By D. J. (Skip) Lamoureaux, President



Loss prevention in the retail industry is concerned with the

disappearance of merchandise and currency. Most retail

establishments take a physical inventory annually, while some

do it semiannually. When the count is completed, the difference

between the actual inventory on hand and what it should be

according to purchase and sales records is called shrinkage.

The causes of shrinkage are recognized as employee theft,

shoplifting, and paperwork error. Other reasons for business

losses, such as robbery, burglary, and vandalism, are separate

problems. Shoplifting and internal theft are actually untold

numbers of separate incidents of larceny adding up to billions

of dollars of losses which are not listed in crime reports, except

for the relatively few cases where arrests are made.

Even though shoplifting is more often publicized than employee

theft, security experts are of the opinion that the in-house

thief is responsible for at least 50% of the shrinkage.


The retail industry attracts many unskilled people who work for

minimum wages. Whatever the motivation, a fair percentage of

workers succumb to temptation and steal. Many of these employees

can be persuaded or prevented from stealing. Positive programs

of employee relations built around fair compensation, proper

surroundings, and employer-sponsored activities can improve morale

and concern for the success of a company. The only way to reach

some employees is through a highly visible security program and

a rigid company policy of prosecuting any employee caught stealing

Prevention of theft requires simple but sophisticated systems for

handling merchandise and currency, which not only deter but

which leave a trail of documents when any stealing takes place.

One important step that industry can take to prevent or reduce

internal theft is to avoid hiring the potential thief or problem

employee to the outset.


When applying for a new job most people are requested to provide

some details about their education and work experience. It is at

this state, before an individual is hired, that industry must

make the effort to determine whether or not the applicant may

pose future problems, including dishonesty. Pre-Employment

Investigations are very important and highly recommed.


The Civil Rights Act of 1964 and other laws aimed at guaranteeing

equal employment opportunities for everyone have directly affected

the amount of information that an employer may request from a job

applicant. Questions about age, health, marital status, arrests,

religion, and race cannot be asked. While it is permissible to

ask about criminal convictions, it may be discriminatory if the

criminal activity in question is totally unrelated to the job

environment and if the conviction itself is an absolute bar to



Such background information is usually not available to employers.

Most police departments are prohibited by law from disseminating

such information outside of official channels. Federal law

prohibits any criminal justice agency that receives federal funds

from supplying such information. In spite of the foregoing, such

data very often does "leak out." Many Private Investigators having

access may supply this information with a consent release form.


It is standard procedure to make inquiry from previous employers

regarding the job applicant. Since it is rare to get other than

positive responses, the reliability of such information is to be

suspected and weighed as a factor with other sources.


A background check may be done in-house or through an outside

agency. However, since the job applicant is not required to

supply very much personal information these days, it may be

necessary to seek other sources. There are extensive accumulations

of private information about individuals who have credit cards,

bank accounts, hospital records, former employment, or paid taxes.

Obtaining such data may present problems with accuracy and

invasions of privacy. Many firms consider it foolish and useless

to pursue these sources, relying instead on the frankness of

personal references supplied by the candidate, which is not a very

good way to run any business.


Financial information about any individual is ordinarily not

supposed to be disseminated except in connection with credit

applications. Since the credit standing of anyone is a good

indicator of stability and other traits, there is no doubt that

such information is often sought as part of the screening

process. In our metropolitan areas, the major retailers have

for many years participated in mutual protective associations

where they maintain central records of their shoplifting and

dishonest employee cases. These files are used by the member stores

as part of the screening of new employees, as well as a background

source when deciding the course to pursue with an apprehended

shoplifter. Since these files fall within the jurisdiction of the

Fair Credit Reporting Act, they must be continuously purged of

any data that is over 7 years old.


Retailing is one industry that uses the polygraph to a significant

extent both for screening applicants and investigating suspected

crimes. The continued use of the polygraph in industry has

come under attack in the U.S. Congress and state legislative

bodies during recent years. Today, some 15 states either limit

or entirely restrict such testing. Conversely there are 19

states which officially recognize the polygraph as a necessary

tool for commercial purposes, and they have enacted licensing

and regulatory laws.

Herewith listed are some of the arguments that have been advanced

by both sides in the controversy over the polygraph:

1. The value of the polygraph

a.Reasonalbe to administer

b.Fast results

c.Licensing generates confidence in examiners and in credibility

d.Dependable findings in most instances

2. Obstacles to use of polygraphs

a. Claims that it is self-incriminating

b. Violates right of privacy

c. Unions oppose and advise members not to sumbit to testing


In recent years voice-stress measuring devices have been used

with success in that they have shown strong correlation with the

polygraph in their results. Opponents of lie-detection devices

have been active in opposing the use of such instruments on the

grounds that they are particularly incriminating, since they can

test for stress in the voice without the subject being aware

of it. This stress is the result of physiological changes in

the voice. The results are unlike voice prints, which are used for

other purposes. There are also a number of paper-and-pencil

tests available which are designed to predict or measure

trustworthiness and stability. The continued increase in the

rate of employee dishonesty has created a vast market for any

form of test that can offer reliability in spotting poor-risk

applicants for jobs, But remember some states restrict testing.


The extent of employee theft can only be approximated since

inventory shrinkage reflects the losses from all causes. There

are so many ways that merchandise can be stolen by employees

that the imagination is the limit. The most successful way to

combat such theft is to prevent or discourage it. A concerned

company must have thorough systems of control and accountability

over merchandise from the moment it is received through the

various stages of preparing it for sale, displaying it to shoppers,

and finally handing it over to delivering it to the purchaser.

Rigid adherence to these controls requires dedication by executives,

supervision by middle management, interest and concern by staff

employees, and some security presence as a form of insurance.

Measures that should be taken to prevent some of the common means

that employees use to steal merchandise are mentioned later. Some

of these measurers require the employment of security personnel,

and oftentimes their use results in direct observation of attempts

at theft.


Wherever possible, employees should be required to use a

designated entrance when coming to or leaving work. In large

establishments this is usually the case. Locker, cafeteria, and

lounge facilities should be located in close proximity to the

entrance. The time-clock area should be set up between these

facilities and the store proper. A security person should be

posted here. Personal parcels and overcoats, and so on, should

not be carried into the selling or stock areas. Anything that

is carried through the time-clock area should be subject to

inspection. Female employees may be supplied with a clear

plastic purse for personal articles they wish to have with them

at work. Employees should be encouraged to keep small valuables

and money on their person. The right to frisk and even search

may be reserved by a company under certain conditions. The

employment application should so state, the requirement should

be publicized and fully explained, and this practice must be

enforced in a nondiscriminatory manner. The rule should also

apply to repair workers, contractors, salespersons, and others

who enter the store through this area.


Maintenance people and porters who must work within the store

during non business hours should be accompanied by security people.

Plainclothes detectives should occasionally be assigned to conduct

observations of such work.


A favorite method of theft is to hide merchandise among the

refuse before it is removed from the store. This material must

be carefully inspected before it is removed.


Employees can find remote corners to idle time away or to hide

stolen merchandise on their persons. Very often they will discard

their own articles of clothing and wear the pilfered items in

their place. Once the price tickets have been removed, unless

there is a direct observation, proof of theft is difficult to

establish. Whenever possible the stockrooms should be kept locked

as a security precaution and as a means of keeping employees on

the selling floor to improve customer service. Employees should

request identification of any persons entering stock areas who

are not readily recognized.


All doors should be equipped with strong tamper-resistant locks.

Where there are many doors within a structure a master key system

with changeable cores is recommended. Access to various areas

can be provided on an individual basis according to job require-

ments. Employees should be cautioned to safeguard their keys. In

the event of a lost key it may be necessary to change some cores.

This is relatively inexpensive when compared the changing locks or

cylinders. All keys should be collected and accounted for at the

end of the working day, except for those which are used to close

and open the premises. There are many keyless access control

systems available today which offer computer-related features

and technology.


Boxes, packages, and bundles of merchandise may be placed in various

places to be later taken away by the employee or a friend. Such

packages may be found in secure places on the selling floor. If

refuse is not thoroughly checked, the garbage containers may

become frequently used for such thefts. When such caches are

discovered, the recommended procedure is to establish surveillance

over the suspected packages.


A favorite method of "theft" that most employees regard as

practically guiltless is to purchase articles at self-determined

discounts. Marking down the price of merchandise at the proper

time is an important factor in successful retailing. When

markdowns are taken, various records must be adjusted to reflect

the lower value in the inventory records lest a fictitious

shortage be created. Those employees who desire an item at the

height of the season, and certainly before discounts are in order,

create their own price changes in one way or another. One way

to discourage such activity is to frequently inspect goods that

are held or laid away for employees. Alert sales people or

cashiers may spot such price changes, but it may not be practical

to expect them to deny the markdown to coworkers.


Platform and shipping employees can falsify the various receiving

and delivery documents. Sometimes this is done in conspiracy

with truck drivers. Incoming shipments should be physically

counted and verified against the accompanying documents. Receipts

given to delivery people should indicate any shortages found.

Shipments should be verified again for completeness when they are

unpacked and processed for the selling department. Valuable or

easily concealable items should be transferred in security bins

or racks. Test counts can be done randomly as a security

measure. The documents which match the merchandise must be checked

for detail, particularly as to retail price. Incorrect ticketing

will create shortage whether it is mistakenly or deliberately done.


Large companies may have one or more warehouses where incoming

merchandise is received for storage and transshipment to retail

outlets. Sometimes the ticketing operations are done in such

warehouses. Theoretically, a warehouse should be easier to control

than a store from a security viewpoint, since the environment is

closed to the public. Truck drivers should not be permitted

within the warehouse. Separate facilities should be maintained

for them outside the perimeter, where feasible. Receiving

platforms and shipping platforms should be physically separated.

Cargo documents and purchase orders should be matched, so that

proper bookkeeping is ensured. Cargo areas of trucks should be

locked and sealed when transporting merchandise. Drivers should

not have access to the goods. It is a good idea to inspect the

trucks from time to time to ensure that they are sound. Within

the warehouse there should be separate storage facilities for

merchandise which is most often or easily stolen. Such areas

may be specially safeguarded with locks, alarms, or even closed

circuit television. If possible, management should reserve the

right to search packages and persons. Typical warehouse

environments are conducive to such activities as organized

gambling or narcotics selling. These practices can easily lead

to necessity for theft. If the pushers and bookies can be

singled out, efforts should be made to discharge them. This type

of problem is never permanently solved. If management does not

stay alert, it will shortly return.


The theft of cash also presents a major problem to the retailer.

The case thieves are ordinarily those persons whose jobs require

them to handle money.


Without a program of prevention, there are numerous opportunities

for cashier theft, among them the following;


Proper and adequate investigation is hampered by frequent

employee turnover in retailing. Very often, by the time a

particular pattern of shortage is detected, the guilty individual

is gone. Some investigative procedures which may be used

according to modus operandi follow:


The integrity of cashiers can be tested by means of "honesty

shopping." These tests are conducted by specially trained people

who pose as customers. Shoppers may be in-house or contracted

from an outside service. Shoppers operate in different ways

according to the type of registers in use and the way a store may

conduct cashiering operations. One method is to shop as many

cashiers as possible with the expectation that dishonesty will

be detected. Another approach is to select as targets principally

those cashiers who may be suspected for one reason or another.

For example, many stores maintain ongoing records relating to

individual cashier performance. Those cashiers who are consistently

over in cash may be creating the surplus so it can be pocketed.

Additionally, shoppers may be given leads by supervisors or

other store personnel.


The basic test in any integrity shipping operation is the "even

money buy." All other tests are built around this one. The

shopper selects an item and pays for it with the exact amount

plus the tax. The idea is to afford the employee who takes the

cash an opportunity to pocket it. Therefore the shopper must be

in a rush and have no time to wait for a receipt or normal

wrapping. In stores where the cashier function is separate from

the sales function, an "even Buy" is a bit more difficult to

accomplish. An element of successful shopping is the ability

to later identify the documentation of the "buys" on the register

tapes or other sales records. This is accomplished in several

ways. The sale previous to the "buy" may be observed by another

shopper. Sometimes and "identification buy" is made after the

test buy, but only if the cashier has done something irregular

or suspicious.

The "uneven buy" requires that the cashier make change. This

buy is made by shopper number two whose principal function is

to observe how the money from the "even buy" is handled. The

"even buy" may be part of a "double buy," wherein the shopper,

on being handed the change from an "uneven buy," suddenly

decides to make an additional purchase. The shopper suggest

putting the item in the same bag, hands over even money, and

leaves. There can be many variations of these buys. In an

"exchange buy" the shopper hesitates in selecting between two

items. Finally, the cheaper one is chosen and paid for, but at

the transaction is completed the shopper changes to the expensive

one, pays the difference and leaves. Shoppers should mark their

"buy" money or record the serial numbers in advance so that

proper identification can be made of the evidence later on.


A special area for handling and storing cash may be necessary in

large stores. Cashiers are usually supplied with working funds

which are turned back at the end of a shift along with money

received from purchases. The constant counting, disbursing, and

receipt of cash often creates shortages that are temporary

or permanent. While error in these operations may be common,

the theft of money by the employees is not rare. Money rooms

should be well constructed and burglar-resistant, if not

burglarproof. Alarms should protect the perimeter, the inside

area, and the safes. Holdup buttons should be strategically

situated. Routine operations should require at least two

employees in the room. Premployment screening should be

particularly thorough for such employees.


Following are some procedures for solving shortages originating

in the money room.


Most retail stores have a fairly liberal policy of allowing

merchandise to be returned and of refunding the purchase price

by either cash or check. In some stores the refunding is done

through the selling department, where the merchandise, the price

ticket, and the sales receipt are examined and authenticated.

An authorization for the refund is issued at that point and given

to the customer, who presents it at a service desk where the

approval is issued and payment made. If price tickets or

receipts are not presented with the refund request in such

centralized operations, the customer is usually directed to the

selling department for verification of correct price. There

must be at least two employees directly involved in any refund,

one for examination of merchandise and approval and a second to

make the payout. Procedures must be established to constantly

monitor payouts against related documents and merchandise.

Deviations from these systems may be indicators of dishonest

employees. Price tickets should be found properly attached to

merchandise according to company practices. Data on these

tickets should match the merchandise being returned. Many

people switch to higher price tickets when seeking refunds.

Employees, in particular, can do this in comparative safety,

since they usually know what sort of information will be

accepted as legitimate for certain merchandise. It is advisable

to maintain records of refund activity for each employee for

possible detection of abuses of the system. Computers can

provide such facts to auditors and security departments at

periodic intervals.

There is an ongoing problem with safeguarding small items of high

value from employee pilferage between point of refund and return to

selling departments. Control records must be maintained for such

items and special locked storage facilities provided. Supervisors

must make daily inspections of records and facilities and see

to the secure in-store transfer of the items. Since the refund

operations are particularly vulnerable to employee dishonesty,

particular care should be taken in personnel selection. Temporary

vacancies due to illness or vacation should not be haphazardly

filled. Proper and adequate training of all employees involved

in the refund procedure should be rigid company policy.


It is necessary to adhere strictly to legal requirements when

detaining an employee suspected of theft. Hiding money or

merchandise within the store or on the person is reasonable

evidence of intent to steal. Very often, however, the suspect

may offer some farfetched excuse for so doing, and the prosecutor

or the court may be of the opinion that a reasonable doubt exists.

The safest course of action is to wait until an attempt is made

to remove the property from the premises. The arresting employee

should be an eyewitness to the actual commission of the crime.

A rigid policy of prosecuting all employees caught stealing

usually has a deterrent effect on others. Once an employee has

been detained and accused of theft, the situation should be

construed as an arrest. If there is no intention to prosecute,

the investigation should be conducted without delay in an efficient

manner. The investigation should terminate with a signed confession

and a release against the company and its employees. The suspect may

be frisked or searched in order to recover the stolen property.

If the complaining employee has done the proper job of witnessing

the theft, the recovery of the evidence should not pose a problem.

If the detained employee is to be prosecuted, the police should

be notified at once and the investigation conducted and completed

without delay. In some jurisdictions the arrest process is

delegated to store security employees who deliver the necessary

paperwork to the police. Most states have passed legislation to

protect the retailer in the event of false arrest claims arising

out of detentions to determine the ownership of merchandise, provided

that there was reasonable cause to act and that the investigation

was conducted in a reasonable manner.


Cash shortages, failure to ring up sales, and failure to give

receipts are not proof of theft. Prosecution is not recommended

unless there is a direct observation of stealing and recovery

of some tangible evidence in merchandise or money. Identifiable

cash recovered from the person of the suspect is the best kind of

evidence. This is often referred to as a "pocket case." Proper

questioning based on observation of highly suspicious actions

can often result in admissions of theft. Without further evidence,

the best course of action is to explore the feasibility of

obtaining restitution. Oftentimes, the employee admits to

frequent thefts going back over a period of weeks or months.

The amount of money involved can be significant. Very often

restitution can be ordered and arranged through the courts. It

is unwise to seek restitution without legal advice.


Undercover investigation has long been used for providing

intelligence information and is no less applicable to retailing.

With sophisticated retail security, improved training and

techniques, and the utilization of modern technology's latest

advances in equipment and devices, the value and effectiveness

of undercover investigation cannot be minimized. As a loss

prevention tool, it can provide information to security and other

management that is not easily obtainable by any other means.

In practice, investigators posing as employees are placed within

a firm. This effects their "cover" and should be done through

normal placement procedures, with as few people "in the know" as

possible during the term of the investigation. Resulting

meaningful information is then accurately conveyed, as quickly as

possible, to those executives who can put it to work. Once

placed, these investigators then blend and mingle, developing

relationships with their associates for the purpose of locating and

identifying employee dishonesty. This is the primary objective

under most circumstances and one which cannot generally be

accomplished by in-house security personnel, because of known

identities, techniques and so on. Additionally, relationships

which are fruitful are evolved over a period of time and require

patience and planning in developing the confidence of targets or

other coworkers. While some information comes from occasional

observation of isolated spontaneous thefts, the major portion of

criminal information is developed over a longer period, after

purposeful planning of the operative's approach to acceptance,

and effective performance. Most information is developed through

confidential conversation, initially with the use of comments

and remarks specifically designed to elicit a response. This, of

course, must always remain within legal boundaries regarding

entrapment. The loss prevention aspects of undercover investigation

apply not only to criminal loss, but also to loss by other means.

Loss and exposure to loss in operational areas can be pinpointed

through monitoring of adherence to policy and procedures,

conditions conducive to costly casualty loss, supervisory

inadequacies, systemic deviations, and so on. Also, loss

prevention can apply to loss of personnel. Here, loss is generally

insidious but can have devastating financial effects. This also

applies to loss, occasional and isolated as it may be, of public

esteem because of poor customer service or other reasons. All

of these factors contribute to loss, larcenous or otherwise.

Loss prevention is vital in each area to insure profitable

operation and to increase the "bottom line." Undercover

investigation can be effective in accomplishing this. Ordinarily

the information from undercover is used to develop cases in an

independent manner, so as to avoid exposing the original source.

When the information is deemed critical and there appears to be

little or no chance to proceed in another way, the cover may be

blown. Causes of business losses, other than employee-related,

may be due to shoplifting, robbery, burglary, bad checks, stolen

credit cards, vandalism bombings, and arson. Techniques for

prevention and investigation of the most prevalent of these crimes

are included in this section.


The most efficient way to deal with the problem of crime is to

take necessary steps to prevent it from taking place. Although

it is unrealistic to expect to eliminate all crime, the proper use

of people and equipment will have some effect in reducing the

total incidence of theft and destructive acts. Some ideas are:


The successful security program is expected to prevent theft.

Since the commission of crime cannot be wiped out, recovery of

merchandise is equally desired. There are many retail stores that

do not have a security staff per se. In such companies the

security effort depends on sales help, cashiers, stock persons,

and others. Even where a security staff does exist, the total

security effort will be more effective if the other employees are

involved too. They must be trained to spot shoplifters and

taught the action to take to prevent the loss of merchandise.

Ordinarily, these clerks and salespeople are not expected to

apprehend wrongdoers. However, if specially trained and instructed,

anyone may be expected to take necessary action, including detaining

shoplifters. The actual apprehension of a person attempting to

steal merchandise from a store requires knowledge of penal statutes

and codes which must be strictly obeyed. lest civil and criminal

charges result from wrongful actions. The safest policy to

follow with all employees, except those specifically employed

in a security role, is to design programs aimed at preventing theft.


Many employees perform better if there is an incentive program

that encourages interest and participation. When a bonus is given

to a salesclerk who pointed out a shoplifter, other employees

sit up and take notice. While it is reasonable to expect wide

participation in combating shoplifting, the average worker will

hesitate before turning in a fellow employee. Although cash

awards for such information are usually larger than shoplifter

awards, such incentives are not very successful. Some firms

pay bonus money to security people also, since this usually keeps

productivity at a high level. However, this practice has been

criticized as a bounty system leading to over zealousness and false



Although some shoplifting is inevitable, there are things that can

be done to keep it to a minimum. All employees must be committed

to enforcing those of the following procedures that are adopted

by the establishment.


Shoplifters come from all walks of life, and they may be of any

age and either sex. Shoplifters may be classified according

to several categories: professional, amateur, juvenile, addict,

and kleptomaniac. Many people who steal for the first time

do so on impulse, and if they are caught, there is a good

possibility that they will quit. On the other hand, those who

get away with theft will most likely steal again, since it

becomes easier to pilfer each succeeding time. Shoplifting is

similar to many other crimes in that the lawbreaker will tend

to return to the same place where he or she was previously



Following are some of the multitude of ways in which shoplifters



Store personnel should be alert to the following signs that should

cause suspicion of shoplifting.


Many states have enacted laws specifically aimed at shoplifting.

Otherwise the crime of shoplifting is covered by the larceny

statutes. Generally, once it has become evident that the intent

of the individual is to steal the article, the crime has been

committed. If the suspect secretes the merchandise inside a

shirt or under a dress, it may not be necessary to wait until

the person exits from the store. However, there are jurisdictions

and there are individual judges who do not agree on this point,

hiding that unless the suspect has gone past the last possible

cash register where payment could be made, the intent is not

clear and it can be rebutted. Therefore, unless the statute is

extremely clear on this point, the safest course of action is to

make the first contact with the shoplifter at the exit. The

store detective should attempt to keep the apprehension as low

key as possible. There is less chance of disturbing other

shoppers or of creating a physical confrontation when this is

done properly. Store personnel must be alert and watch for the

unexpected. The shoplifter may attempt to run, may assault the

employee, or may even pull a weapon. The training of the security

staff is the key to ensure proper action in accordance with

developing circumstances. When guards are posted at or near

exits, they should assist in apprehensions if requested.

Ordinarily, the suspect will come along quietly when asked. If

the detective has made proper observations, the recovery of stolen

articles should be uncomplicated. Suspects should be frisked for

weapons and, when necessary, a complete search may be made. The

use of handcuffs is recommended when appropriate.


A significant portion of retail sales is transacted by personal

checks. To many thieves, there is less risk in passing a bad

check than in shoplifting. Unless there are meaningful controls

that are adhered to by employees who accept these checks, the

losses can become staggering. The following guidelines will help

to promote caution in accepting checks.

Unacceptable identification includes: social security cards,

bankbooks, utility bills, library cards, birth certificates,

learners' permits, or membership cards.


If a bad check is inadvertently accepted, the following procedures

should be instituted:


Losses due to acceptance of lost or stolen credit cards are on the

increase. Suggested procedures which help cut such losses are:


In addition to adhering to acceptance procedures with checks and

credit cards, employees who handle sales transactions must be

constantly alert to render efficient service, pay attention to

prices, and safeguard the contents of registers. Training and

instructions such as the following should cover potential problems:


Some shoplifters find it more lucrative to refund stolen goods

than sell them. Very often items that have been purchased with

bad checks are converted into cash this way, especially by

professionals. Some thieves find it less risky to seek a refund

for stolen merchandise without ever leaving the store. Some

policies which may be established to combat these practices



Shrinkage is an insidious illness which does not cure itself.

Proper systems will contribute toward prevention of losses, but

there must be constant follow-up and reevaluation to ensure that

what was adequate yesterday is still applicable today. Crime is

on the march, and new schemes are constantly being devised.

Expertise i loss prevention is as essential in today's retail world

as fashion and salesmanship. The merchant has recognized and

accepted the fact the money spent to protect company assets does

its share in providing profits.

Mr. Lamoureaux has contucted and supervised many retail undercover

operations for some of the largest retail chain stores within the

United States. Should you have any questions contact ABD Federal

Investigative Agency, Inc. @ (407) 777-2878 or E-Mail Compuserve

@ 74021,1516