INSULATING COMPANY OFFICIALS FROM BRUTAL ATTACKS BY ITS EMPLOYEES

Recent cases of violence in business premises (manufacturing units, Head Offices etc) by either the agitating employees or high handedness of company officials does not speak high of Indian Business community. Though, as of now, the cases are low on percentage figures, but, loss of any human life due to such aggression is not a healthy quote for any business house. Take example of Sep 2009 incident in Southern India, where in a senior employee of reputed company was brutally assaulted by agitating workers, later 26 workers were arrested. Earlier on a CEO was done to death by agitating employees in NOIDA, later 146 employees of the company were arrested on charges of attacking their CEO. Prior to this, there was brutal attack by company and law enforcing agencies on agitating workers in Gurgaon factory. During Sep 2009, 300 managers of a reputed MNC were prevented from leaving office and hostage like situation was created by agitating employees. Fear of injury being caused to managers by agitating employees was highly possible, but, by some divine power, the same got averted. In yet another incident, ONE lakh workers of major industrial hub struck work during Oct 2009. These agitations not only cost precious human lives but also avoidable financial loss due to loss in manhours to the tune of 35-40 million rupees. All the above incidents are disturbing and leads not only to avoidable loss of precious human lives and financial loss, but, also cries out for urgent and effective need of business community to prevent re-occurrence of such issues. Let’s examine some of the basic steps, we can take to prevent such issues in first place and if misfortune strikes a business, then ways and means to contain damage to business or its employees.
Reasons For Agitation There is no dearth of material which study the reasons for labour unrest. Also, there is no dearth of material which deals with prevention of such incidents. Despite that, such incidents occur with alarming regularity (most of them getting unreported for fear of loss of reputation of affected business house). Since, occurrence is getting regular and reasons for labour unrest are well known, let’s examine, thresholds at which such labour unrest manifests into physical threat to other senior employees.

Feeling of Being Aggrieved/Exploited By and large, a situation of conflict arises out of feeling of being aggrieved / exploited. Both parties ie the company and its employees feel that they are the victims. Company feels that it is being forced to accept certain irrational conditions by its employees. On the other side, the employees feel that they have not been treated fairly by company and have reasons to be aggrieved. Ultimately, a situation gets created in which both parties start walking on parallel lines as "Agrieved" with no chance of meeting for acceptable solution.

Conflict of Interests. Workers and Company have divergent view on issues at hand. Both sides get driven by sense of righteousness. Both sides also have a view point that there is no merit in other side’s view and hence cannot be accommodated.
Possible Developing Situations - If above situation develops, it would have serious repurcursions. Since all other means of pacification have failed so far, the following could be possible manifestation at this stage:-
(a) Workers can form groups with an aim to take fence sitters on their side. Feeling of ‘us’ (ie employees) and ‘them’ (ie company for which they work’ creeps in.
(b) Productivity starts getting affected.
(c) Indiscipline is wide spread amongst employees.
(d) Efforts are made by workers to discuss the issues with company officials but get lukewarm response or rejection of their demands.
(e) Workers start sit in at gates or within premises.
(f) Workers might resort to mass leave.
(g) Possible physical clash with company’s security set up.
(h) Company officials could be taken hostages by workers to force a favourable decision.
(i) Intervention by law enforcing agency leading to business disruption.

Preventive Measures

The aim of any business enterprise would, naturally, be to prevent occurrence of such issues. Damage control exercise begins once preventive measures fail. However, even in the event of failure of preventive measures, the company negotiators shall be much better armed if they are aware of situation in totality - abinitio. Such task is best performed by company’s security staff and if that is not available, then by HR team. The following should be incorporated as part of preventive measures :-

(a) Feel The Pulse – It is of great importance to management team of the company to know the morale of their work force. There could be various reasons for employees being dissatisfied. Company may or may not be in a position to address those issues, but, it would lead to serious repercussions, if management is not even aware of the issues leading to large scale dissatisfaction amongst employees. Existance of such status, if prevailing in company, is freely available, in and around the workplaces, but, there has to be some one with basic common sense to pick them up and pass it up the chain. Efforts be made to address the concerns at this stage only.

(b) Prevent Accidents Work related accident like, electrocution of employee, an employee getting injured at his place of work, an employee falling down from height etc are some to reasons which immediately unite all workers to raise their personal safety issues. Since reaction is spontaneous and emotional, it can lead to senior employees being manhandled by agitating workers for company’s failure to provide them safe working environment. Business needs to be very careful and devise such processes which would prevent such accidents. In the event of such misfortune striking the workplace, speedy medical attention and care be provided to employee. There should be well prepared and rehearsed disaster management plan in large businesses.

(c) Identify Inciting Leaders In any group, there would be some leader or if no leader is naturally available, the situation would demand that some leader would emerge spontaneously. Though, it is healthy to have leadership for workers, but, what needs to be ensured that leadership is genuine and balanced, which contributes not only to well being of employees but also to business on whom they are dependent.

(d) Anticipate Business leaders, should be able to anticipate workers reaction to their decisions. For example, it would be too naïve to ignore the fact that mass termination of workers would agitate large work force and this group would retaliate against such decisions.

(e) Controlled Entry Entry to work place where large work force works should be controlled. It should be ensured that people from outside the premises do not get mixed up with agitating work force or influence own work force in such a manner that it is detrimental to business.

(f) Keep Communicating In the interest of business, it is imperative that management keeps all means of communication with its employees open at all stages. This is more prudent in case of lower rung workers as they form bulk of workforce and have potential to harm most. Knowing their morale would assist management to ascertain pressure points for such work force. As a correlation to that, it could be safetly stated that if such work force is motivated, they will produce wonders for any business.


Handling the Most Difficult – Hostage Situation

Personal physical attacks on company’s senior executives by agitating workers are, by and large, result of uncontrolled emotions of anger and hate and there is not much a company can do once this unfortunate incident takes place, except to contain any further damage to life and property and await law enforcing agency’s assistance. However, the most difficult situation arises when agitating workers take company officials as hostages with an aim to force acceptance of their demand. It is worthwhile to mention that all measures be taken, earlier on, to prevent occurrence of such situations. But, if every thing else fails, then how to deal with it….

At this stage, the primary task is to ensure the following:-

(a) Isolate the Area with an aim to prevent any further damage to life and property. Entry and exit to the area should be strictly controlled. Such isolation will also help in case the situation spirals out of control and warrants law enforcing agency’s intervention.
(b) Contain damage by organizing negotiation as early as possible. The faster it is done, the better it is to control temper and emotions.
(c) Information must be gathered on the following
Number of hostage takers including knowledge of whether they
are armed or not and their leadership.
Number of hostages and their profile, age, sex etc.
Emotional status of hostage takers.
Their demands etc.

Initial 15-30 minutes are crucial in such situations. During this period emotions run high, both in hostage takers and in hostages. During this phase, the effort of hostages will be to arrange escape and for hostage takers, it would be reverse to above and ensure that none of hostages goes out. Greater the number of employees held as hostage, better chances of demands being met to workers advantage – so they believe. Once the above actions have been taken, company must start immediate negotiations with hostage takers.

Though, dealing with such extreme situation in business is much easier than dealing with terror related hostage situation or robbery or other law and order related hostage situations, but, still the task is not that easy to allow it to spiral out of control. That would result into injury to or loss of human life.

Negotiations must be conducted by empowered person of the company, who is authorized to take certain spot decisions. What ever way the negotiations move, it must be ensured that no false statements be made by negotiators. Credibility of company and that of negotiator must be maintained. You never know, there could be a similar situation later on. If, negotiators are not trustworthy, we may land up ‘non-negotiable’ case next time. That would result in avoidable loss of human lives.

HEIGHT OF INNOVATION TO DEFEAT BUSINESS CONTROLS IN SCRATCH CARD PROMOTIONS

1. Did any business leader ever thought that scratch cards can be provided to desired customers, free of cost and that too by following all business processes? Here is how it can be done -

2. To fulfil the above requirement, the cashier shall proceed as under :-

He shall scan certain SKUs and generate the bill of the required amount which shall entitle the customer to get one scratch card. Once that is done, promotional scratch card is duly handed over to the customer (friend).

Customer scratches the card. Let’s presume customer gets the Rs 100/- as prize.
Next bill shall be generated in which all the previously billed SKUs shall be ‘refunded’ and customer shall shop for the amount which his scratch cards entitles him to.

3. In the instant case, the customer gets to buy SKUs worth Rs 100/- free of cost or I would say that he purchased SKUs at the cost of the store.
IS THERE ANY READER WHO COULD THINK OF THIS WAY OF BEATING THE SYSTEM ?

4. Not only this, smart cashiers would also know the denomination of scratch cards by merely looking at bar codes of scratch cards. Generally bar coding follow a set pattern and smart cashiers know the sequence of bar codes which indicates to them the denomination of scratch cards even without scratching the cards.

SMART WAYS TO DEFEAT BUSINESS CONTROLS

Business Parameters

1. It has been seen that retailers lay down lot of emphasis in controlling losses. Business rolls out lot of processes, carries out strict controls for implementation of same and continuously studies data to discern deviation. However, as the saying goes, howsoever smart someone is , there is some one else somewhere, who is still smarter. Key to controlling losses in organized is to stay a step ahead of such malicious ‘minds’.

General

2. Organised retailers have devised ways and means to MONITOR dump, line voids, refunds and shrink, because those are the avenues which are known to have been misused by staff. Even official studies of various independent bodies have established the fact that internal thefts cause losses amounting to approximately 34 % of total losses being suffered by the business.


Stores have been given specified targets of shrink, which is not permissible to be crossed or if they are crossed - they are questioned by management. Now, if some employee has to steal continuously, what he / she can do to not to raise alarm, keep the store shrink within acceptable parameters and still steal?

3. To understand the above, lets’ first discuss, how the genuine refund transaction impacts inventory and cash. Generally, for customer satisfaction, organized retailers have granted customers a facility, wherein, they (customers) can return the SKU to them (store) in case customers are not satisfied with the product for any of the defined reasons. Generally, customer has to bring back the product accompanied by original sales invoice / cash memo. That translates into following physical issues:-
· There is a person (customer) visiting the store and who is not satisfied with the product. He / family members are the ones who had purchased the product from the retailer in past (within stipulated time frame – generally not more than a week back).
· He/ She (customer) has a proof of the product being purchased on earlier occasion from the retailer outlet.
· There is a product in physical form which was purchased earlier and is now being sought to be refunded.
· All the above three sequence entail movement of men and material in the store from outside.
4. When, a cashier has to refund the product, the customer hands over the product to cashier, cashier carries out his point of sale activities, a refund invoice gets generated by the printer, showing the amount due to the customer and cash is handed over to the customer or is adjusted in customer’s bill. The faulty product received by the cashier is then placed back at appropriate shelf or is sent in back house if there are some quality issues.

5. The system data also changes and it adds one SKU to the store book count and reduces the amount given to the customer from its cash balance.

6. Now lets’ see how fraudulent store employee can manipulate above system. Malicious cashier do not wait for customer to come up with some SKU. The SKU is picked up from the store shelf only or product number is fed to the point of sale terminal by cashier himself or herself. later, refund transaction is carried out for the above bill. As given above, the terminal shall generate the cash to be given to customer. Since there is no customer, cashier picks up the cash himself / herself. As regards the SKU, since there is no SKU which has moved in physically, though the book stock shall increase by the numbers which have been refunded, but, physical stock shall not increase. NOW THAT WOULD BE COUNTED AS SHRINK.

7. Further more, smart store employees shall not permit shrink to increase in above manner. To prevent that they will simply post the refunded SKUs in dump, thereby effectively reducing refunded SKU from the store book count. Overall, NO SHRINK – NO ACCOUNTABILITY AND STILL THE STORE STAFF IS ABLE TO MAKE A KILL FOR THEMSELVES.

Mitigation Process

8. Data analyst has to study the dump data together with voided items and refund item data.

PATTERN RECOGNITION – A TOOL TO DETECT MALICIOUS USAGE OF LOYALTY CARD / CASH / GIFT COUPON

Historical Perspective of Loyalty Cards according to a report

Loyalty programme, as is wildly spread today was first conceived in 1981 by
American Airlines and was known as AAdvantage. It quickly turned into a source
of competitive advantage and other airlines were forced to respond in kind.
Further development is well known: loyalty programmes soon outgrew the confines
of the airline industry. The expansion that started in closely linked industries
(e.g. car rental and hospitality industry) later advanced into retail trade,
banking and insurance, service industry etc.

1. Underlying aim of loyalty programme was to act as exit barrier for existing customers and also to act as bait for new customers. It is widely believed Loyal customers not only shop themselves, but, if they are treated well they land up recommending others as well – mode of most potent - free word of mouth advertisement
2. To roll out an end to end loyalty programme, companies spend a lot not only in terms of visible discounts or addition of monetary value to loyal customers, but, lot of time, money, IT resources, hardware and man hours are devoted to sustain the same. Loyalty programme does not necessarily mean ‘Repeat Business’ only. The data so available to the companies is also used for variety of purposes, like :-
Discern purchasing pattern to streamline supply chain and stocking.

• Design promotions
• Add value to company’s valuation.
• Retention and Advocacy of brand
• Improve customer care and relationship.
  

3. Overall, a company may take major marketing policy decisions based on the data available through its loyalty programme.

GROUND SITUATION
4. So far so good. But the fact is that retailers all over the world have serious problems of having dishonest employees on board. Staff dishonesty is common . To be specific, there have been serious criminal cases of loyalty programmes being misued by dishonest employees causing loss to the company to the tune of $ 80,000/- in one specific case only. Another study shows that multiple redemption of loyalty bonus costs half a billion dollars to the company

5. Since the problem of staff dishonesty is real, lets see how the loyalty programmes are being misused by dishonest employees :-

• Coupon can be reused which have been already used once earlier on
• Company can loose money or merchandise directly.
• Sweet Hearting.
• Fraudulent accumulation of bonus points on loyalty cards by internal staff.

THE CAUSE

6. Putting it simply – loose controls in the business are the primary reason for such dishonesty spreading around and that is contagious as well. Since Dishonest employees have strong code of conduct amongst themselves , it is difficult to detect as well. Most important is the fact that the victim in this case is not ‘visible’ to offender and hence no guilt feeling of offender.
MITIGATION PROCESS – RECOGNIZING THE PATTERN
7. Since most of the loyalty programmes are riding on business internal IT back bone, by default, we have data stored in data warehouse. Such data can be used to discern a fraudulent usage of loyalty card or discount coupon. Suitable data can be generated with the following threshold values indicative of fraudulent transaction:-

• Gift card / coupons have unique bar code or serial numbers. A report could be generated when such gift card / coupon have been encashed for multiple times.
• When a loyalty card has been swiped for multiple times at the same store (say for example 5 times a day), the data could be flagged for ground checks as it is generally not possible for a customer to shop that many times a day. Such situation would come up if few customers have not got themselves enrolled for loyalty programme, but, internal staff having personal loyalty card or loyalty card in the name of his / her relative, is being swiped to get accumulations for themselves or for their relatives and friends against the purchases made by customers without loyalty card.
• Businesses can design other threshold values based on specific processes of their respective businesses.
  

PLANNING A PLANOGRAM – LOSS PREVENTION WAY

Background

1. As Wikipedia has defined, “Planogram is a diagram of fixtures and products that illustrates how and where retail products should be displayed, usually on a store shelf in order to increase customer purchases. They may also be referred to as plano-grams, plan-o-grams or POGs.” It is required for helping customers, optimizing inventory and presenting similar looks of same format stores of retailer across city or geographical area.
2. Planograms can be ‘Demand Driven’ or ‘Supply Driven’ or mix of both of them. But, the underlying purpose of the retailer is how to sell more to earn more. I had queried from peers in our forum as to what is desirable aim for designing a store planogram. They came up with absolutely logical answers. Some logically stated that we should stock what is demanded, but, others had equal force in their comments that we can stock fresh products and create a demand. Both sides had strong reasons to support their thoughts. I was amazed to know that highest in the businesses have their feet on ground and they think of basics. And why not – there is no rocket science involved in selling. It is oldest profession in the world.
3. Whatever is the principle basis of designing a planogram by a retailer, the survey shows that faulty planogram can lead to unanticipated and unacceptable losses. (Question of what planogram should be based on is not debated here as it is exclusive privilege of retailer to decide the same on his own merits).
The Study
4. A dip-stick survey across various organised retail departmental stores was carried out in East Delhi (An area dominated by low income group in Delhi, India. The area is densely populated inviting number of organised retail chain shops. The study showed that most retailers have stocked latest brands of daily use items and most of these products remained unsold till they neared their Expiry or Best Before Date. At this stage, the products were marked down and the stocks got cleared, triggering fresh supplies and the cycle goes on. Under mentioned data is eye opener in itself :-

6. The basic reason for above mentioned losses is NON MOVEMENT OF STOCK FROM DISPLAY SHELVES TO CUSTOMERS. But the fact is that they impact bottomline. First problem is how to identify such stocks. The answer lies in analysis of store sales data over a period of time. For example, if data can indicate what all merchandise have not moved from the store for last 30, probably it is time to take note of this report. In other words, Data Analyst can be tasked to establish a pattern between the planogram and non moving inventory.

The Mitigation Process

7. After having identified non moving stock, then comes the issue of identifying reasons for the same and addressing the root cause. There could be variety of reasons why a particular product is not saleable from a particular store – could be there is no demand for that stock in the store catchment area or the product does not match customer satisfaction or could be pricing is not correct or some other issue. The concerned merchandising team and store team is best equipped to handle particular situation.

8. What ever the reason, some of the the solution lie in one or all of the following:-

(a) Non Selling Stock could be moved inter-store for liquidation and / or placement of fresh orders suspended.

(b) Planogram could be changed for the particular store in which there in Non Moving Inventory and be replaced with the products which will sell in the geographical area (unless business is stocking SKUs to build up a demand)
(c) Article could be replaced with similar product which has a history of good sales. Say for example Old Spice talcum powder is not selling over a period of time, but, Cinthol powder is doing fine, then, probably Old Spice needs to be removed from store planogram or promotion could be designed to help customer go for old spice.

IN THE DEFENCE OF MOHAMMED AJMAL AMIR KASAB

1. After serving in Indian Armed Forces for 22 years (most of it fighting terrorists) and now being in the business, one thing I can safely conclude that for national economy to grow, we must provide safe and secure environment for business to flourish.

2. Under the prevailing circumstances, I am afraid, the situation is changing negatively for the business. 26/11 attack in Mumbai, not only had shaken the general population, but, a grim reality dawned on business community that they will have to share heavy burden of securing their own businesses. By not providing credible defence to the accused of these barbaric attacks, we are not helping the matter. That would amount to playing in the hands of destructive forces.

3. Though the government would be doing its own bit to re assure population, but, we as citizens, must also join hands with government to help ourselves. There is nothing better than to help own self.

4. I was alarmed to read press reports that there were serious protests against the employment of defence lawyer to defend the case of lone accused survivor of these attacks Mohammed Ajmal Amir Kasab, a Pakistani National.

5. As one of the largest democracies of the world, it is our duty to prove to the world that we cherish the dream of being a democratic nation and we enjoy an independent judiciary. That can be proved by providing not only legal aid to Kasab to defend himself, but, the defence has to be very credible, honest and impartial. By protesting against such defence, we are projecting an image that we do not have credible evidence against the accused and in the event of such a situation, we must overcome the deficiency by mob mentality and try accused by extra judicial means.

6. If we are able to prove to the world (world is watching us), that we ARE NO BANANA REPUBLIC, we stand to gain a lot in our fight against terrorism and shall be able to score a major JUDICIAL victory against our adversaries. Independent trial shall force world to join hands with us to root out the menace of terrorism from this continent atleast.

7. In our own self interests and in the interest of India, Let’s promise a fair trial to the accused.

ATTENDANCE RECORDING DEVICES AS CONTROL ON FRAUDULENT EXPENCE AND TRAVEL REIMBURSEMENT CLAIMS

1. In organizations where there is a weak ethical culture - improper or illegal activity is virtually certain to flourish. Where "tone at the top" is especially lacking, frauds by managers and employees can ultimately devastate the organization's financial health and threaten its long-term viability. Among the most easily-exploited procedures in such organizations are those governing travel and expense (T&E). Some of the ways, the employees claim falsified reimbursements are as follows.:-

Putting up claims for the duties which were never performed.
Putting up claims for excessive mileage travelled.

2. Though the businesses are aware that such issues can come up and they have been making efforts to build some business processes to control them, but, most of the controls are human based and can easily be defeated for various reasons. Such issues cause pain, both to the company and to the employee alike

Proposed Preventive Process
3. In today’s world, most of the businesses have attendance recording systems in terms of photo Identity Cards containing embedded electronic chip, Biometric Cards, Code Punching card etc. Aim of each being – to record attendance and to act as access control devices.

4. These devices can be multi tasked to fruitfully detect cases of falsified Expense and Travel claims as well, if they can be integrated with payroll compensation data ware house, as is given below in simple flow chart :-

CARD SWIPE AT ATTENDANCE RECORDING TERMINAL
↓
SWIPE DATA TRAVELS TO DATA STORAGE DEVICE
↓
DATA TRANSFERRED TO MASS DATA STORAGE DEVICE →ATTENDANCE IS RECORDED
↓
DATA LATERALLY TRANSFERRED TO PAYROLL COMPENSATION DATA WARE HOUSE
↓
AS AND WHEN AN EMPLOYEE PUTS UP A CLAIM FOR LOCAL CONVEYANCE – THIS DATA IS MAPPED AGAINST THE ID CARD SWIPE DATA
5. From the above, if it is found that employee was in his routine place of duty at a date and time for which Expense and Travel has been claimed, the system can reject the claim and the employee can be questioned for the reason for such claims

6. Excessive mileage issues can be tackled by getting the correct mileage from originating point to destination point from publically available data base like yahoo map or google map etc.

PROTECTING THE BUSINESS – LOSS PREVENTION AND INTERNAL AUDIT WAY

Background

1. Major Corporate Houses in India, besides making efforts to design a foolproof business process, spend lot of efforts and money in designing various control teams within a business (major Infrastructure businesses, tyre manufacturers, retailers, auto industry players etc). Invariably, such teams shall consist of Internal Audit Team (IA) and Loss prevention team which is termed differently in different business. It may be called Security and Loss Prevention Team (SLP) or Asset Protection Team or Security and Administration Team or Security Team etc. (to remain in sympathy we shall be terming this team as Loss Prevention Team or LP team). Underlying difference between the two lies in the fact that the talent pool from which they are picked up and thought process in their tasking are different. IA teams draw their manpower pool from Charted Accountants while LP team has members drawn from Security background - be it civilians those who have turned security experts or from Para Military Forces or Local Police or from defence forces.

2. In order to not to mix up the issues, employment of Information Technology Security Team within the business has not been discussed further, despite their having a strong relevance in the current issue of preventing losses.

Current Scenario

3. Indian businesses feel that since these two teams have been drawn from different specializations, their command, control and employment structures also need to be different, despite the fact that both of the teams are trying to protect the interest of the business, however, both employ different tools for the same. Consequently, IA team reporting structure is built around reporting to company CFO while reporting of LP team has a separate reporting channel and report to LP head who in turn reports to the Chairman bypassing the CFO.

The Conflict

4. While both teams are supporting business to remain healthy, the reporting structure entails a serious conflict in employment of these teams by default. In simpler terms it sets of ‘Battle of Turf’. Both teams, though claim, that they are working together for the betterment of the business but still they NEVER SHARE the inputs available with them or share the inputs at a stage when the input holder can proceed no further in investigations. The experience shows that on some occasions major loss could not be detected due to the fact that the LP team did not know technicalities of commercial audit and in some cases, Audit team had the input but did not know what to do beyond identifying the process failures or compliances. In both cases – a huge waste of efforts and resources. Overall, a classical case of LEFT HAND NOT KNOWING WHAT RIGHT HAND IS DOING.

LIMITING FACTORS

5. Internal Audit Team. They are proven experts in their field of commercial and compliance audit. It is also not disputed that they are known to be doing excellent work in protecting the interest of the businesses. Their known Return On Investment to the business is also impressive. Despite their above laurels, they are POOR reader of “INTENT” behind the lapses which they discover as part of their job.

6. This translates into the fact that though the corrective measures, in terms of strengthening of processes is immediately taken, there is no action on “MIND” behind those lapses. The catch comes now, the brain behind such lapses knows that if he has to be successful again, he has to devise some other method to defeat internal controls. In a way, this 'brain' is wiser now, as no action was taken against him and he remains invisible to internal auditors. He will harm the business next time in more intelligent ways.

7. LP Team. This team has expertise in the fields of physical protection of company’s assets, identifying external and internal threats to business, prophylactic security, questioning of suspects, gathering information of malicious activities within the business etc. These teams have also proven record and their achievements can also be talked about in any given business. Though they are expert reader of mind behind a particular loss causing activity, but, they are POOR JUDGE of commercial figures. Most of the time, they do not even know how to read profit and loss statement in a critical manner, because their core competency is different.

BEST OF BOTH WORLDS

8. If a business has to derive the maximum benefits out of employment of these two teams and yet remain cost effective, it has to devise a structure wherein both teams work in perfect synergy without any ego clashes or protecting turfs. The organogram should encourage site level joint audits or as and when one team takes up an audit the other team shall provide required expertise for end to end closure of case.

ADVANTAGES

9. Though, advantages accruing out of such synergized efforts are self explanatory, it is still felt that they be summed up, which is as follows :-

(a) Better cost to benefit ratio to business.
(b) Sharper teeth to auditors and to investigators.
(c) Higher efficiency of controls leading to reduced financial leakages.
(d) Reduced time in detection of loss causing activities.
(e) Dominance of business controls over malicious intent.

BUSINESS BEING RUN ON FAITH = BUSINESS ON FAIT ACCOMPLI

Lot of times during past 22 years I have heard the statements from reputed CEOs that we need to have faith in our employees. Well, it is most desirable to have total faith in our employees talent but, it is altogether a different proposition to build a business model around this thought process. My experience indicates that a business model centring on faith, hoping that all employees shall continue to work truthfully, is a perfect recipe for business disaster. By not having adequate controls in business models, we offer opportunities to most honest talent to turn dishonest. Some of the examples are listed below :-

(a) A store Supervisor shared his password with his subordinate cashier in GOOD FAITH to tide over a minor customer issue at that time. Supervisor never changed his password, as he believed that it is with his team member. Later, it was detected that this cashier (to whom supervisor had provided his password) had misused supervisor’s password ("when one person uses other employees' data to avoid detection") and carried out fraudulent refunds causing a huge loss to the store.

(b) Critical sales data of a retailer was fraudulently shared with competition by one employee for monetary consideration. Independent studies show "50 per cent said they had been the victim of data theft in the last 12 months"

(c) Disputed property was hired on behalf of a company by its employees for personal monetary benefits. The issue of such properties went to court, thereby, preventing company from using the premises which it got hired through its own employees.

(d) System data was found fudged by some remote login for the simple reason that the remote login was made possible due to password sharing done on GOOD FAITH. Even former employee can cause such data loss/ manipulation.

(e) It is known world over that employees in retail sector are responsible for causing approximately $ 98.6 billion every year to retailers.

(f) Vendor caused a loss of million of rupees to the company by employing dishonest means.

(g) In one of the investigations it got revealed that some employees joined hands with dishonest transporter and changed superior quality goods with inferior quality goods enroute from one business entity to another.

THE LIST GOES ON (all of above are issues which have been witnessed / investigated personally)

The experience also conclusively proves that had there been adequate controls in the businesses, all the above could have been prevented or atleast, they could have been detected much before they assumed such gigantic proportions.

The issues listed above conclusively prove that a business can only be run in business like manner, based on system of checks incorporated in various business processes. Any business being run on faith is business designed to be doomed.

Indian Army has a very popular saying, "A task which is not checked is a task not done at all." Well, there is a lot of wisdom in the saying.

Pattern Recognition

One of the most common practice of store employees to defraud retailer is to bring down (Mark Down) the price of merchandise at a level which is much lower than the regular sales price of the product. Mark downs also take place regularly due to various promotional schemes which retailers offer to its customers. Products nearing 'best before date' also needs to be marked down so as to clear the stock before expiry date. In the interest of business, such privileges are also delegated to individual stores. Dishonest employees use this privilege to either derive personal monetary advantage or use it to pass unauthorised benefits to their friends and families. Since the billing is done on POS, the sales would get recorded in data ware house.

To protect the interest of business, it is most desirable that analysis of this 'marked down' data be carried out regularly at back end. That would indicate if marked downs are being done for operational reasons or for personal reasons. Once such analysis is completed then only investigator should visit store for final findings. This flows from the fact that it is highly undesirable that loss prevention / security officer visits stores to detect malpractices. His presence at store is more of interruption to business rather than to expedite the business.

It is obvious from the above, that we need to have as much detailed and focused analysis of data, as far as possible, at the back end so that minimum time of investigator is spent at store.
To help investigators interpret the data, a sample and simple method of recognizing a pattern indicative of fraud, has been discussed in slides below.

Pattern Recognition

Slide 1 This fist picture explains the methodology to narrow down data from millions of entries to few hundreds and then analyze those few entries further.

Slide 2 After having narrowed down the data to few hundred entries from million entries earlier, now the focus is to narrow down further to specific stores.
Slide 3 If the analyst has reached the point as given in this picture, be sure that he / she would be able to home on to the most suspicious entries and the chances are that even sitting at back end, he would be able to clearly discern as to what actions at POS (whether malicious or otherwise) would have led this entry to crop up in data warehouse. 90% chances are that the analyst shall be able to home on that single suspicious data out of whole data – in other words, he / she would be able to find a needle in the hay stack.

There could be many more patterns available to be flagged depending upon extent of automation in the company, type of reports being pulled out of data warehouse and also on experience of the investigators / loss prevention officers to interpret the same. Since it is not possible to discuss all reports and patterns in the given time and space available – a sample analysis is attached.

UNOBTRUSIVE SURVEILLANCE AT STORES

All organised retailers do up the stores so that it attracts customers. False ceilings, glazed tiles, ACs, glass doors, shelves etc - all is done. To prevent shoplifting, the best is to follow each customer - well sounds impossible ???????????????????

Try putting glazed tiles or high reflective material (for example glass) as false ceilings. Store employee standing in one corner of store can view complete store floor by looking at the reflections in this false ceiling, even the actions of dishonest customer who is trying to hide something on person behind some dark spot in store become visible............Live coverage of compelete store --------


Moment customer knows that he / she is continuously under surveillance, that itself deters shoplifting

TRANSIT LOSS PREVENTION

Whenever merchandise is being moved in closed container type trucks, it must be ensured that door hinges of truck cargo section are properly affixed / fastened. It can happen that a mischievous transporter keep the door hinges loose deliberately, thereby helping him to open the door during transhipment without disturbing the 'door seal' which the despatching business might affix to ensure safe transportation of his merchandise.

Even if hinges are properly affixed, it must be ensured that centre bolt holding door hinges is also permanently welded. A loose centre bolt can also be easily removed enroute and merchadise can be taken out without disturbing the 'seal' placed to seal the door.

A dishonest transporter can easily steal / replace merchandise enroute, if the above two issues are not addressed by the business.

CASH REFUND FRAUD

CASH REFUND FRAUD


BACKGROUND

1. One of the most common method of cashier’s fraud in Retail Industry is ‘Refund Transaction’. This methodology causes double loss to the company. First, it causes ‘Shrink’ as the item billed in return sales, does not physically get back to store and secondly, it causes cash loss, as the cost of item billed in reverse sale gets pocketed by the dishonest cashier.

2. Various cashiers have been using different methodology to carry out this fraud. However, each such cashier shall have distinct signatures of his actions – something like – generally, all criminals have an identifiable modus operandi.

METHODOLOGY OF COMMITTING CASH REFUND FRAUDS


3. Article Selection. Generally a dishonest cashier will generally select a few items for which he or she would carry out refunds for his / her personal gains. Such articles are generally the ones whose prices are in rounded off figure like Rs 80/-, Rs 299/- etc. This is required for the simple reason to keep the account simple. If a cashier selects low value item, he / she might have to carryout refunds very frequently, thereby, exposing him / her to risk of being detected. If the article is of high value, the same might attract store management attention to that because chances of detecting missing high value SKUs are more as compared to mid level priced SKU (above example is applicable more to general retailer rather than a brand retailer who might have SKUs of high value.

4. Over a period of time, cashiers get used to carrying out fraudulent refunds of particular group of SKUs. Each such cashier develops a liking for particular SKU because it becomes easier for him / her to remember the bar code and price. If he has spared some shelf edge labels, then he would continue to use the same.

5. Timing The timing to effect such transaction is very crucial. It shall be generally done in one of the following time line :-

(a) At a time when footfall is low at store. In other words, when cahiers have time to themselves.
(b) At a time nearing the opening of shift or towards the end of shift. This is for the reason that they are about to tally the cash and cash drawers would be open by default.

(c) If frequency of such transaction by a particular cashier is few and far between, then, he or she would execute this a day before his / her scheduled off day.

6. Cashier ID . Generally a dishonest cashier would use (steal) someone else’s ID to perpetuate this kind of fraud. This ID could be of some other cashier or that of Supervisor. Executing such transactions in someone’s else’s ID insulates the dishonest cashier (or so he / she thinks) against penalty in the event of transaction getting caught, as the dishonest cashier retains high degree of deniability.

Preventive / Detection Tools

7. The following are tested tools for preventing and detecting this kind of fraud :-

(a) Robust refund policy and ensure strict compliance to same.
(b) Carry out ‘pattern recognition’ of data available in data store house, infact, standarised reports can also be generated for users across the board.
(c) Carry out video analytics.
(d) Develop informers from amongst the honest employees. They should know whom to escalate such incidents.
(e) Appropriate password protection policy.

IMPORTANCE OF EMPLOYEE BACKGROUND CHECKS – PRE ENROLLMENT ACTIVITY

IMPORTANCE OF EMPLOYEE BACKGROUND CHECKS – PRE ENROLMENT ACTIVITY

BUSINESS TRENDS
1. Whenever, a franchisee or an employee is employed or hired, most of the business have very elaborate mechanisms to carry out the following as part of background checks :-

(a) Address verification.
(b) Educational background verification.
(c) Past employment verification.
(d) last salary drawn verification.
(e) Character verification.

2. However, it has been noticed that despite elaborate listing of related processes, a minor slip up somewhere, by design or default, can have catastrophic effect on the business as would be seen in understated issues.

IGNORANCE OF BASIC COMMON SENSE CHECKS

3. Address Verification – Generally it is based on the documents submitted by the perspective candidate in terms either a driving license, pass port, electricity bill, voter card, PAN card etc. However, what is generally ignored that the addresses contained in these documents were correct (believed to be correct) at the point of time at which these documents were issued. WHAT IN CASE THE PERSPECTIVE CANDIDATE HAS CHANGED HIS RESIDENCE SUBSEQUENT TO ISSUE OF THESE DOCUMENTS ? We in business, land up verifying unreliable document ??

4. Remedy lies in the following :-

(a) Photocopies should be accepted only when accompanied by originals and be certified on copy with endorsement “ORIGINAL SEEN AND VERIFIED BY Mr / Ms ………….ON ……..(Date)” and be duly signed by the person verifying the same.

(b) Verify the photograph of the perspective candidate who is being interviewed with the ones which have been affixed on his address documents.

(c) Obtain an undertaking from the perspective employee that he is currently staying at the address about which he is producing a document. In case of change, ask for police verification or some other certification suiting the legal requirement.

(b) In case of employee being hired for critical positions, it would be better if physical checks could be carried out to verify the address.

5. Educational Background - Can a situation be imagined where in a person being hired is not the one who finally joins the company or not the one having the requisite qualifications? THERE HAVE BEEN CASES OF THIS NATURE TOO. Under the current procedures, all important educational certificates from reputed institutions carry a photograph of the student, but, every institute is not doing the same.

6. Remedy lies in cross checking the details with institute whose certificate is being produced as testimony to educational qualifications. Alternatively, other technical details can be cross checked from other related documents like parentage, date of birth, mother’s name etc. Few questions during the interview can lead to detection fraudulent cases.

7. In case of employee having a permanent address at far away place, the verification can be done by sending an ‘Acknowledgement Due’ Registered letter on the indicated address through postal department or through a courier company with instructions to produce proof of delivery to concerned HR team. If that is not possible, then tele verification based on land line number can also be made.

8. In one of the investigated case, it emerged that younger sister was working while the elder one was interviewed and her (elder sister’s) educational records were held with enrolment team. In another case, it was found that the output of employee did not match the job profile and it emerged that he had produced forged educational records.

9. Banking Details (A Case Study). A case was detected wherein an employee (Say Mr Suresh, of current employer but name changed) had produced his salary account, proof of address and company identity to some other bank stating that he is working with that company. Later this employee obtained huge loan and did not repay installments. What happened was that during the process of obtaining loan, he obtained required certificates from his employer. After obtaining this loan, the employee resigned from his current service. On noticing default, the banker which granted him loan approached his known address and were horrified to find that he never stayed there. Later the bank approached the previous employer and it got confirmed that the employer had verified his address on the basis of details mentioned in the PHOTOCOPIES of the following documents :-

(a) Telephone bill.
(b) Driving License.
(c) Ration Card.

10. Since all of the above documents produced by employee at the time of enrollment were PHOTOCOPIES and no one in the process of enrolment thought it fit to examine the original - ALL TURNED OUT TO BE FORGED DOCUMENTS.

11. Experience Verification. It has been noticed with some degree of satisfaction that lot of companies maintain brief record of employee personal and performance data permanently in the system. Such data can help businesses by referring to this data in case such query comes up from future employer of the employee. This system, if adopted across the board by all business, will make all businesses a healthy place to work in, without business heads worrying of enrolment of fraudsters.

CASH SAFE AND KEY MANAGEMENT

CASH SAFE AND KEY MANAGEMENT


General Business Process
1. Retail business including bulk sales and all other businesses have a necessity of managing day to day cash, cash coupons and cash vouchers of various forms. Businesses invest heavily on procuring hardware, software and other guarding devices to securing such cash and valuables which gets collected every day. The general principles, on which the business models are designed for such protection, are as follows :-

(a) Install cash safes at appropriate locations.
(b) Suitable business processes for safe custody of cash and cash accounting process.
(c) Suitable cash pick up/ cash banking model.
(d) System checks.
(e) Requisite electronic security measures.

2. Experience shows that any lacunae in any of the issues as discussed below can lead to recurring cash losses with inability of the business to pin point the blame on any individual or group of individuals.

Locks and Key Management

3. Generally, there are two keys for a lock and that for cash safe, In some cases, locks have four keys. It has been noticed that in some instances, keys of the all locks are same ie they are interchangeable, implying that any lock can be opened with any of the similar key like that of POS. The following considerations while designing the business process, for key management can reduce the risk of cash loss / misappropriation by malicious minds :-

(a) While negotiating with vendors / while procuring locks / Points of Sales counters (POS) cash tills – ensure to incorporate the clause in deal that it is the duty of vendor to ensure that keys are not interchangeable.

(b) In case that is not possible, then operating procedures should define that all such surplus keys are counted and deposited with some designated authority in his safe custody. Ownership of custodian of operational key should be defined.

(c) Generally, it is spelt out in the business process as to who is the custodian of “Duplicate” keys of locks and safes. However, such listings of responsibilities is sketchy at best. They do not lead to tracing the ‘Key movements’ which is required to be done in the investigations into reported losses. Any loose end in this process shall disturb detection of chain of events leading to such losses.

(d) Amplifying further, for example, if the duplicate keys are not certified to be held correctly periodically, it would become extremely difficult for investigators to ascertain as to when the keys were physically counted and by whom. Hence, pinpointing period of loss of such keys becomes difficult to the extent that it can block further investigations.

(e) Under no circumstances the process should lead to multiple ownership at any given point of time. Ownership of original and duplicate keys must be fixed to individuals at all times and that too separately. In case of original owner is absent from duty for some reason or the other, the process should dictate the proper handing / taking over by current custodian / next custodian.

(f) In lots of cases, it has been observed that employees resort to shortcuts in handling of keys. It should be a matter of serious concern to the business that keys are routinely passed on to unauthorized employee on the plea that the authorized employee is not available due to some business reasons. Hence, to facilitate smooth business operations, the keys get handed over to next employee. It is also an unwritten fact that in such cases, the seniors are aware of such practices in their business but they choose to ignore such deviations – at their peril till such time a loss is reported. IF A PROCESS LAYS DOWN CERTAIN ACTIONS TO BE DONE IN A CERTAIN MANNER – IT MUST BE DONE THAT WAY OR NOT DONE AT ALL. In case of serious business issues, the deviations must be reported and proper checks must be spelt out in risk mitigation process to overcome such eventualities.

4. The issues listed above, though, might give an impressions of their being trivial in nature, but, if the loophole exists – be sure that it shall be exploited sooner or later and that would have crippling effect on business. More so, because the investigator shall not be able to pinpoint the blame on any individual for the loss.

Cash Safe

5. Why do we have the requirement of lock or cash safe ? What kind of lock or cash safe is ideal for the business? The basic aim of provisioning of cash safe and lock is that, the thief should not be able to walk away freely with our cash / valuables. To prevent this, we have locks, safes, physical barriers and other electronic systems in place TO DETER THE POTENTIAL THIEF AND IN CASE OF ACTUAL ATTEMPT TO STEAL AWAY, THEN SUITABLE RESISTANCE MUST BE OFFERED KEEPING IN MIND THE REACTION TIME OF THE PREVENTION TEAM, be it own internal department or law enforcing agency.

6. From the above, it logically flows that while designing a process and procuring equipment, the business must be conscious of the fact as to how much of delay potential our systems and hardware should impose on potential thieves – measurable in term of time. For example, we know that our first reaction can take in 30 minutes of time ie the time at which physical reaction can be possible by business team – then it is imperative that our cash safe, the locks and other barriers in place be of such specifications that they offer resistance to thieves for 30 minutes, at least, and in the meantime our reactions shall be in place. That would ensure safety of our cash and valuables. In case of internal thefts, the same should be preventable by suitable business process.

PATTERN RECOGNITION - EFFECTIVE TOOL TO FIGHT MALICIOUS INTENT

EFFECTS OF DATA PATTERN RECOGNITION


BUSINESS BACKGROUND

1. Most of the organized retailers are alive to the situation of possible fraudulent refund transactions but still they have to caters for two aspects as part of refund policy :-

(a) Customer satisfaction – ensuring that in case of defective product being sold from their shop, the customer should have a hassle free refund for this defective product.

(b) To cater of wrong Billing – in case of wrong billing to customer, there should be a process to reverse the sales and refund the amount to customer.

2. Generally the Standard Operating Processes, designed by the businesses, have the following thought process to exercise controls over the refund policy :-

(a) Refunds are time bound ie no refunds after stipulated time line.

(b) Refund being sought should be supported by original bill of sales.

(c) Refund process should be supervised by store supervisor as a check on cashier.

(d) Periodic checks on refund transactions by store managers and city heads.

DETECTION OF FRAUDULENT CASES BY DATA PATTERN RECOGNITION

4. In the event of failure of all of the above checks (quite common and frequent), pattern recognition of available data can indicate possible fraudulent refund cases.


5. During day to day activity at store levels, huge sales data gets captured by the system and is stored in data ware house. That would include data on return sales, by default. The following data can be listed out in appropriate layout to assist data interpreter :-

(a) Data on bills having negative value.
(b) Data on bills having sale reversals within a bill.
(c) Data on sale reversal for a particular store along with the last time this article was sold from store (for which sale reversal was affected).

6. Every fraudulent mind has a set pattern and no two fraudulent minds (if not planning jointly) would resort to same means to derive personal benefits through fraudulent activities. In the instant case, there could be following set of pattern emerging from the data analysis, which could be indicative of a possible fraud :-

(a) A cashier could be most comfortable in carrying out fraudulent refunds of high value SKUs only.

(b) It could be that a cashier is comfortable carrying out refund at specific times only ie at times when there is least customer presence or a time nearing the shift end or at time when store senior staff is not present at store etc.

(c) Periodicity of refund transaction is one of the major indicators of possible fraud.

(d) A cashier could be comfortable in affecting refunds for articles never sold during the permissible time line.

EFFICACY OF PATTERN RECOGNITION ( AN EXAMPLE)

7. Data in requisite format was pulled out for the period of 30 days for one particular state. It was compiled so as to have a HISTORICAL perspective. On applying required filters, it emerged that in one particular store, there was repeated negative sales of certain staples (all of them used as ingredients for preparation of SOUTH INDIAN DISH). The data was analyzed in following phases :-

(a) The analyses indicated that a particular cashier ID is being used to carry out sales reversal for these SKUs (ground verification later proved that this cashier was of South Indian Origin).

(b) The refunds were being affected between 1400 hours to 1445 hours. (shift duty of this cashier was upto 1500 hours). Reversing sales of particular SKUs nearing end of shift timings indicated that it was not customer related refund case.

(c) Further analyses of data proved that sale reversal was happening for continuous 6 days, with no sales reversal of these SKUs on 7th day. This was due to the fact that front end cashiers have a day off after 6 days of duties.

(d) For the period under review, it emerged that for 2 consecutive days, there were no sales reversal for such SKUs from this store indicating absence of this cashier during these days (it got proved later that he was on leave during those two days).

8. Armed with this analyses, the Security Team visited the store and it got verified that :-

(a) There were no customer dockets to support such refund transaction (Supervisory checks incorporated in SOP failed to detect this anomaly).
(b) This South Indian cashier was the only one involved in carrying out refunds of the articles in question (it got proved that there was no customer/ quality issue related to these SKUs. Had that been the case, other cashiers would also be forced to carry out similar transactions – but that was not the case).

(c) On being questioned, the cashier explained that he used to spare Rs 100/- everyday by this activity and also take home the SKUs for meals.

VENDOR FRAUD

TAXI VENDOR FRAUD


BUSINESS PARAMETERS

1. Generally the companies follow the following business process / Standard Operating Procedures with regard to hiring of taxis for company executives :-

(a) Vendor development shall be a routine activity and at any given instance, the business should avoid monopoly by any single or cartel of vendors.

(b) In case of vehicles being hired (Taxi) from the vendor for company’s designated officials, the following parameters shall apply :-

(i) Administration Deptt shall obtain business approval for hiring a particular vehicle indicating the person for whom it is hired, the duration of hiring and the type of vehicle to be hired.

(ii) On receiving the approval, the Administration Department shall call for quotations from different vendors.

(iii) Lowest bidder shall be given the business keeping the quality of the services in mind.

(iv) In the case of monthly hired vehicles, specified contractual monthly rates shall not be exceeded.

(v) There shall be a log book (containing Km reading at start of duty, Place from and to, Km reading at end of duty, Total Mileage done, duration of duty etc) maintained for each vehicle and the same shall be signed by the user every day. Details mentioned in the log book shall be deemed authentic and vendor shall be paid accordingly.

2. The present issues involve all or some of the above business processes and how their violation effect the company. Such violations have a telling effect on the company bottom line. Details of the same are narrated in subsequent paragraphs.

THE DETECTION OF POSSIBLE AVENUES OF VIOLATIONS OF ABOVE PROCESS

3. During one of the routine conversations with internal administration department, the discussions revolved around vehicle hiring process. It emerged that every month the vendor is paid out for much more mileage than what is routinely contracted for. For example, the vehicles are contracted at specified rates for 3000 kms per month, vendor would claim for about 4000 Kms and was paid out accordingly. It also emerged that such vehicles are hired for officers of the rank of AVP and above (in exceptional cases for official of lower designation also). Later the topic got changed but this casual remark set the investigators thinking.

4. The following implications of above inputs were evident :-

(a) The contracted mileage translates into vehicle being hired for doing 100 Kms per day for all 30 days of month including on Sundays and Holidays.
(b) The level of officials for whom such hiring is done are generally ‘Office’ bound. Though, out station supervisory visits are also common.

(c) Just to cross check the facts, it was found that they did not attend office on the following days of the month :-

(i) On Sundays and Holidays (Four days deducted from 30 days of calendar month).

(ii) They remain on outstation tour for 3-4 days a month (another 3-4 days deducted).

(iii) It implied that on an average, the vehicle must run for 136 Kms every day, just to reach the contracted mileage of 3000 Kms per month. For being eligible to claim for 4000 Kms the vehicle should run about 180 Kms every day.

(iv) Travelling this distance in place like NCR, it would require about 4-5 hours of travelling every day.

5. Generally the vendor was regularly claiming to have exceeded the contracted mileage, the above analysis warranted a detailed inputs as to how this was being done and being claimed.

THE PROOF

6. Some leg work was involved in terms of visiting various local taxi vendors. The guise taken was that we are also the ones looking up to set up taxi services in their collaboration and wanted to learn the tricks of trade. Efforts paid off when during one such visits, one of the established taxi vendor taught us the trick. He claimed that there are gadgets which can inflate the kilometres being done by the vehicle even when the vehicle is stationary. On further insistence, he directed us to a particular local market in Delhi, where such gadgets are available. The term used for such gadget was ‘FIRKI’. Installing FIRKI would enable our taxi driver to inflate the mileage of even stationary vehicle.

7. Next logical step was to visit the local market and see for ourselves the indicated gadgets. The shopkeeper was more than eager to help us in correct selection based on the kind of speedometer our vehicle is fitted with. He explained as follows :-

(a) Vehicles With Digital Speedometers. For such vehicles the device required was digital FIRKI. In that a small gadget is fitted under vehicle dash board with a hidden switch. The switch is not visible to unsuspecting customer. The device draws current from vehicle battery and is connected to speedometer. Under normal circumstances, when the vehicle moves, the original speedometer gets electrical impulse in proportion to vehicle speed, which makes the speedometer record the inputs. However, this device (FIRKI) also does the same thing but in stationary vehicles. When the switch of the device is switched on – it provides the impulse to vehicle speedometer thereby making it record speed and Kms. The cost of such device is Rs 250 to 350 depending upon type of vehicle.

(b) Vehicles With Gear Type Speedometer. Vehicles of older version are fitted with gear type speedometers. In such vehicles a small modification is carried out to fit additional gear. This gear makes the speedometer move. The additional gear has an attached cable whose open end is conveniently accessible to driver. When the vehicle is stationary, all that driver needs is to rotate this extended cable to make the speedometer move and record additional Kms of stationary vehicle.

8. In such a way, the vendor was able to artificially inflate the kilometres of vehicles and claim on such inflated mileage. Such vendor was able to cause a very heavy loss to the company by resorting to dishonest means.

9. Lessons Learnt. Though the laid down business process / Standard Operating Procedures are apparently strong and foolproof but still they failed due to the following reasons :-

(a) Generally, a strong comfort zone gets developed between the vendor and administration department. The reasons are simple – the vendor will not like to loose client and administration persons are saved efforts to cultivate some one new. This relationship is obvious fall out of lack of supervisory controls.

(b) Vehicle users (Senior Officials of the company) generally feel that it is below their dignity to verify the Kms being recorded in log book and being signed for by them. The drivers were also smart, they never presented log book for signatures at end of day. Instead, they used to present the same on periodic basis. More diligence by users would have prevented the loss.

(c) Checks by administration department and commercial department while scrutinizing the bills, were given a ‘go by’ thinking it to be a routine affair rather than part of their serious duties. Basic common sense checks by them could have helped in detection at early stages.

WHEN THE FENCE STARTS EATING THE CROP

FRAUDULENT MARKDOWN, SWEET HEARTING AND INTERNAL THEFT

BUSINESS PARAMETERS

1. With regards to check fraudulent mark downs, cases of sweet hearting and internal theft, a retail business modelled on SAP usage, would generally design the following parameters :-

(a) If it is a franchisee model, then losses up to certain level would be recovered from the franchisee.

(b) Mark downs shall be permitted on STAND ALONE bar coding machine as controlling it centrally on portal basis is not only prohibitive in cost in a large chain, but, also due to the amount of data handling, it cannot be handled centrally.

(c) Certain conditions would be laid down to monitor mark down process.

(d) To control sweet hearting, retailers would implement sound security policies entailing additional cost in infrastructure like CCTVs, posting of security guards etc.

(e) Effectively monitor shrink levels at front end.

2. Evidence suggest that despite stringent controls laid out in the SOPs of the business, a fraudulent mind shall try and remain a step ahead of business controls.


VIOLATIONS TO ABOVE PROCESSES

3. Case No 1 (Fraudulent Mark Downs) Though the business process lays down adequate checks to control this activity, but, it has been noticed that the supervisory functions fail at relevant time by design or default. For example, there is a motivation for franchisee to get involved himself / herself in this act for the following reasons :-

(a) It is known fact that by resorting to dishonest practices, he lands up earning more than what he would be paying as compensation to losses.

(b) Though, the processes lays down adequate checks in system in terms of data monitoring but it has been experienced in Indian conditions that :-

(i) There are no data analyst (pattern recognizers) placed suitably to detect such cases.
(ii) There is a serious mismatch between the revisit capability of Security and Loss Prevention team at stores. Ideally, all such cases should have been detected during the period that contains original recordings and those recordings are not overwritten. For example, if the CCTV recordings are available for 10 days, then the loss prevention team should be able to analyse all transactions within this span of time to cross check their findings, otherwise, the data would get over written and would be lost forever.

(ii) Shrink figures can be dressed to look attractive as is exemplified in separate blog on the subject.

(iii) Printing bar code labels for such markdowns on stand alone machines is a serious business drawback and can only be controlled if suitable reports are generated based on data available in data warehouse.


4. Case No – 2 (Sweet Hearting) As routine matter, all major retailers have installed CCTVs to deter the cases of sweet hearting. But, that is only half job done. The efficacy of such centralized CCTVs is best demonstrated when used as “preventive tool” rather than “detection tool”. It implies that CCTVs should be continuously monitored from back end and FRONT END TEAM MUST HAVE A FEELING THAT THEY ARE BEING OBSERVED CONTINUOUSLY. That is best achieved when back end team constantly keep feeding inputs to front end team in total synergy of efforts.

5. It is a proven fact that over a period of time, if the most honest person is constantly conveyed a fact that dishonest person is getting scot-free continuously, there is hardly any incentive left for people to remain honest.

6. Case No –3 (Items being taken away from exit without bill). Such instances are not a figment of imagination, but, a fact of life in present day scenario where in the deployment of Security Guard conforms to more of fashion trend rather than a preventive tool. This can be best avoided if suitable contract is signed with service provider indicating that the agency would be suitably fined should their Security Guard be found indulging in such malpractices. HAVING A SECURITY GUARD WITH NO CONTROLS IS MORE DETRIMENTAL TO BUSINESS THAN NOT HAVING A SECURITY GUARD AT ALL.

RECOMMENDATIONS
7. The following are recommended :-
(a) Suitable reports can be generated from the available data in data warehouse, which could be used to discern a pattern and establish the prima facia case.
(b) Security and loss prevention team should have a revisit capability depending upon the time
for which recordings in CCTV storage device are available.
(c) Suitable data reports be generated to discern if shrink figures are being dressed up or not.
(d) Exemplary fines be imposed on security agency providing security guards in the event of
their guards being found guilty of acts causing loss to the company.
(e) Build a culture of honesty in business. It is best done by talent transformation team,
continuous sharing of experiences by security team and rewarding he honest employees.

DRESSING UP OF SHRINK FIGURES


BUSINESS PARAMETERS

1. An organized retailing business using SAP for inventory management, would design the following parameters to measure shrink (ie what inventory it is physically holding measured against what it ought to have as per books – negative variation is termed ‘Negative Shrink’)

(a) At stipulated intervals, it would carry out physical count of all its merchandise at its business site. That data would be then uploaded in SAP, which shall then generate data on ‘Overall Shrink’ (in terms of monetary values and also by individual articles).

(b) All Goods Receipt Notes (GRNs) have to be closed before a physical count document is generated.

(c) Once the physical count document is generated from SAP, it would give current book stock against each SKU. Thereafter, a physical count of all SKUs is taken separately and is posted in SAP. SAP would then calculate negative and positive shrink.

(d) Overall Shrink is the cumulative effect of ‘Negative Shrink’ and ‘Positive Shrink’.

(e) ‘Negative Shrink' will get thrown up by the figures of Physical inventory count, wherein, the articles that have physical count less than that of book stock would get posted as negative shrink. Their monetary values shall also be reflected in negative.

(f) ‘Positive Shrink’ will get reflected in the system, when the physical count of a particular SKU is more than what is given in book stocks. Its monetary value shall be reflected in positive.

(g) BOTH THESE FIGURES COMPENSATE EACH OTHER WHEN FINAL SHRINK FIGURES ARE ARRIVED AT.

EXPERIENCES ON THE PROCESS

3. Experience indicates that the Negative Shrink and Positive Shrink come up due to one or the following factors:-

(a) Negative shrink can come up due to one or combination or all of the following :-

(i) Malicious Intent (Internal and External) ie SKUs getting stolen by internal staff or customers.
(b) Non Malicious Issues – could be problems in supply chain, wrong deliveries, wrong documentation, process issues, due to wrong physical count etc. etc.

(b) Positive Shrink can come up due to one or the combination or all of the following :-

(i) Malicious Issues – when the operations team deliberately decides to dress up shrink figures (wanting to project lower shrink figures when actual shrink figures are higher).

(ii) Non Malicious Issues – ie when mental intent of operations team is not to fudge but it has happened due to some errors like – wrong deliveries of merchandise to some store whereas they were actually meant for some other store or due to procedural lapses or due to wrong PI count in previous cycle or due to errors of omissions in supply chain or due to the fact that material is in transit ie it has been physically received at the store but document has not been closed in SAP.

4. Experiences show that when there is a pressure on operations team to control negative shrink, they could devise means to post positive shrink, with an aim to effectively off set negative shrink.

PREVENTIVE MECHANISMS

5. The following business process is suggested to discern if the operations team is resorting to dressing up the shrink figures :-

(a) Carry out a test PI count. That could be done with the support of data exported to Microsoft Excel which can randomly pick up articles as per defined parameter. Such a process shall impose caution of store team and improve their efficiency.

(b) Data warehouse can be designed to carry out pattern recognition and be suitably designed to pick up abnormalities in historical perspective.

(c) There needs to be dedicated PI Count teams which should be staffed by different stake holding teams like, it should have members from store, commercial, internal audit and loss prevention team.
(d) Under no circumstances, store holder should be tasked to carry out PI count process all by himself.