Tags: employee | fraud | black friday | profits

8 Ways to Stop Employee Fraud From Undercutting Your Profits

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By    |   Monday, 03 December 2018 12:49 PM

Black Friday 2018 is passed, and we’re now into the holiday season in earnest. If projections are right (and sales during Thanksgiving weekend suggests they are), this year promises to be a great time for retailers.

In fact, eMarketer projects this will be the first-ever holiday season to breach the $1 trillion mark in retail sales. The surge in consumer spending means more traffic for both brick-and-mortar and eCommerce sellers. And, if you’re like thousands of other retailers, you may have recruited some extra hands to help during the holiday rush.

Competition for seasonal employees is fierce with the tight labor market. Hourly seasonal workers are projected to see a 32% increase in wages compared to the 2017 holiday season. The average seasonal employee can expect to earn $15.40 per hour, compared to $11.70 last year.

However, the scarcity of labor means retailers may find themselves competing for less-qualified candidates. At the same time, you have less opportunity to exercise oversight over workers because of the demands of the holiday season. This puts you at a greater risk of employee-assisted fraud.

This isn’t just a threat for brick-and-mortar stores, either. Employee fraud can affect eCommerce retailers, too.

3 Sources of Employee-Assisted Fraud

Employee-enabled fraud cost businesses roughly $15.4 billion in 2017 (up from $14.7 billion the previous year). The threat of employee-assisted fraud is also projected to increase roughly 20% during the holiday season. There are a few possible reasons for this.

First, an employee may simply misunderstand standard fraud prevention practices and end up enabling fraud without ever intending to do so. This often comes in the form of unwarranted returns; a buyer requests a return to which they’re not entitled, and the employee, not knowing any better, makes it happen.

Let’s face it: the holidays are a hectic, high-pressure period for retail. When you combine new employees with limited time for training, there’s going to be some inevitable missteps.

The second source is a more sinister prospect: ORC, or organized retail crime. This is fraud perpetrated by a professional ring of criminals. For example, a fraudster may try to get hired as an employee for the express purpose of “working on the inside” to commit fraud. The criminal coordinates with others outside the business to steal merchandise.

The National Retail Federation reports ORC will cost the average business more than $726,000 this year per every billion dollars in sales, so ORC is definitely a real concern. However, deliberate employee fraud is often an amateur effort.

Most employee fraud is a crime of opportunity. For example, a worker could commit fraud simply because they have the chance. Maybe a friend or relative might try to make a return against company policy, and the employee lets it slide. The problem is compounded by seasonal workers, who have less stake in the business than permanent workers, and so they may not mind how it impacts the business long-term.

With the right confluence of opportunity, financial need, and attitude, even a seemingly-honest employee can become a fraudster.

How to Turn the Tide Against Employee Fraud

I’m not telling you to assume the worst about your employees. Quite the opposite, actually; you want to instill in your employees that they are valued, important members of the team, even if they’ll only be joining you temporarily.

To that end, here are eight basic practices that can help defend against occupational fraud:

  1. Perform basic background checks on new hires.
  2. Recognize employees for going above-and-beyond in their work.
  3. Pay employees fairly based on the value they contribute to the company.
  4. Establish a culture of ethics, with management leading by example.
  5. Train employees thoroughly on fraud mitigation best practices and policies.
  6. Maintain open channels for employees to report suspicious activity.
  7. Implement purchase orders to keep track of expenses throughout the organization.
  8. Conduct regular inventory of products to watch for shrink and other losses.

The above techniques can help you target employee fraud specifically. However, there’s an important point to keep in mind here: on a certain level, all fraud attacks are related.

A threat like employee fraud seems very different from something like friendly fraud or affiliate fraud, but it’s best to treat all of them as part of a broader problem of interconnected threats. Trying to overcorrect for one can unintentionally increase your risk for other sources of loss. For example, focusing too heavily on stopping criminal fraud can lead you to place overly-restrictive standards on antifraud technology. The result is an increase in false positives, declined sales, and disappointed customers.

It’s true that bringing on seasonal employees during the holiday rush will increase the business’s risk. But, if you treat fraud as a multifaceted and year-round problem, it becomes a much more manageable obstacle.

Monica Eaton-Cardone is an entrepreneur and business leader with expertise in technology, e-Commerce, risk relativity and payment-processing solutions. She is COO of Chargebacks911 and CIO of its parent company Global Risk Technologies.

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I’m not telling you to assume the worst about your employees. Quite the opposite, actually; you want to instill in your employees that they are valued, important members of the team, even if they’ll only be joining you temporarily.
employee, fraud, black friday, profits
Monday, 03 December 2018 12:49 PM
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