Strengthening Loss Prevention in Organised Retail Chains with CFAPs

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Indiaforensic Media
Indiaforensic Media
Forensic Accounting in India started with one word - Indiaforensic.

Retailers worldwide are worried about significant losses caused by theft within their stores, warehouses, and supply chains, which ultimately affects their profits. The responsibility of managing and reducing these losses falls under the function known as Loss Prevention (LP) or Asset Protection. In India, the awareness of LP is gradually increasing as organized retail businesses expand. However, LP is still in its early stages in our country and faces numerous challenges within retail corporations.

LP encompasses security but is not the same thing. It should ideally have a separate and direct reporting line to top management, ensuring its independence. The senior management must be committed to establishing a culture of loss prevention within the organization and fully support LP policies from the top down. This involves fundamentally changing the organization’s DNA by fostering a culture where all employees understand their roles and take responsibility for preventing all types of losses.

CFAP for Retail Loss Prevention Teams

Currently, LP is often aligned with security, administration, internal audit, or commercial/finance departments, but it should have its distinct place within the organization to function effectively.

In the world of organized retail chains, the importance of preventing losses cannot be overstated. These businesses face various challenges, including theft, fraud, and inventory shrinkage. To combat these issues effectively, retailers are increasingly turning to Certified Forensic Accounting Professionals (CFAPs).

These experts bring specialized knowledge and skills to loss prevention teams, enabling them to safeguard the company’s assets and minimize financial losses.

  1. Identifying Fraudulent Activities: CFAPs are trained to detect and investigate fraudulent activities within retail operations. They possess in-depth knowledge of financial irregularities, internal control weaknesses, and manipulation techniques used by unscrupulous individuals. By leveraging their expertise, CFAPs help loss prevention teams identify red flags, such as suspicious transactions, fraudulent refunds, or inventory discrepancies, thereby mitigating potential losses.
  2. Conducting Comprehensive Audits: Certified Forensic Accounting Professionals play a vital role in conducting thorough audits of retail processes and systems. They assess the effectiveness of internal controls, point out vulnerabilities, and recommend improvements to prevent and detect fraudulent activities. Their insights contribute to strengthening loss prevention strategies and safeguarding the company’s financial interests.
  3. Analyzing Data and Patterns: CFAPs excel in analyzing financial data and identifying patterns that may indicate fraudulent behavior. By leveraging their expertise in forensic accounting techniques, they scrutinize sales records, inventory data, and financial statements to uncover irregularities. This proactive approach helps loss prevention teams to take swift action, implement preventive measures, and deter potential offenders.
  4. Developing Anti-Fraud Policies: Certified Forensic Accounting Professionals assist loss prevention teams in developing robust anti-fraud policies and procedures tailored to the retail industry. They help establish protocols for fraud reporting, employee background checks, and transaction monitoring. These measures create a strong deterrent effect and promote a culture of transparency and integrity within the retail organization.
  5. Training and Awareness Programs: CFAPs contribute to loss prevention efforts by conducting training and awareness programs for retail staff. They educate employees about common fraud schemes, teach them how to recognize warning signs and provide guidance on reporting suspicions. By fostering a vigilant and informed workforce, CFAPs empower employees to actively participate in loss prevention initiatives.

Challenges of Retail Loss Prevention Strategies

There are certain key ingredients in executing loss prevention strategies effectively.

Firstly, loss prevention policies must be boosted with technology. Since time & information is of the essence, access to almost all business data is needed in real-time/on a required basis for driving LP policies effectively and creating deterrence. Data may range from regular sales data, markdown data, customer loyalty sales, payroll data, HR data on employees, employee emails, and so on. Apprehensions of the business of its misuse act are unfounded as the LP team is its driver in implementing the policies and preventing losses to the organization. The nonavailability of data may lead to delay in investigation/ obstruction of investigations leading to defaulters getting away.

Secondly, there is an acute shortage of Trained LP resources in our country. Loss Prevention entails its LP team members understanding all business processes and their interconnections with other business verticals to understand the implications. Certified Forensic Accounting Professionals play a vital role in educating the manpower about loss prevention. This is time-consuming and poses a fairly difficult challenge and thus needs a fairly long learning curve. Moreover, the nature of the job needs persons of absolutely unimpeachable integrity. Organized retail is a rather new phenomenon in the country, very few have understood the importance of the LP team.

Thirdly, Law & Order situation in the country in the country leaves much to be desired. The pace, method & technology of their functioning is still old school and most of the time don’t match up with the technology used by modern fraudsters. The absence of stringent laws against theft and fraud adds to the woes of the retailer. Simply lodging a complaint at Police Station does not solve the case unless chased by Police. For effective following up of the cases, it is essential that close liaison with police & civil administration is maintained, and that needs funds. Effective Loss Prevention strategies involve the integration of not only police but also banks & the financial sector, telecom operators, etc. To build up water-tight cases, concrete evidence is required which can be given by these service providers. Funds needed for the same can not be explained strictly as per accounting terms.

Fourthly, preventing the re-employment of staff dismissed on grounds of integrity issues within the company with the same or different format or with other retailers is a challenge. It is not practical to follow the due process of dismissal through HR channels due to techno/legal complexities. Organizations have been asking employees to tender resignation many a time in such cases to avoid legal hassles. The lacunae are exploited by such employees in getting back into the organization when key employees conversant with the case have moved out. An urgent need is felt to create a portal similar to CIBIL where key data (such as father’s name, DOB, Class X roll number, and so on) of such employees are captured. Access to such a portal is to be made available to all retailers who contribute for the same.

Fifthly, the implementation of recommendations of the LP team needs to be driven top-down. Ineffective implementation at times leads to the same lacunae being exploited again and again. In case of any doubts by mgmt about any recommendation, the LP team be asked to reinvestigate the case for further evidence. Moreover, the LP team must be co-opted while making policies within the company.

Sixthly, allocation of funds. It has been felt and noticed that as and when there are pressures to control the expenditure, the first target is the security and loss prevention vertical. One needs to understand that these are resources that ensure a smooth, uninterrupted business of any nature. Security and Loss Prevention needs to be equated with the security forces of a state/nation. Imagine the chaos in a district/state if there were no police or security forces.

There needs to be a forum of retailers where there could be an exchange of list bad heads who have been terminated or made to resign on certain grounds from a company. Such exchange would ensure that bad heads/defaulters do not find employment with another retailer where they could again play mischief and get involved in malicious activities.

The perception of the organizations towards LP vis-à-vis passive security & commercial audits needs to change. LP functions by creating resources within every important business entity. It galvanizes security setup to be eyes & ears of the mgmt besides protection of physical assets. LP team not only investigates to find culprits and system vulnerabilities which could have been exploited for personal gains but also suggests countermeasures to businesses to avoid exploitation of similar vulnerabilities in the future without losing the customer focus. It creates a positive deterrence through its own actions and professional investigations.

LP team’s scope is not restricted and it covers every important component of business –from front end to procurement and supply chain and across multiple formats. It gathers sufficient evidence for termination/suitable action against employees by the management thus creating a Zero tolerance policy against fraudulent activities. LP team’s expertise in all support systems of the organization and leveraging it to drive loss prevention activities makes it a potent tool in the hands of the retailers to improve upon their top & bottom lines.

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