Although the security-camera systems in the 161 state stores in Washington are less than four years old, the Washington State Liquor Control Board (LCB) began replacing them this past September.
“We wanted to be able to see people’s faces,” explained Randy Simmons, director of administrative services. “The quality [of the images from the new equipment] is amazing. If you freeze an image and print it out, it looks just like a photo.”
At some point, the LCB would also like to add the capability of sending these images electronically, Simmons said, although that would require a revamping of the LCB’s communications infrastructure. “We have a WAN (wide area network) to communicate to all the stores but it’s not big enough to transmit video,” he explained.
The Washington State LCB has its own loss-prevention (LP) staff, with three loss-prevention investigators/trainers. They meet regularly with the LP staff of other area retailers, such as those working in supermarkets, to share information and ideas.
They also train all store employees about security. “We have very strict policies,” said Simmons, “much of which is about keeping yourself safe.” Topics include what to do in the event of a robbery or if someone is observed shoplifting. Employees also learn about how to set up the store: not to block the windows and not to put up displays that block the view of the back of the store from the front.
The LCB has made two other recent security changes. In March, it began using an armored car service to carry all 161 stores’ daily deposits to the bank. “It is fairly expensive, $60,000 per month,” said Simmons, but he pointed out that having a store employee carrying a bag of cash to the bank every day is not only a big security risk for that person, but the considerable time they spend away from the store is also a productivity issue.
The LCB also increased its use of armed security guards. Eighteen of the state stores now have a guard on Friday and Saturday nights. During the holidays, 50 of the stores use security guards. The LCB has now contracted with a security company for its guards, though one of its stores, in a high-crime neighborhood in downtown Seattle, still uses off-duty police officers.
Why does the Washington State LCB pay so much attention to store security? Does it have a particularly large problem with retail crime? No. In fact, Simmons said its shrinkage rate (the loss of inventory to theft, breakage and error) is less than 1%, which is well below the national average for retail shrinkage. Yet, as Simmons points out, the state stores “are retail stores, so they are going to experience crime.”
Statistics bear him out. According to the latest National Retail Security Survey, produced annually by the University of Florida, the average shrinkage rate for U.S. retailers in general is 1.57% of total annual sales. This translates to a loss of over $40 billion nationally, and that’s just lost inventory.
According to the survey, non-inventory losses, such as cash shortages, check losses and credit-card charge-back losses, are much larger. They account for a loss of 3.45% of annual sales, or approximately $89 billion every year for U.S. retailers.
Employee theft counts for much, perhaps most, of the crime losses suffered by businesses in general. Some experts estimate that one-third of all business bankruptcies are caused by employee theft. Extrapolating from its research for its 2006 Report to the Nation on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) estimates that U.S. organizations of all types lose 5% of their annual revenues to such fraud.
Employee Theft Problem
And when it comes to the theft of product, employees steal more than shoplifters. According to the University of Florida survey, retailers reported that employee theft was “the single most significant source of inventory shrinkage.” These retailers reported that 47% of their shrinkage was the result of employee theft as opposed to 32% from shoplifting. (The rest is due to administrative error and vendor fraud.)
“That’s hard for people to understand,” said Bill Alford, principal of International Lighthouse Group, a risk management consulting firm based in Charlotte, NC, “but on a day-to-day basis, an employee – working five days a week, 40 hours a week – giving away product to friends, neighbors and relatives, is going to hurt a business more than a shoplifter.” According to the survey’s figures, the average admitted dollar loss per employee theft is over $1,300, while the average shoplifting loss reported was less than $350.
“Ten percent of employees are always going to steal, no matter what. They’re just bad eggs,” said Alford. “Another 10% would never steal, not if you left your wallet right there in front of them. And the 80% left: studies have shown, they might choose to steal, if given the right opportunity.”
At the store level, employee theft is more likely to involve products than cash. “Rarely do they take cash,” said Alford. “Most retail operations have a very firm control on their cash.”
Washington State’s Simmons has found this to be true. When it comes to employee theft in the Washington State stores, he said, theft of product, most often to drink right there on the job, and “time theft,” when an employee marks down that they started work earlier or stayed later than they really did, are more common than the theft of money.
The employee theft of cash from a retail business does occur, experts say, but it is not usually cashiers dipping into the till. There are more opportunities to steal money for the people who handle the flow of money and its records, such as store managers and bookkeepers. “Fraud, as opposed to pure theft, is when you create a false impression, such as falsifying the books, to cover up your theft. For example, an employee creates a false vendor, sending the payments for fictitious orders to a post-office box or even their own home address. Or they might even create a fictitious employee and send those paychecks to themselves,” explained Allan Bachman, education manager at the Association of Certified Fraud Examiners (ACFE).
The best defense against employee theft? “To paraphrase Ronald Reagan, ‘trust but verify,'” said Alford. “Trust people but trust controls more.”
The ACFE’s Bachman agrees. “Be alert to the back-office processes. Make sure one person isn’t the only one handling the records. Even very small businesses should do their best to have a system of checks and balances.” The ACFE, for example, advises small business owners to make it a policy that they personally sign every check and that all bank statements are delivered to them first, still sealed in their envelopes.
Organized Shoplifting Rings
Shoplifting has been much in the news recently because of the growing presence of organized shoplifting rings. These operations steal vast quantities of products and resell them. In one of the latest cases, 18 people were arrested in Florida at the end of January. It is thought that over five years, this ring stole $60 million to $100 million worth of products from convenience and grocery stores and sold them on the Internet. In its 2006 Organized Retail Crime Survey, the National Retail Federation (NRF) found that 81% of the retailers surveyed said they had experienced such organized retail crime (ORC).
The National Retail Federation and other trade groups are working to change laws so that such rings are treated more seriously than they are with the current laws against shoplifting. The NRF, the Federal Bureau of Investigations (FBI) and trade groups launched an Internet-based national database last April to allow retailers and law enforcement to share information on ORC incidents and patterns.
ORC rings often focus on certain products – generally high-value items that are small, which makes them easy to steal and transport – such as health and beauty aids and over-the-counter medications. “For a while, Crest White Strips were the number-one item for sale on eBay,” pointed out Alford. Liquor, wine and beer have not been targeted as much by such rings. “These products are liquid, they’re heavy; there are obstacles to reselling them,” Alford explained.
Still, Washington State’s Simmons said that much of the shoplifting seen in the LCB stores is organized to some degree. “There will be a lookout, there will be someone creating a diversion in the front of the store, while someone else is picking up the product,” he said.
Discouraging Shoplifting
There are many ways, large and small, to discourage shoplifting. One of the best, Alford said, is attentive customer service. Being greeted by an employee is seen as a positive by honest customers and a negative by would-be shoplifters.
Store appearance also plays a role. “Studies have shown that dirty, cluttered stores, where things are out of place, that are not well-maintained, have more shoplifting,” said Alford.
One of the most common types of security equipment used by retailers, both large and small, is the camera system. According to the University of Florida survey, cameras are the second most common piece of security equipment, after burglar alarms. Over 86% of all retailers use them. In addition to providing evidence of crime, security cameras can also serve as a strong deterrent. Security experts say that a store’s cameras – and, if possible, a monitor – should be visible in the store.
Security camera systems continue to grow in sophistication, even as their prices drop. Not too many years ago, digital video recorders began to replace VCRs. Instead of cumbersome videocassettes, digital video recorders, as their name suggests, store images electronically. These images are clearer, easier to store, easier to work with and easier to share, via CD or as email attachments or still prints.
New Digital Systems
Now, the newest digital systems have more capabilities. Some digital cameras themselves have memories and displays so that the recorded images can be stored and shown directly on the camera itself. Some can copy their images directly onto flash drives rather than sending them to a computer or recorder for a CD to be made.
Internet-based systems, also called networked or IP (for Internet Protocol) systems, are becoming increasingly affordable. “There has been a tremendous shift in the past two years towards network-based systems,” said Allen Chen, senior product manager for Sony’s security systems group. “The images can be stored remotely, somewhere other than the store itself. And with an IP system, there’s a lot more interactivity.” For example, with a camera equipped with a speaker, audio can be sent to and from the camera. In other words, a person at the remote location can see a shoplifter at the store and speak to them or to store staff, through the camera. (Audio recording of what is happening in the store is most often not legal.) IP systems can be set up to send alerts, via email, when something in particular happens, such as when a motion detector goes off. For the future, “another area of great interest is video analytics to identify individuals, items and events of interest,” said Steve Surfaro, group manager, strategic technical liaison for Panasonic System Solutions Company.
Swann, a company that specializes in do-it-yourself systems for the home and small retail markets, has recently introduced a networked system priced at under $1,500. It includes four cameras and a DVR that will automatically set up its own Internet access. “That is the most frustrating thing for the retailer, setting up the Internet access,” said Steve Currens, Swann’s North American director. “With this system, all you have to do is plug it in, connect it to the Internet and read a few screens.”
Meanwhile, AT&T introduced its Remote Monitor service for small businesses last November. IP cameras as well as other devices, such as temperature and motion-detector sensors, can be connected to an Internet-based system that gives the retail operator the ability to monitor the store remotely. The Business Starter Kit, which includes a controller, DVR, three fixed IP cameras, two window/door sensors and a temperature sensor, is $899, with service plans starting at $9.95 per month.
Clearly, control agencies have a range of ways, from good old common-sense policies to the latest in high tech, to keep an eye on their stores.
The Age-Old Question
State stores, like other retailers who sell age-restricted products, face a special kind of retail crime: underage kids actively misrepresenting their ages in order to buy beverage alcohol and tobacco.
Some states are changing their laws to make it easier to crack down on both the underage youth in this scenario and the people who make and sell fake IDs. California changed its law on January 1, 2008, to increase the penalties for using and for making and selling fake IDs. The penalty for trying to use one, for a first offense, increased from $100 to $250. In addition, the user’s real driver’s license can be suspended for up to a year. The fine for making or selling a fake ID doubled from $500 to $1,000. Meanwhile, the Texas Alcoholic Beverage Commission (ABC) has been running “Operation Fake Out” in the state’s college towns. At the end of January, Texas ABC officers in Austin arrested 15 people, charging them with misrepresenting their ages, a misdemeanor. While a fake ID usually results in just a citation, in this case, the 15 were arrested.
Yet, fake IDs are an unending battle – and a pitched one at that. State governments continue to add security features, such as holograms and watermarks. These features are meant, not only – or even chiefly – to keep underage youth from obtaining beverage alcohol and tobacco, but also to make the driver’s license a more secure form of identification, as a security measure against terrorists. (The 9/11 hijackers all used fake IDs.)
Still, the makers of fake IDs – often underage kids themselves – are constantly working to thwart the new security features. Soon after states began using encoded magnetic stripes on their licenses, for example, fake IDs with correctly encoded stripes appeared.
In turn, the devices used to detect fake IDs continue to grow in sophistication. Intelli-Check, for instance, recently entered a partnership with AssureTec. The resulting device combines Intelli-Check’s ability to verify the information on the magnetic stripes and barcodes with AssureTec’s ability to authenticate other security features of a driver’s license, such as the type and thickness of the paper used. Intelli-Check also added the ability to use different types of readers, including credit card terminals, and the ability to have the Intelli-Check software keep a record that the ID was indeed checked and found to be valid.
Meanwhile, as the rules regarding direct shipping change, other technology companies are addressing a new need: the ability to verify the age of a customer buying alcohol by Internet or phone. One such company, IDology, will compare the information a customer provides to complete a sale, such as their name and address, with thousands of databases, to verify the customer’s age and identity. The whole process takes less than a second and happens while the customer is making the online or phone purchase.
