Big steal: Fraud, mistakes, shoplifting and employee theft cost Australian retailers $2.7 billion a year

Employee theft is a major contributor to Australian retailers losing an estimated $2.7 billion a year through criminal activities and negligence.

Released today, the Global Retail Theft Barometer for 2014-15 looks at the causes of “retail shrink” – the losses incurred by retailers because of internal theft, shoplifting, administration errors or supplier fraud – in 24 countries, based on in-depth phone and written survey interviews conducted in more than 200 retailers.

The report found shoplifting by customers is the biggest cause of retail shrink in 18 of the 24 countries surveyed.

In Australia, shoplifting was found to be the biggest cause of retail shrink for the 2014-15 financial year, at 39%, while employee theft is second at 25%.

Checkpoint Systems Asia Pacific (Australia/NZ) part-commissioned the study and sales vice president Mark Gentle said in a statement the report found the primary reasons for employee theft in Australia are weak pre-employment screening procedures, reduced associate supervision, increasing the part-time workforce and the easy sale of stolen merchandise.

But Gentle said Australian retailers are working to combat the problem.

“To combat shrink, retailers are adopting strategies to approach losses from a wider perspective from all levels within the organisation and work with their supplier and solutions partners,” he says.

“With the right technologies, people and processes, they can achieve improved merchandise availability, which directly impacts shoppers’ satisfaction and retailers’ profitability.”

Brett Warfield, chief executive of Warfield and Associates, told SmartCompany this morning in terms of overall retail shrinkage, employee theft and shoplifting continue to represent the biggest concerns for employers.

Warfield says the report’s findings regarding employee theft are in line with the types of fraud he often encounters, with workers in a position to exploit known weaknesses.

“I think it’s pretty consistent with what we’ve seen as well, it’s employees on the ground who are the ones with access to systems and employees that know weaknesses in systems,” he says.

Warfield says to combat shoplifting, retailers needed to deploy a range of deterrents, including electronic tagging and CCTV to offset a decline in staff members.

“There’s a trend that staff numbers have diminished in retail, there are less staff looking after customers which increases the risk of shoplifting,” he says.

“If you don’t have staff to serve and monitor at the same time it increases the chances of shoplifting occurring.”

One of the big things retailers can do is conduct regular stocktakes, Warfield says, while also putting in place systems that alert you to things such as refund and void fraud.

“If you’re not looking at refunds and voids on daily basis, you’re leaving yourselves exposed to employee theft,” he says.

In terms of monitoring stock, it is also about educating and training staff to know what to look for, Warfield says.

“If the majority of people understand what to do and the warning signs of potential employee theft they are more likely to whistle blow,” he says.

Warfield says the biggest issue for small businesses is bringing on people who “the owner is totally relying on the ethics of”.

“Employment screening needs to be effective. If the employee is rogue, it can damage the business significantly,” he says.

“It’s even more important for small business to do background checks on people and monitor them in first few months.”

Sylvain Mansotte, chief executive of Fraudsec, told SmartCompany this morning a useful tool for understanding fraud among workers is to consider the Fraud Triangle Framework, which was created by a criminologist in the 1950s.

It considers a person’s opportunities, rationale and motivation as three key aspects when identifying fraud.

“Retailers can control opportunity and put systems in place to prevent people from stealing,” he says.

“They can also identify red flags with staff who potentially could go over the edge.”

Training of staff and access to safe ways of blowing the whistle is another key concern for Mansotte.

“You have to train them and give them means to report,” he says.

“It’s hard to dob in your mate and it’s best to use an anonymous reporting channel – a mechanism where people can report the theft anonymously.”