Exception Based Reporting in Retail - Insights from 19 countries on tackling employee theft

Exception Based Reporting (EBR) in retail is emerging as one of the most practical tools available to loss prevention teams seeking to reduce staff dishonesty.

In this episode of the Sell More and Lose Less podcast, Colin Peacock and Professor Emmeline Taylor discuss findings from a new ECR Retail Loss survey of businesses across 19 countries, which found that 83% are already using EBR for some form of data analysis around employee theft.

The conversation builds on Emmeline’s  ECR research into reducing internal theft, which found that 98% of staff dishonesty incidents go undetected, and argued for a shift towards cultural deterrence rather than relying solely on catching individuals after the event.

They explore the four key data points retailers are using to flag problems: voided items, refunds to the same card, manual discounts, and staff loyalty card misuse.

One retailer shared how they turned EBR from a back-office detection tool into a cultural deterrent by being transparent about what the technology can identify, communicating consequences clearly, and empowering store managers to use it as a coaching tool.

The results were striking: individual case values fell from four figures to two. But challenges remain.

Video integration with EBR is still more no than yes across the survey, and the technology is overwhelmingly applied only to bricks-and-mortar cashiers, leaving order pickers, delivery drivers, and third-party fulfilment operations largely unmonitored. As retail loss, safety and security challenges diversify, extending EBR across the supply chain is the obvious next step.

Exception based reporting in retail: deterrence, data and culture

The 98% problem

COLIN:

Hello and welcome to the ECR Retail Loss Sell More and Lose Less podcast series. My name is Colin Peacock. I’ve worked in the retail and FMCG business for more than 40 years, working on the dark side of retail, on retail loss at every point in the supply chain.

Professor Emmeline Taylor published a report with us last year. I think it’s been very well received. We’re looking to hear from her some updates in the world of managing staff dishonesty. A road less travelled for many loss prevention experts. It’s something that’s difficult, sensitive, awkward. At the same time you’re trying to build trust. Coming out of the peak season, there is actually a little peak in January. Not many started some of these cases in the peak period, which is interesting in itself. What should retailers be looking out for in terms of initiatives, new research, new thinking, new strategies?

EMMELINE:

That report was published a few months ago now, and within it the methodology suggested that 98% of individuals engaging in some level of employee theft or staff dishonesty are going under the radar. The volume is simply so high that no business could realistically investigate every single incident.

So we began to shift the dial towards cultural change. How do we deter this at the outset rather than try and catch somebody after the event? We had some really exciting student projects that looked at different poster campaigns, marketing campaigns that could begin to communicate with employees who might be considering dabbling with dishonesty and steer them onto an honest path.

What’s been really exciting in recent months is that one major retailer has trialled a series of posters internally to pick up some of the themes from that report. Hopefully we’ll hear the outcomes of that in a future session. But what I’m also seeing is this real focus around culture, and that is exciting for some quick wins.

EBR survey findings: 83% adoption across 19 countries

EMMELINE:

We recently had an ECR Retail Loss session which focused on staff dishonesty and began to explore the role of exception based reporting within that. EBR technology, looking for anomalies at the point of sale, at self-service checkouts, any other data sources that might signal a problem and identify who the individual might be.

Just in the run-up to that, you ran a survey of interested people across businesses, and the top finding: 83% of businesses from across 19 different countries are actually using EBR for some form of data analysis to explore employee theft. A really interesting set of findings.

COLIN:

It’s chapter one now of loss prevention around staff dishonesty. Chapter one: get EBR. Either build it yourself or go to one of the providers.

The four key data points

EMMELINE:

The four main data points being seen as very significant to signal an internal problem. Number one, perhaps no surprise, voided items. Then refunds to the same card, manual discounts, and fourth, staff loyalty cards and how they are potentially being misused.

What was really interesting about that fourth one is that a large proportion of respondents said they didn’t even have access to that data point, yet it was seen as so significant by other businesses. So there were some really quick insights about how we can improve data analysis to drive those anomalies and understand where there might be a cultural problem.

Video integration: a missed trick?

COLIN:

There’s another point about video integration, which is a productivity piece. Not having to go and find the video associated with an incident. The integration seemed to be useful, but not everyone had it. I thought there’d be more of that.

EMMELINE:

It was actually more no’s than yeses in terms of video integration. Is that something to do with the jurisdictional legal landscape? We had 19 countries represented. We know some locations, particularly across Europe, are very video-averse. So it could be that, or I would suggest they’re missing a trick if it’s not a legal concern.

EBR as deterrent, not just detection

COLIN:

Some people see EBR as more of a detection tool. Secret squirrel back in head office. But how can it be used to drive deterrence, which is the 98% piece?

EMMELINE:

We had a fantastic input from one retailer who firmly located EBR as one tool in a more holistic LP strategy. That’s really important. We can’t just rely solely on that data. We need to see it in a bigger context.

That retailer talked strongly about the importance of transparency and communicating what this technology can do, that there will be a follow-up if it identifies anomalies, and there will be consequences. That drives deterrence because individuals know they simply can’t get away with trying to hide their activities. Voiding items late at night on a lone shift. It picks up all of these discrepancies that are known red flags.

You then drive the deterrence rather than the detection. Some of the figures were incredible in terms of the value of individual cases going from four figures down to two. Really brilliant ROI.

Store managers as the first line

COLIN:

They were keen that the store managers took ownership. There was a tremendous interchange between two retailers. One said we can’t expect store managers to look at these exceptions and anomalies. But the pushback was fantastic. This retailer also does a survey of how much time a store manager spends talking to staff. It came out at four or five hours out of an eight-hour shift. The pushback was: surely you can spend three minutes on a coaching opportunity, asking the employee to explain why they put £200 on a card at three o’clock in the morning.

The other piece I really liked was that if they noticed some stores weren’t taking any actions, they’d throw in a crazy incident to see whether they’d actually noticed. Then sort of say, “oh, it’s a mistake.” But had you noticed we just put in a £10,000 void discrepancy?

EMMELINE:

You see similar techniques used elsewhere. It makes me think of airport scanners. You can get zoned out from the system. So every now and again they put a fake gun in there just to see: are you actually awake and monitoring this? It’s another way of checking: are you looking across your systems?

Centralised versus store-level ownership

EMMELINE:

There was a divergence of views, and this came out in the survey. Do you have EBR only as a centralised tool, which means it’s purely data-led because the people looking at it have no understanding of who that staff member is or how that store operates? But there was another perspective: empower the stores because they know their staff. There might be other issues that staff member is presenting. Always turning up late, not really engaged, disgruntled. That could signal they are engaging in some form of employee theft.

Let them have the tools to match up that experience with what the data is telling them. I think it’s important to have that store ownership alongside the central overview that can look across the entire landscape.

Branding the programme

COLIN:

It’s really important to create a marketing campaign around what you’re doing. Give it a name. Sainsbury’s famously had Eagle Eye. This particular retailer called it “Is It Worth It?” Give it a brand name, a badge, something people start noticing and referencing. “This is your Is It Worth It coaching moment.” I thought that was really powerful.

We also had the quote of the week in that presentation.

EMMELINE:

“The standard you walk past is the standard that you accept.” This taps into established criminological theories. Most people will be familiar with the broken windows theory. The idea that you don’t turn a blind eye to things you see as too trivial. Minor infractions of store policy. You have to crack down on every single incident, whether it’s one dollar or five hundred dollars, because if there’s one thing we know about employee theft, it’s that it escalates. The staff member becomes emboldened. They encourage colleagues to participate. So that one-dollar infraction is just as important, because otherwise further down the line you might find you have those $500 issues and a cultural problem on your hands.

Extending EBR beyond the till

COLIN:

One of the things that came about is that everything used to go through the front end. But now there are so many different ways in which collusion or helping a friend could happen. What are you picking up about that?

EMMELINE:

As fulfilment methods have become so diversified, opportunities for things like sweethearting have been amplified. One of the things that came out in the survey is that EBR technology is overwhelmingly only used on bricks-and-mortar cashiers. Order pickers, delivery drivers, third-party fulfilment companies are not being subjected to this type of analysis.

I think that is probably where this needs to move towards, because we know that when you lock down one vulnerability it simply appears elsewhere. Maybe we need to think about how EBR can be implemented across the supply chain and look to where the next vulnerable points might emerge.

COLIN:

That taps into another conversation we were having around supply chain losses, around drivers stopping somewhere and skimming products off the lorry. It’s the same problem, the same broader approach.

The year ahead for staff dishonesty

COLIN:

What do you think is the year ahead? Where should retailers be focused?

EMMELINE:

I’d love to hear from more retailers who have gone down the marketing and communications strategy route and see whether that is converting into a shift in levels of loss within store or distribution centres. And any other activities being used. We know EBR seems to have some really great ROIs. Putting the data points to that, to understand exactly how, when and with which employees it should be used. There’s still a lot of movement within this that we need to encourage over the next year.

What is most heartening to me is that there is so much more willingness to discuss internal theft now compared to a few years ago, where it was seen as so taboo you would not dare consider that your employees are defrauding you. But that’s changed as the employment landscape has changed. Retail has one of the highest turnovers of any industry. It confidently sits above 50% all of the time and peaks at certain points. Then there’s the seasonality, the transitory nature of employees. That’s always going to raise issues.

Outro

COLIN:

We’re going to be busy. Well, thank you again, Emmeline, for your time and thoughts. We’ll speak soon.

EMMELINE:

Thanks, Colin.

COLIN:

Well, that’s all we have time for this week. Thank you for joining us and thanks to all the ECR Retail Loss community for the sharing of their knowledge, their research, and latest learnings that ensure that we become truly a global platform for learning.

My name is Colin Peacock. This is the Sell More and Lose Less podcast. If you liked it, please subscribe so you automatically get all future episodes. And if you think your colleagues and friends might also like it, please ask them to follow ECR Retail Loss on LinkedIn and tune in to our next podcasts. If you didn’t like it, then let us know and we’ll try and fix it. Either way, see you next time. Thank you again.