Canadian Security Magazine

Loss prevention software can help trim internal theft

By James A. Quin   

News Data Security

{mosimage}In late 2003, the University of Florida conducted a survey to determine the magnitude of the annual loss U.S. retailers were experiencing through theft. It was determined that the total loss amounted to approximately 1.65 per cent of gross sales. While 1.65 per cent may not seem significant, it represents more than $30 billion dollars disappearing from the bottom line of U.S. retailers. The study also determined that the single most prevalent source of loss, at almost 50 per cent of all reported losses, was employee theft.

For Canadian businesses, there is no reason to believe these figures
are not representative of the kind of losses experienced in this
country. (Canadian retailers lost $3 billion in in-store shrink in

While traditional security technologies such as Electronic Article
Surveillance (EAS) and closed circuit television (CCTV) systems can
help limit losses due to shoplifting (second on the list at more than
30 per cent of reported losses), their applicability is limited when it
comes to preventing employee theft, particularly when much of that
theft is occurring at the register. Loss Prevention (LP) software hopes
to address the shortcomings of these older solutions.

LP software works as exception reporting software, monitoring
point-of-sale activities and reporting on anomalous and suspicious
behaviour. To achieve success therefore, it needs to be tightly
integrated with the enterprise’s POS system, but once in place, it can
be a powerful tool. Features typical to LP software include the

”¢    An exception reporting engine with a database of measurement
indices to determine when employees are operating outside the bounds of
what would be considered “normal” behaviour. This database comes
pre-populated with baseline metrics and is fine-tuned over time to be
more representative of the company’s actual workers.


”¢   A report or journal creation capability that allows investigators
to log all pertinent information to a particular investigation in a
single file or location. With losses of the current magnitude, it is
foolish to think that only a single investigation will be ongoing at a
time. Keeping notes and system-generated data in one location ensures
greater accuracy and the ability to seek restitution.

”¢   A browser-based interface to allow investigators the ability to
access the system from anywhere at any time. Since retail operations
are open for far longer than traditional business hours, the ability to
be alerted to an issue and respond to it immediately is of significant

”¢    Though not necessarily a feature of all packages, integration with
an existing digital CCTV system lends significant value to any LP
software system. A picture is, as they say, worth a thousand words and
linking video evidence with other notes and system data only makes for
stronger cases.

While LP software can be an effective tool in stemming insider theft,
it is not a panacea. These solutions require time to become tuned to
the activities of the employee pool in order to become more accurate
and efficient. Since retail employee turnover can be high, in many
cases these solutions rarely operate at peak efficiency. Further, these
tools are completely ineffective in terms of catching employee theft
that does not involve the POS system, such as direct theft of inventory.

As much as retailers try, they will never be able to eliminate losses
completely. Solutions such as LP software, however, can be a valuable
tool in minimizing those losses and can help retailers see improvement
on the bottom line.

James Quin is Senior Research Analyst with Info-Tech Research Group in Toronto.

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