Having identified and discussed the reasons for the widespread prevalence of fraud in retail, the second part of this article will present recommendations to minimize fraud and curb occurrences. Fraud creates huge reductions in every business’ bottom line; hence prevention and detection are crucial to reducing such losses. It is important for businesses to have a plan in place as preventing fraud is much easier than recovering losses after fraudulent acts have been committed. Fraud experts in the ACFE 2014 Report revealed that fraudulent activities could last an average of 12 to 18 months before detection. Can you imagine the quantum of loss a business will suffer, with an employee committing fraud for over a year without detection? Luckily, there are ways to minimize fraud occurrences by implementing different procedures and controls.
Implement & Enforce a Fraud Policy & Create Awareness of it
It is imperative for every retail business irrespective of size or ownership to have a laid out policy to check fraud. Fraud policy is effectively a business’ written down course of action aimed at fraud prevention, detection and management. Everyone within the Business should be aware of the policy and should be familiar with its provisions, including the types of fraud and punitive measures associated with them. The existence of a written down policy serves as a deterrent for unscrupulous employees who may be on the lookout for loopholes to commit fraud, and also a tool to educate honest employees of possible signs of fraud to look out for.
Honest employees would serve as eyes within a business in the fight against fraud. According to the ACFE 2014 Report, 40 percent of workplace fraud is detected by a tipoff, with most of these tips coming from employees. Fraud policy should be supported by a fraud reporting system, where employees and other sources of tipoffs; namely customers, suppliers and acquaintances of fraudsters, can comfortably report their suspicions without threat or intimidation. Anonymous systems work best because sources may be reluctant to report suspicions otherwise.
In preventing fraud, ensure provisions in your fraud policy are strictly adhered to after fraud detection. Avoid making exemptions, and do not relax rules as a result of excuses and apologies from employees or other relations. Our society has the tendency to allow dishonest behavior to go unpunished but such trends would rather encourage fraudulent actions by creating opportunity instead of punitive actions. If your fraud policy spells out a clear dismissal of employees who are caught stealing, exemptions should not be made in some circumstances because the culprit has brought in someone with good reputation to plead on their behalf.
RELATED ARTICLE: Facing the Reality of Fraud in your Business (Part 1)
Know & Listen to Your Employees
Fraud prevention should effectively start with knowing your employees. In a report on “Fighting Retail Shrinkage through Intelligent Analysis & Validation” retail experts deduced that the largest form of retail fraud stems from employee theft; ranging from cashiers voiding/sliding items at till, giving items out to friends & relatives for free, selling items at discount prices whilst pocketing the difference, and merchandisers and warehouse staff conniving to steal from inventory. Fraud perpetuators would normally exhibit behavior patterns that may indicate the intention to commit fraud. Adopt a friendly management style in your business. Get to know your employees, maintain close relationship with them in order to identify “red flags” or intention to commit fraud. For instance an employee could be angry if they feel lack of appreciation from the business owner. Such an attitude change could result in dishonest action. A business owner who maintains close relationship with employees can easily pick up such grievances and effectively address them. Listening to employees may uncover secret plots to defraud and further create a cordial work environment for employees. Most often, some loyal employees may tend to commit fraud because of pressure, hence it is important to know your employees and involve them in frequent casual conversation.
Implement Internal Controls
Internal control mechanisms are key to guarding business resources from theft, especially from employees. Such controls would include segregation of duties, regular job rotations and unannounced checks on cashiers, till balances and warehouse inventory, and documentation of work processes. For instance duties in a retail set up would be segregated amongst cashiers, sales persons and management. In the same vein at the close of each day, sales receipts should be tallied by one employee, another employee would prepare bank deposit slip, and a third employee would deposit monies at bank. Segregation of duties effectively breaks autonomy on sensitive roles that could suffer theft and serves as a deterrent from fraudulent behavior by making employees co-vigilantes on each other. Regular job rotations would eradicate the likelihood of employees embarking on fraudulent acts because of familiarity with loopholes in long standing roles. Conducting regular unannounced checks on till balances and warehouse inventory is another internal control measure that effectively prevents theft and dishonest behavior.
Business owners should additionally ensure the proper documentation of ALL transactions as a measure to guard against employee fraud. Documented records should be maintained for all inventory sales, purchases, bank deposits and withdrawals, etc., and these should be regularly reconciled with bank statements.
Awareness of Red Flags
Beware of “loyal” employees who rarely miss a day off from work, are unwilling to delegate, and are always prepared to forgo their annual leave days. You might be impressed with their service but the behavior patterns are red flags signaling they may have something to hide. I provided service to a retailer who at the time assumed he had a team of hardworking and compliant warehouse employees. They always sought to protect their territory and were reluctant to take on additional hands, giving the impression they could cover all duties at the warehouse themselves. The retailer had initially overlooked this red flag and eventually suffered huge stock losses. Upon eventual surveillance, the entire team was sacked when it became evidently clear that they had duped the business of huge quantities of stock. Remain vigilant, and question all unusual employee behaviours.
Maintain a Positive Corporate Culture & Favourable Work Conditions
Positive work conduct thrives in a cordial work environment. This effectively reduces employee fraud and theft. Maintain a clear structure for flow of work and information, have written down work policies and procedures, and ensure employees are treated fairly with respect. An open-door policy can also provide a great fraud prevention system as it gives employees open lines of communication with management. Business owners and senior management should lead by example and hold every employee accountable for their actions, regardless of position.
Implement Security Systems and Persons
Visible security systems such as surveillance cameras, shop ceiling mirrors and security personnel reduce the incident of theft overall and can be very valuable in spotting and proving both internal and external theft. Cameras which cover registers can reduce and deter point-of-sale (POS) fraud. For security systems to be effective, surveillance cameras should not only be erected but should be constantly monitored to notice irregular behaviors of employees and intended shoplifters alike. Also remain vigilant on security staff and beware of connivance with other employees and shop visitors
Fraud prevention & detection measures should not be static. They should be assessed constantly and revised to ensure potency as fraud deterrent tool, also to ensure adherence with technological advances. Instead of manual documentation, most retailers now employ Point of Sale systems as a recording tool for sales and inventories.
Controlling and managing fraud comes with cost and would not directly generate revenues so businesses are likely to reduce it, but it is always better to spend Ghs10,000 to prevent losing Ghs50,000.
Author: Amma is a Lead Consultant and trainer with M-DoZ Consulting. Kindly contact her on 0201196080 or email amma.antwi@ghanatalksbusiness.com for further information or contribution.
SEE THESE:
Mitigating the Syndrome of High Staff Turnover in Retail
Luxury Goods in Africa: A Maturing Sector
