). Others allow accepting gifts and gratuities of single bottles of liquor, tickets to professional sporting events, etc.
• Authorizing, or causing another to authorize, a business transaction with a relative or any business organization with which the employee or relative is associated is a conflict. One investigation involved a store associate who called another store, telling the employee to give a customer, a relative, his employee discount. This company restricted employee discount purchases to relatives living in the same household. The product purchased was used for his cousin’s commercial business, a further violation of company policy.
• Taking advantage of a business opportunity that belongs to your company, such as diverting a client to another company you work for or have a financial interest in.
Throughout my career in law enforcement and retail security, I have been a part of the resolution of thousands of potential conflicts. Following is just a small sample of some of the conflicts of interest reviewed over the years:
• From an asset protection associate, “I have accepted a position with XYZ Company and I want to know if this is all right.” He had already accepted a position in security at another company and wanted to work two jobs.
• From a manager, “I want to borrow a company paint sprayer to paint my house. I’ll just use it over the weekend.” There were provisions for employees to rent paint sprayers at a discount.
• From a store manager, “I have a moving business on the side and want to use a company box truck this weekend.” This would have been a direct violation of company policy.
• From a cash office employee, “I’m short on cash and would like to borrow money from the safe; I’ll write an IOU.” This employee was later prosecuted for theft.
• From a store manager, “A vendor wants to give me a $300 leather jacket. Can I accept it”? The response was “no”—unless the vendor wants to give everyone in the store a jacket. The vendor declined to spend $30,000 on leather jackets.
Creating a Conflict of Interest Reporting Program
When companies create a potential conflict of interest program, it is important for them to have a formal plan for potential new hire and existing associates to declare potential conflicts. Ideally, in the case of a potential new hire, the potential conflict of interest form is completed before a final offer of employment is made. This is important because it is better to identify and deal appropriately with a potential conflict before the associate starts work.
For reasons of confidentiality and continuity, the conflict-reporting program should flow upward from the individual business location directly to the corporate level. A conflict reporting form should include the following (see Figure E-1):
• An area to explain any existing potential conflicts;
• Whether or not the employee has disclosed a previous conflict;
• Store location, or unit number, and telephone contact numbers;
• Name of the corporate reviewer;
• Whether or not it was approved
• Controls or restrictions (if any) that have been put into place.
This form is then sent to the district manager or unit manager, who writes the actual response in letter form (see Figures E-2 and E-3) and then counsels the affected employee making sure the employee understands the company’s position. The corporate response to the manager should include
FIGURE E-3 A sample letter, written by the district or unit manager, instructing the employee on the proper conduct he is expected to follow. It is important that both the manager and the employee sign and date the letter. Both retain copies, and the original is forwarded to the corporate head office.
Figure E-4 shows a flow chart of the entire process.
FIGURE E-4 A flow chart showing the path the reporting of a potential conflict takes. The flow chart shows the disclosure reporting form is sent directly to the corporate entity responsible for responding to conflicts of interest. Potential conflict forms sent to the district level may not be forwarded to corporate in a timely manner. It is important to respond promptly to all potential conflicts because the inquiring associate may consider a lack of response to be permission to continue with the behavior.
As an instrument of measurement, your conflict of interest reporting program should be placed on your company’s internal audit program. Many times, auditors have discovered an old, unresolved conflict reporting form. In many instances, the employee was continuing with the conflicting behavior because there was a lack of response to his declaration of potential conflict. In such cases, it is the responsibility of the auditor to initiate the conflict reporting process. Violations of the company’s conflict of interest program are noted on the audit, resulting in points lost. Applying the measurement process at the corporate, district, and store level and tying it directly to bonus potential will find higher compliance to your conflict of interest program. Remember to “Inspect what you expect” or my all-time favorite, “You can expect what you inspect.”
Evidence
The proper methods of collecting, preserving, and tracking its possessor and location are essential to assure that any evidence obtained will meet the legal requirements for use in a criminal prosecution and satisfy any standards set in civil and/or administrative hearings.
Let’s define “evidence”: That which furnishes or tends to furnish proof, including all the means by which any alleged matter of fact, the truth of which is submitted to investigation, is established or disproved. There are many types of evidence, but those which concern loss prevention are primarily (a) circumstantial evidence, (b) documentary evidence, (c) direct evidence, (d) prima facie evidence, and (e) physical evidence. In some cases, one piece of evidence may fit more than one description. For example, circumstantial evidence is that which consists of reasoning from facts which are known or proven to establish such as are conjectured to exist. A bank is robbed of a dye-pack of money, and Tom is found to be covered in dye-pack ink and possess ink-stained currency. These facts would establish circumstantial evidence that Tom robbed the bank, although no one actually saw him do so. Documentary evidence is that established by written documents. Direct evidence directly proves a fact, without an interference or presumption, and which in itself, if true, conclusively proves that fact. Prima facie evidence is evidence which is good and sufficient on its face and sufficient to establish a given fact, which if not rebutted or contradicted, will remain sufficient. Physical evidence is furnished by things, which can be viewed or inspected, as distinguished from a description of an item or event such as furnished by testimonial evidence from a witness.
Let’s describe a scenario which further explains these types of evidence. Bill, a cashier at a grocery store, is suspected of stealing money from the till. A shopper presents him with a marked bill, and several hours later, when Bill is interviewed, the marked bill is found in his pocket. While these facts are strong circumstantial evidence (lacking a confession) that Bill took the money, it is possible he obtained the marked bill in a legitimate manner. If the register journal tape shows Bill did not record the sale in question, this is documentary evidence further pointing to his guilt. A CCTV tape showing Bill putting the bill tendered by the shopper in his pocket would be both documentary and direct evidence of his guilt. The marked bill itself would be physical evidence, and the testimony of the shopper and the CCTV operator who personally observed what was portrayed on the tape would constitute direct (testimonial) evidence.
In a shoplifting case where the suspect conceals the merchandise in the store, a state statute that the concealment of unpaid-for goods was prima facie evidence of the intent to steal would establish that intent.
In all cases, the collection of evidence, whether documentary or physical, should be carefully documented and the evidence itself marked (or enclosed in a sealed and marked container) showing the date, time, manner, and name of the person who collected the evidence. Normally, this information will be contained on what is called an “evidence tag.”
The proper storage of the evidence, once collected, is also important. Evidence should be stored in a locked cabinet or room with strictly restricted access. Evidence procedures are required to establish the “chain of custody” and eventual admissibility of the evidence. It is essential to maintain this chain of custody that each person handling the evidence after collection be identified and that the evidence is stored in such a manner as to prevent tampering or contamination.
Some jurisdictions allow photographs in lieu of physical evidence. This is of major importance to retail organizations because it does not require that merchandise recovered in an apprehension be taken off the selling floor and stored for long periods of time. It is also most helpful when dealing with evidence subject to spoilage, such a fresh meats. When photographs are submitted with police reports in lieu of the actual evidence, a duplicate set of photographs should be retained in the possession of the store.
The term “inadmissible evidence” is an oxymoron because information or items that are inadmissible are not evidence. Witnesses often make the mistake of attempting to testify to information that is legally not allowed. Inadmissible testimony includes opinions (unless the witness has been accepted as an expert witness), conclusions, and hearsay (what someone other than the defendant said). Witnesses may testify about what they saw, heard, and did, but not about their opinion or conclusion about the admissible evidence. Witnesses may only testify to facts that they know or believe to be true. Hearsay is not allowed as evidence because the court, the jury, and the defendant are entitled to hear testimony directly from the people who said it so that they can evaluate the credibility, subject them to cross-examination, and evaluate the information and its source for themselves.
For purposes of assuring the “chain of custody” is not only properly maintained but adequately documented, we suggest a procedure based on the use of property tags and a log book.
The evidence log should be divided into eleven columns, set up as indicated:
Column #1: Designates the log number and its corresponding page number in the log. Foe example, the first case logged on Page 1 would be shown as 1-1; the second case logged would be 1-2, etc. The individual log numbers should also appear on the property tag.
Column #2: Subject’s name, date of birth (DOB), date of arrest (DOA), charge, case #, arresting agent’s # or ID.
Column #3: Merchandise department number.
Column #4: Merchandise class number (if applicable).
Column #5: Merchandise season (if applicable).
Column #6: Merchandise style—SKU if applicable.
Column #8: Description of item (blouse, pants, etc.).
Column #9: Date merchandise placed into evidence—or returned to evidence from court.
Column #10: Date merchandise is removed from evidence for court or other reason, such as returned to stock (RTS) or returned to customer (RTC).
Column #11: Reason the merchandise is removed from evidence, e.g., court, RTS, RTC. In cases involving identical items of merchandise each separate item should be listed.
Another purpose of the evidence log book is to maintain control of merchandise. If the process is correctly done, seasonal inventory can be taken directly from the evidence Log without the necessity to disturb the actual evidence. After inventory, an inventory sticker should be placed on the property tag.
The evidence log should be reconciled on a periodic basis (e.g., monthly, quarterly, etc.) and a record of the date of such reconciliation noted.
After the evidence is either boxed or bagged (in a box or bag appropriate to the evidence to be contained therein), the container should then be sealed in a manner which will provide evidence of any attempt or successful opening of the container. A completed property tag (described later and shown as Figure F-10 under “Forms”) should be attached securely to the evidence or the box/bag containing the evidence. The property tag must be filled out completely so the evidence can be easily retrieved from the evidence room, chain of custody identified, and merchandise inventoried accurately:
1. The “property number” on the tag should correspond to the number used in the evidence log book.
2. The “description of the property” need only be a general description, since the specific items are listed in the evidence log book.
3. All movement of the evidence must be indicated on the property tag (e.g., to and from court, returned to stock, returned to customer, etc.)
When the merchandise is returned to stock, the property tag should be signed by the department manager, staff assistant, or an associate. The property tag should be attached to the security/loss prevention/arrest report and filed.
Exception Reporting Software
A retail chain the size of Wal-Mart processes billions of point-of-sale (POS) transactions per year. Although the vast majority of these transactions are correct, complete, and honest, a growing number are dishonest—resulting in either monetary or merchandise losses. POS exception reporting software helps to identify and reduce a wide range of retail fraud perpetrated around the multitude of point-of-sale transactions, such as cash, credit and debit card sales, a “no sale,” a merchandise return for a refund, a gift certificate purchase, or a merchandise exchange. Capitalizing on the tremendous power and speed of computers, retail loss prevention executives now use sophisticated database management software to spot transaction patterns that indicate the possibility of theft, collusion, and fraud.
In the retail environment, the components of transaction data can come from several different databases. The point-of sale-system provides the information on items purchased. Credit or debit card numbers are obtained through an interface with the credit card processing network. The human resources department database provides information on employees identified through their employee number entered at the time of a transaction.
All high-quality exception reporting software packages include reporting tools designed to identify and isolate unusual conditions in the mountain of operational data compiled daily. Instead of manually pouring over mounds of computer reports, fraud investigators use the computer to “drill down” into this data by looking at exceptions highlighted through preselected parameters. For example, a drill-down for no sale transactions might include a list of those employees who have exceeded a predetermined number of no sale transactions in a given time period. From there, the investigator can focus on a short list of employees with the most no sales and obtain more details on the specific transactions, as well as the surrounding transactions. Perhaps all the no sale transactions for a specific employee took place before store opening or after store closing? This pattern may be indicative of something dishonest, so the investigator may dig deeper. If enough evidence is obtained, the employee could be interviewed in an effort to obtain an admission of guilt.
These admissions can add up to hundreds of thousands of dollars in identified losses. More importantly, publicizing the active use of the software becomes a powerful deterrent to potentially dishonest employees. As the investigators become more and more proficient with the software, they are able to solve a much higher volume of cases in a shorter time period. Since the exception reports can be accessed the day after a transaction takes place, dishonesty can be discovered much more quickly, reducing the retailers’ exposure to losses.
How Exception Reporting Technology Works
Exception reporting systems require three basic components. The heart of the system is complex database management software that scans data directly from the retailer’s sales transaction database, compares transactions to predetermined “norms,” and highlights and reports the unusual entries (exceptions). The reports can be sorted in a wide range of formats, such as by time and date, by store, by employee number, by transaction type, or by POS terminal. Output can be grouped by district or region. A dedicated server usually absorbs and warehouses the raw data collected from the POS in appropriate databases. Finally, investigators use workstation hardware, like a PC, laptop, or handheld device, to access “canned” or custom-designed reports that focus on predetermined areas of interest.
Depending on its memory capacity, the server archives the data long enough for the investigators to gather sufficient evidence and attempt to “crack” the cases. Then new data replace the old, and the cycle repeats itself. This may sound simple, but the interfacing between the databases is the most complex development task in the system implementation. The exception reporting software must tap into this database at its lowest level (the transaction) without compromising its integrity. This element of the installation can be difficult and most often requires a customized software application and a tremendous amount of cooperation among the computer professionals of both the retailer and the software system integrator.
The Inclusion of Digital Video Surveillance
Recent technological advances in the computer, software, data communication, and video recording industries have given retailers the ability to “re-view” what has occurred on the sales floor—good and bad—virtually as soon as it happens. POS exception monitoring techniques, coupled with digital video management systems, allows investigators to find an anomalous circumstance, and then retrieve a video clip with the matching visual. It is now possible for these clips to be transmitted via email to someone who can take immediate action. This convergence of data, video, and instantaneous communications has added a geometric improvement in productivity in all facets of retail transaction analysis.
Executive Protection
Company loss prevention departments are sometimes called upon to provide executive protection for the company chairman or CEO. These requests often involve conducting a security survey of the executive’s residence and making recommendations for alarm systems and other protective strategies, including but not limited to the executive’s children’s fingerprints, etc. Less frequently, but occasionally, these executive protection requests involve the actual physical protection of the individual from a perceived or actual threat to his life.
The request for a survey of the executive’s residence follows the ordinary pattern for such surveys and does not require much discussion here. Obviously, the specifics of the executive’s family (spouse, children, pets, etc.) and their lifestyle must be taken into consideration, as well as the location of the home itself (isolated, rural, city, single family, condo, apartment, etc.) as well as “second homes.” Alarm specifications must be designed to provide adequate protection yet minimal (if any) interference with normal family activities. Should a given LP department prefer, the actual survey can be outsourced to a security management consultant who has a history of providing this service.
It should be parenthetically noted here we feel that part of LP’s responsibilities is also to provide senior company executives with a briefing (or written memo) on some commonsense precautions to take when traveling, particularly overseas. We further suggest that the number of executives traveling on the same plane at the same time be restricted; the number allowed should take into account both the security as well as the business needs of the enterprise.
When the protection of the individual from physical harm is at stake, LP’s job becomes more complex and deserving of a considerable amount of planning and coordination.
The first consideration needs to be an analysis of the threat: Is the threat of harm simply a potential one, or has an actual threat been received? What is the source of the threat? What is the specific threat? What is the credibility of the source? What will be the exposure of the target of the threat? What can be done to minimize this exposure? These and many other like questions must be asked and answered before a plan of protection can be established.
Another important question that needs to be answered is whether the police will be notified. If so, what will their role be in protecting the principal? Should the protection be outsourced to a professional agency specializing in “bodyguard” services?
A vital question is that of whether the protective personnel will be armed. If the decision is in the affirmative, how will these personnel be selected? Are they properly and adequately trained? Does their possession of weapons meet all legal requirements? What will the rules of engagement be? In what venue will they be operating? These and many more questions must be considered.
Finally, the principal’s wishes regarding his protection must at least be considered and, if possible, without compromising security, complied with.
Of importance is the venue where the protection will be required. A private event or venue is more easily protected than a public one. Pre-event inspection of the venue is essential. Following are some of the items which must be considered:
• Have avenues of ingress and egress been considered?
• What length of time will the principal be at the event?
• Is the arrival time flexible?
• Can attendees be screened (identified) before entry?
• Does the event location (if indoors) have a balcony?
• What is the length of the principal’s stay at the event?
• Where can protective personnel be discreetly, yet strategically, located?
• Are photographs of the individual(s) posing the risk available?
The subject of physical executive protection is a complex one; hence, those with the proper training to accomplish it discreetly but adequately must deal with it so as not to create more of a problem then they are there to solve.
The subject of executive protection is included in this book not to provide a text on how it should be accomplished. Rather, it’s to point out the need for a careful analysis of any threat and the depth of the details which must go into the planning for meeting the threat, as well as the suggestion that outsourcing this important function should be considered.
Expert Witnesses
An expert witness is a litigation consultant who has a recognized technical expertise on any given activity. There are experts on tires and how and why they fail at high speeds, experts on beer kegs and why they explode, experts on fingerprints and DNA, experts on insects which cause damage to crops, experts on the origin of fires, etc. Some experts teach, consult, write, guide management in corporate direction, and some choose to serve the legal community and courts as a witness.
The expert witness conducts an objective and impartial analysis of the scene, conditions, circumstances, or event; evaluates the merits of each side of a dispute within his area of expertise; and testifies as to his opinion regarding his findings. His expert opinion is unique in our judicial system. Only a court-recognized expert may offer an opinion. All other witnesses, by far the bulk of all testimony, are limited to factual testimony and are denied the privilege of expressing any opinions.
In the retail loss prevention and security industry, expert witnesses are called upon in litigation against retailers involving such areas of expertise as, but not necessarily limited to, the following:
• Adequacy of training of LP agents;
• Adequacy of the background screening of LP applicants;
• Adequacy of supervision and oversight of LP employees;
• Adequacy of organizational policy and procedures;
• Standard of care within the LP industry;
• Custom and practice within the LP industry;
• False arrests and false imprisonment;
• Acceptable standards for interviewing and interrogation and legitimacy of resultant confessions.
Loss prevention contacts with the public and employee population, which result in accusations of dishonesty or some other form of misconduct, have the potential of being litigated, and invariably the store (a.k.a. the defendant) and the “injured party” (customer or former employee; a.k.a. the plaintiff) will, more often than not, obtain the consulting services of an expert witness. Occasionally, the store may choose to designate one of its own loss prevention executives as its witness, but we do not advise this. Remember, the “expert” is expected to conduct an objective assessment of the matter; the question that must arise in the jurors’ minds is “How much credence can I place in this expert’s opinion when he’s part of the organization being sued?” Without doubt, a corporate LP executive could easily qualify as an expert and could be helpful to either side of a dispute, but not in a legal dispute in which one party pays his salary. In the great majority of retail litigation where an expert is utilized, the expert is selected by the attorney (sometimes in conjunction with the insurance carrier) for whom he will testify.
Extortion
How would you respond if your store received a letter like the one in Figure E-5?
This letter received by one of your author’s stores demanded $25,000 and threatened to blow up the store if the demand was not met.
Such letters are not common, but also are not unheard of, particularly in the case of larger stores. On occasion the threat, coupled with a demand, may be by phone. Irrespective of the means of delivery, threats to do harm unless certain conditions are met, “extortion,” should be reported to the police or the Federal Bureau of Investigation, and they should provide the leadership in dealing with this type of crime.
In this instance, both the auto center and the location designated for depositing the $25,000 were placed under surveillance by teams composed of the police and store security personnel. A “bait bag” not containing actual money was left where directed. Fortunately, neither the dynamite-loaded van nor anyone seeking to retrieve the $25,000 ever showed up. After over 48 hours of continuous surveillance, the effort was discontinued; however, periodic checks of the auto center were maintained for the next several days with negative results.
Not all extortion threats arrive by letter. Often the threat is received over the phone. The conversation flows along this line: “Hello. I’ve got a bomb hidden in your store, and if you don’t give me $25,000, I’ll set it off. Don’t call the police—I can see your store and I’ll know if you call them and then I’ll set off the bomb. Place $25,000 in small, unmarked bills in a shopping bag and place the bag in the dumpster outside your dock. I’m watching, so I’ll know if you call the cops and then BOOM! Place the bag in the dumpster at exactly 6:00 tonight. You won’t get another warning.”
Although the bulk of such calls are pranks, you cannot afford to take chances, so you should treat them as real.
We strongly suggest that, upon the receipt of any communication regarding an extortion attempt, the local police be immediately contacted and their suggestions followed to the letter.
* Reprinted with permission from the June 2006 issue of the HBS Alumni Bulletin.
1 It is interesting to note that a reliable source (The Retail Bulletin) in late 2006 reported that European retailers attributed 30.7% of their shrink to employee theft and 48.8% to shoplifting; these percentages are almost the reverse of those reported for the United States. The shrink percentages resulting from vendor fraud (6.2%) as well as that attributable to administrative errors (14.3%) were approximately the same as those reported in the United States.