There are a wide range of opportunities available for employees to steal at the point of sale, regardless of a retail organization’s size. Failure to address such opportunities leaves both large and small companies open to fraud, especially given the current economic climate in which desperation for cash prompts employee theft to continue to increase. The following are some of the most common types of retail fraud likely to occur at the point of sale.
1. Under-ringing: An under-ring occurs when the cashier rings an item at less than its listed price, collects the full amount, and steals the extra money. To cover the fraudulent act, the cashier fails to provide a receipt or blocks the cash register display window from the customer.
2. Sweethearting: This method occurs at the cash register when cashiers give free merchandise or discounts to family and friends without proper authorization. For example, a cashier at a Macy’s store was caught intentionally not scanning items for her mother and sister at her register.
3. Refunds: The cashier rings up a false refund and takes the money, in effect causing the theft of cash to appear as an inventory shortage. The employee might also choose to prepare a false refund voucher. In this scheme, the document usually contains a fake name and address to make it appear as if a customer has returned a product.
4. Voids: Voids are similar to refunds in that they cancel a sale. To process a fraudulent void, the cashier keeps the customer’s sales receipt. The cashier is now able to ring the item up as a voided sale and takes out the cash from the register, making it appear as if the money has been returned to the customer rather than stolen. A void slip that requires a manager’s signature for verification is attached to a copy of the customer’s receipt. In many cases, however, managers fail to recognize a fraudulent void.
5. Discounts: Cashiers have the ability to redeem coupons for customers and to process employee discounts at registers. Cashiers can abuse this access without proper controls in place, often by bypassing required manager approvals. Cashiers also often abuse employee discounts by selling items to friends at a lower price so that they can attempt to return the item for a full refund at a different location without a receipt.
6. Training mode: Managers have the authority to program the cash register so that sales are not recorded during the process of training new employees. Abuse of this function takes place when actual sales are allowed under the training mode and the undocumented transactions are pocketed at the end of a shift.
Managers and owners should be on the alert for suspicious activity. The following red flags might be indicators of employee theft at the point of sale:
• Frequent cash shortages or overages during an employee’s shift
• Exception reports showing an unusually high number of refunds or voids
• A significant amount of no-sale transactions on the cash register tape
• A rise in inventory losses
• A low average number of sales
• Calculators located at the register that are used to keep track of the amount stolen
• Frequent customer complaints about not receiving receipts at the register
• Cash receipts found in the trash after a shift
• Refund or void slips partially filled out with customer information or without a supervisor’s signature
Prevention and Deterrence
Theft is often a result of prevention policies not being enforced or communicated to employees. Retail organizations must first evaluate procedures currently in place to determine any weaknesses. Asking critical questions provides a more accurate view of the effectiveness of existing loss prevention policies. Examples: “Are managers required to approve cash refunds?” “Do employees have minimal supervision at the register?” Honest answers guide retailers in developing and applying improved prevention strategies to reduce losses related to employee theft.
For auditing purposes, supervisors must consistently generate and review an exception report for each employee. The report outlines activities performed at the register, such as the frequency of refunds, price changes, coupon redemptions, overrides, and sales cancelations. Cash counts by management, both anticipated and unanticipated, are also an effective fraud deterrent.
Implementation of new technology is an additional tool for loss prevention. The latest growing trend in the retail market is the use of video analytics systems. Such systems function by tracking employees, customers and merchandise. A video analytics system stores data to a hard drive, including information regarding the time and place of a sale. When this technology is synchronized with video surveillance, supervisors can immediately see if merchandise that passes over the counter matches what cashiers ring up at the register.
Refund and void controls are required in the retail environment. For every refund and void processed at the register, the employee should completely fill out a voucher and attach it with the sales receipt. The voucher includes customer information, the reason for the return or void, the original sales transaction number, and the customer’s signature. Supervisors need to review every refund and void before authorization. Only managers should be able to return merchandise to the floor after approving the reason for a return or void. Another preventive strategy is to actually call the customer to verify that his transaction did not involve a fictitious refund or void.
Finally, the threat of prosecution is one of the most effective preventive measures to deter employee theft. Employees are less likely to steal from their employers if they understand the seriousness of the offense and the real risk of going to Court. If an employee is caught stealing, management should contact the police immediately. By taking such proactive measures, this conveys the message that theft from within is not acceptable.
Retailers now face the reality that most of their losses will occur internally by employees at the point of sale. As discussed earlier, even large retailers are not immune to this threat. Although the occurrence of employee theft might be on the rise, it can be reduced with increased employer awareness and the enforcement of preventive measures.