Getting Proactive on Fraud

RISNews - “All the things I did as a teenager are four times easier today,” says Frank Abagnale, author, lecturer, consultant and perpetrator of a number of astonishing confidence schemes in his now-regretted youth. Abagnale is best known as author of Catch Me If You Can, the basis of a movie starring Leonardo DiCaprio.

 

“There are no con men anymore,” says Abagnale. “Crime is getting easier, it’s harder to detect, and they can do it from thousands of miles away.” Abagnale’s remarks send chills down the spines of loss prevention executives at the conventions where he speaks, and for good reason: the scope of opportunity for fraud and loss continues to expand with the advancement of technology.

 

This expanding breadth is driving loss protection beyond securing physical assets. Retailers are surveying the range of profit-reducing events potentially impacting their organizations and approaching them comprehensively and cross-functionally. For many, this includes a shift toward a more proactive approach. “We were very compliance-based,” says Jon Grander, vice president, asset management, for the 930-unit Famous Footwear. “Now, it’s ‘help me understand why and I’ll do it.’ It’s less about watching, more about a proactive approach.”

 

For Niemann Foods, operator of 59 midwestern Country Market, Cub Foods, and Sav-A-Lot stores, that means enhancing manager-cashier contact through a counseling process that includes informing them about the grocer’s newly upgraded March Networks LP Data Mining tool, used to comb through transactions to uncover irregular activity. Managers are now notified of irregularities in cashier procedures within 24 hours rather than days, and cashiers “know what we can find and understand the system will catch you,” says Keith Beckett, loss prevention manager. “This is a very strong tool to make all cashiers be consistent. It adds more credibility to management.”

 

Raising Fraud Awareness

At press time, Famous Footwear was beta testing a thin client version of its corporate-level Datavantage XBR Store Analytics tool for district managers, making five to seven key queries available via Web portal. It also has branded XBR within the organization, which raises awareness that transactions are being carefully tracked. Even sales contests are validated as XBR audited. “It’s more about creating a climate of honesty, making it clear for amid any areas where we stand,” says Grander.

 

While a rollout glitch meant early metrics weren’t properly documented, “margin rates are better than ever, and we think we have a small part to do with that,” says Grander. Further reflecting the proactive approach, savings generated by preventing loss are directed toward increasing sales. “The dollars are put into a program to reward loyal customers,” Grander explains.

 

Harnessing control of the many avenues of potential loss increasingly means working cross-functionally. Niemann’s Beckett travels frequently with financial and audit personnel, and communication with IT is on the rise.

 

Famous Footwear’s LP department was able to help merchandising understand margin loss for one particular color and style of shoe by discovering that the revenue management system had recommended a markdown for another color of the same style; cashiers allowed complaining customers the lower price. Grander and his team view XBR not just as a source of uncovering errors or fraud, but for discovering good performance and rewarding it.

 

Tracking Data and Mandates

Cross-functional teams also are tackling issues such as mandates and data and payment fraud. Abagnale advises retailers to create a management position and a set of policies expressly for information security, to ensure compliance with laws and bank requirements and to protect sensitive employee and customer information. Industry-wide efforts include pooling data and quickly detecting fraud trends; in 2005 the NRF launched the Retail Loss Prevention Intelligence Network (RLPIN), a database which allows retailers to share information with each other and with law enforcement.

 

Some retailers also are viewing customers — the honest ones — as allies in the fraud prevention effort. Staples, for example, hired Abagnale to advise customers on how to prevent document theft and fraud, such as identity theft — an alliance that not only promotes its security equipment, but helps ensure more secure transactions from the many small businesses with which it transacts.

 

With scarce budget dollars, retailers are allocating LP funds according to where mandates or fraud volume command, often organized crime and internal theft. But as the scope of potential fraud expands, so must the coverage. Famous Footwear’s Grander, for example, would like to begin monitoring blogs and other online exchanges for comments about the company — a potential source of data about wanna-be Abagnales and other potential schemes.