The Network in the News

Loss Prevention: Better Compliance Through Technology

October 17 2011

by Luis Ramos, CEO of The Network, Inc., in Loss Prevention, October 12, 2011

Integrated solutions enable better business decisions and deliver a holistic approach to drive loss prevention efforts.

Risk comes in all forms, particularly in a time of economic recovery. And, while external theft and fraud can have a great impact on a company’s profitability, for many organizations, internal fraud is just as menacing a foe.

According to the Global Retail Theft Barometer 20101, losses attributed to employee theft in the United States, Canada and Australia were estimated to be greater than losses due to shoplifting. In the United States, shoplifting accounted for 34.9 percent ($13.7 billion) of shrink and employee fraud 43.7 percent ($17.2 billion). On a global level, disloyal employees accounted for 35.3 percent of shrinkage, or $37.8 billion, according to the same research report.

A troubling trend

These numbers in the retail environment, unfortunately, are trending upward. Preliminary results of the latest National Retail Security Survey2, released at the 2011 National Retail Federation’s Loss Prevention Conference and EXPO, show that retail shrinkage increased to 1.58 percent of retail sales in 2010, up from 1.44 percent in 2009.

Moreover, the current economic downturn is creating an environment where internal fraudsters are becoming even more sophisticated in their approach to scheme their employers. According to findings from the National Retail Security Survey (the result of a partnership between the University of Florida and the National Retail Federation), 18.7 percent of employee theft cases involve collusion between internal and external sources.3

Advances in technology, the pervasiveness of social media, and global economies also are “escalating” risks beyond theft. Newly developed risk areas include financial, information technology, human resources, legal, and brand and reputation-related risk. When you combine employee theft with these other areas of corporate fraud, there is an even greater need for organizations to explore and implement dynamic, comprehensive programs to combat the significant product and revenue losses attributable to theft and fraud.

Until recently, risk management was handled separately from governance and compliance activities, resulting in the duplication of resources. When risk is managed autonomously in different areas of an organization, it creates an environment where risk is harder to detect and thwart.

For many organizations, the first step toward risk reduction is for loss prevention experts to involve other company departments and stakeholders in the process of developing and executing loss prevention strategies and programs. This business-driven approach requires a collaborative effort to eliminate compartmentalized silos of risk-related data. As internal fraud impacts every area of an organization from accounting to operations, it is becoming more important to secure participation from all departments to successfully turn the tide on fraud – and towards compliance.

Turn to technology

Web-based technologies have evolved to drive integration and cooperation across the entire enterprise, regardless of location or scope. These technologies automate the process of detecting and even preventing fraud by utilizing a robust compliance and reporting program, which includes a strong code of conduct along with employee training, an unbiased hotline program, and a holistic incident reporting and management system. Because these systems are cross-connected and dimensional, loss prevention executives have ready access to trending data, enabling them to make informed decisions about their loss prevention strategies.

In order to successfully execute compliance programs, companies need to begin with an ethics education program that is communicated to all employees. Bolstered by a “tone from the top” message, company-wide awareness is the cornerstone of a solid ethics program. Communicating to employees at every level ensures they are part of the ethics building process and, as a result, also play a role in the success.

The communication should be clearly defined and include relevant policies and codes of conduct that outline expected ethical behaviors. It is also essential that employees understand the avenues and processes to report unethical behavior. Interactive e-learning is an effective and cost-efficient way to show employees that the company cares about ethics and explain the how’s and why’s behind loss prevention.

Phone-based hotlines have been around for more than 40 years and are a proven, effective method for detecting workplace fraud. All types of organizations across almost every industry have leverage hotlines as the central platform for their compliance programs and the foundation to accurately report, track and investigate malfeasance.

While not new, web-based reporting has greatly increased in scope and usage over the past few years. One reason: the escalation of web-enabled devices such as smart phones and tablets, as well as the more common standard practice of using some form of connected device for most every job. Employees are no longer restricted to calling in their concerns. And even if they go directly to their supervisor with a concern, manager “walk-up” forms enable immediate capture of the report.

Technology has greatly expanded the intake side of the equation as well. Aside from providing employees with a way to report unethical behavior, both phone and web-based hotlines provide organizations with accessible data they can use to identify trends. With that knowledge, organizations can establish a baseline and align information from other sources, such as surveys, audits and focus groups, to determine what steps are needed to reduce misconduct.

Go beyond the hotline

While hotlines play a critical role in reducing risk, organizations need to deploy holistic reporting mechanisms that extend beyond the hotline. After tips are reported via an ethics and compliance hotline, holistic reporting mechanisms such as integrated case, policy and corrective action management systems also serve as an aggregate for hotline data.

These applications and processes help loss prevention executives see risks across the board – from initial report to investigation to final resolution and remediation. In addition to providing greater visibility, this holistic approach provides the analysis necessary for organizations to better comprehend multi-faceted risks. This insight is essential for true loss prevention management and successful long-term compliance strategies.

Organizations need to carefully review the reporting and analytics component of governance, risk and compliance solutions to ensure flexibility, ease-of-use and dynamic data intelligence capabilities.

Here is where the technology aspects of an integrated approach truly shine, enabling the new efficiencies and data visualization capabilities that come with process automation. Akin to more traditional business intelligence solutions, the reporting and analysis functionality is the engine which drives the entire solution. Trend analysis data drives actionability and arms users with the information they need to instill “compliance with meaning.”

Avoid cookie cutter compliance programs

Reducing and eliminating risk in an organization is essential for long-term growth. As with most technology projects, an LP/compliance program needs to be thoroughly designed and implemented so that all stakeholders, especially employees, are aware of the impact that internal fraud has on the company as well as individuals, and understand their role as fraud prevention agents.

The good news is, whether you have 1,000 employees in one country or 100,000 employees across the globe, you can proactively manage your entire compliance lifecycle by leveraging existing technology with the flexibility to fit your company’s needs and scale. The key is to make sure the solution addresses your organization’s specific needs based on a multitude of factors including company size, geographic location, vertical marketplace, appetite for risk – and perhaps most importantly, the ethical culture you wish to nurture.

With a secure way to visualize data, organizations can track trends over time, implement improvements, make better business decisions and improve compliance programs in a way that minimizes risk and supports company-wide loss prevention efforts.

1. Global Retail Theft Barometer 2010, Centre for Retail Research.www.globalretailtheftbarometer.com/index.html
2. National Retail Security Survey 2011, National Retail Federation. www.nrf.com
3. Ibid

IN THE NEWS

Strengthening Security Through Compliance

Security measures are essential for protecting people, assets and information, and compliance makes sure those measures are effective. A healthy compliance program will bolster your security measures and find weaknesses before they become problems.