Outside threats to businesses get all of the attention, but it’s the inside jobs that can really impact your bottom line. When you hire employees, you expect them to be a “team player,” to do their job and do it well. Unfortunately for some employees, stealing from their employer—whether it is a pack of cigarettes or a few rolls of quarters intended for your safe—is second nature. Internal shrink costs business owners millions of dollars every year. Thanks to advances in technology and the proactive nature of many businesses owners, monitoring and managing internal shrink is getting a whole lot easier.
Using the Best Tools
Imagine coming into your business, day after day, and noticing that your safe is consistently missing $20-$50. Your first inclination is to point your finger at incorrect management of cash transactions. But more often than not, it’s your “trusted” employees who are stealing right out from under your nose. After some investigation, you determine that one (or more) of your employees are “skimming off the top” as they are handling the contents of your safe.
“The issue at the heart of cash shrinkage is really employee accountability,” said Michael Robinson at Armor Safe. “In environments where conventional safes are used, employees are generally placing pre-determined amounts of money into colorful paper envelopes and dropping them inside an empty steel box without recording anything anywhere. Managers generally spend an hour or two, often the following business day, manually trying to figure out how much cash was deposited by each employee and the total cash deposits of their business day.”
As Robinson pointed out, when discrepancies inevitably occur, managers must attempt to identify and recount the cash deposits of employees that are over or short to confirm it wasn't their own counting error. Then they must research how the discrepancy occurred, but they often have no record of what cash deposits were made apart from the cash sales from the register and the piles of envelopes on the floor of their safe.
“An owner of a business has to second guess whether it really is dishonest cashiers who are responsible for the cash shrinkage, or if the manager is misreporting employees' deposits,” Robinson said. “Resolving these issues often comes down to a matter of trusting one person's word over the other, as the cashier swears the correct amount was deposited and the manager swears it was not.”
That’s why systems that ensure individual accountability are critical for retailers hoping to reduce cash shrinkage. Armor offers a wide range of cash management solutions that can drastically reduce cash shrinkage.
“With our intelligent safes, each employee identifies themselves with a unique PIN (Personal Identification Number) and is personally responsible for all of their own cash deposits, which are never recounted or touched by a manager or any other employee,” Robinson explained.
Any discrepancies between their cash sales, as reported by the point of sale (POS) system, and their cash deposits, as reported by Armor’s intelligent safes, are immediately identified with a glance at both end of day reports, as both provide summaries of each employee's activity for the business day and provide a summary of all employee's activity.
“Within a minute or two at the end of the business day, retailers immediately see, for example, that their point of sale recorded $10,000 in cash sales for the day, but their Armor safe only recorded $9,900 in cash deposits,” he said. “In that glance at the two reports, managers would also see that James, their cashier from the evening shift, had cash sales of $1,000 today, but only deposited $900.” Often before James even goes home, the manager can talk to James about his cash shortage and managers can easily print a detailed report of all of James' activity for the day to assist in that discussion.
“We use Armor’s cash control safes to handle more than $280,000 per month. The safe has paid for itself in only a year,” said Rex Majors, vice president of Tejano Marts in Texas. “When someone steals a Snickers bar, it’s no big deal. When someone steals $50 or $100 a day, it adds up. Before installing the safe, we had people stealing up to $1,000 a month. The safe has drastically reduced that number. We even caught employees stealing the very first day we had the safe."
While technological advancements—including leading-edge camera systems and high-tech computer-based safes—are streamlining the management of internal shrink, its knowledgeable owners and operators who can closely monitor employee activity to keep shrink from happening.
“The best way is to keep an eye on employees is to understand how risk becomes elevated during the workday,” said Ed McGunn, president and chief executive officer at Corporate Safe Specialists. “A good manager will spot these work trends and take measurements of the causes. It is at these critical times, during the workday, that either cash or inventory exposure increases and employee theft occurs. Understanding the relationship to those events with in your organization will help point you in the right direction.” Based in Posen, Illinois, Corporate Safe Specialists is one of the largest suppliers of safe and cash management systems in the U.S. retail communities. As McGunn explained, his company’s Advance Cash Control System is a computer built into a safe that houses two advance bill validating units. The software that manages the system is a Windows-based, user-friendly, integrate able platform.
Tom Grem, product manager at Dunbar Cash Manager Safes, said retailers who are trying to combat shrink must consider two aspects of the problem: “Merchandise shrink” and “cash shrink.” To reduce losses by improving cash shrink, retailers should look for better cash control at the point-of-sale.
Dunbar Armored provides a variety of secure cash management solutions including: Dunbar Cash Manager Safes with Cash-Aware– Smart currency-validating electronic safes that provide “real-time” cash management information; secure armored car pickup and delivery of bank deposits; delivery of convenient EZChange “change orders” for an “even exchange of funds” that helps to keep store safes in balance; and Dunbar BankPak – tamper-evident and temperature-resistant plastic deposit bags to protect bank deposits in transit.
“Managing shrink is a journey not a destination,” McGunn said. “Many business owners mistakenly think that the investment in tools to assist with this effort are the ‘plug and play’ type. The tools that are on the market today are the best we have ever had. In the hands of good management they will reduce shrink marginally. In the hands of great management the same tools will become operationally critical and will significantly reduce shrink and add lasting value to those companies.”
Unfortunately, some retailers are not fully aware of the extent to which “shrink” is affecting their business and hurting profitability. “It would be safe to say that they recognize there is/was an issue once the problem changes—either is gone or things get much worse,” Grem said. “Some smaller firms have owners or operators who may run the business based upon checkbook position, as opposed to deeply analyzing all aspects.”
Ed Grondahl, executive vice president of global sales at Houston-based Tidel Engineering, said the biggest problem in internal shrink stems from retailers not balancing cashiers (and managers) and not tightly managing the change fund.
“The change fund can easily be $4,000 to $5,000 or even more,” Grondahl said. “By not automating the change fund, the easiest and least expensive part of cash management, stores are left with manual processes, at best.”
“Fifty dollars can slip out of the change fund safe or locked drawer very easily,” Grondahl said. “All a retailer needs is a simple tube vending or loose coin and flat note vending device for buying change. You put out a start shift fund of say $100 and from that point forward, any additional funds required, like 20 $1s or $10 in quarters, are purchased by the cashier. It takes only 5 to 10 seconds, and the change fund is totally under control.”
Tidel owns the patent on "buying change" and offers both a Sentinel Tube Vend product or a Bulk Coin and Note Dispensing (BCND) product, which facilitates buying change.
“The more progressive way to handle the fund is to have a BCND and let employees start their shift with ‘machine counted funds’ rather than get a start of shift fund from the manager,” Grondahl said. “This can be the same at end of shift—namely, turn in the money to the machine for counting, not to a manager. Two people handling the cash means shrinkage and loss of productivity. If you do this, the bank deposit is always ready and in balance right up to the last transaction. No manager involvement in the bank deposit is another way to eliminate shrinkage and improve productivity.”
Grondahl advised retailers who want to reduce internal shrink, to do every cash handling step with a cash management vending and validating safe. “The safe never makes a mistake, works 24/7/365, cash never shrinks, and the manager is given back about three hours per day to do something productive,” he said. “Balancing the cashier down to the penny has never been easier or less expensive. We generally get an ROI of well less than one year.”
Of course monitoring your employees’ activities while on the job is also top of mind for many retailers. “Retailers increasingly use video surveillance and remote monitoring – often via the Internet – to keep and eye on employees to reduce shrink,” Grem said. “Dunbar Security Services specializes in providing these types of systems.”
It should come as no surprise that the current recessionary economy is wreaking havoc for many retailers. Not only is the incidence of shoplifting by consumers on the rise, but the current economy is putting the problem of internal shrink in the spotlight.
Industry experts agree that shrink reduction is even more critical than a year ago. Here’s why: “The current economy is boosting the problem, investments in cash management solutions of all types are flat, and at the same time with the fighting of credit, more cash is being presented to the retailer for transactions,” McGunn said. “This is almost a perfect storm. If the consumer gets on his feet again and the amount of cash presented to retailers continues to grow, without the continued investment in loss prevention tools, shrink will have a dramatic rise.”
Indeed, due to the high unemployment rate and the overall economy, shrink has grown over the past year or two. With no significant improvement of the “cash crunch” that individuals are facing, industry players see no end in sight. “I have been given numbers up to 25 percent increase in shrinkage for both cash and shoplifting,” Grondahl said.
As Grem pointed out, adverse economic conditions certainly exacerbate the unfavorable financial situations of more people. “The holiday season, with all of the gift giving, provides a special incentive for thieves to steal,” he said. “We are now approaching what is known to be the most dangerous time of year in the armored car business. Everyone handling cash needs to be especially vigilant at this time of year.”
As Robinson explained, with the cash management processes of old, it was difficult to identify who's behind their losses, and in desperation, retailers often fire cashiers who are frequently reporting cash shrinkages. “Not only is this a devastating blemish on the employment record of an honest employee who is singled out by a dishonest manager, but the business owner's problem doesn't go away,” he said. “As long as the dishonest manager is still there, other cashiers down the line will fall victim to the same fate. By enforcing individual accountability with an intelligent safe, an honest employee can rest assured that their cash deposits are accounted for the moment they deposit the money and they receive a small receipt confirming the amount, time and date of each of their cash deposits, which is also recorded in an electronic journal in the safe.”
McGunn advised retailers to focus on the overall strategy of a company. “I have seen too often decisions made regionally or product specific. These half-hearted efforts fall short because they are not centrally managed,” he said. “The c-store folks are some of the most sophisticated advocates of technical solutions to help reduce shrink. I would encourage any business owner to ask almost any of the known names in the market what they do and how they manage it. The amount of cash and the need for speed of service makes the c-store folks the point of the spear in shrink reduction know how.”