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Loss Prevention

Taking a Closer Look

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Large chains are typically prepared to fight POS fraud with always-on camera surveillance systems linked to their POS software. But independent and other smaller retailers often don’t have the budget for sophisticated, monitored LP surveillance technologies that large chains are using.

insidePOS was developed as part of a joint venture partnership between Risk Management Services Loss Prevention (RMSLP), which provides professional LP, security and safety expertise to independent business operators, and Vector Security, a provider of customized intelligence gathering security and surveillance solutions. The hardware/software solution links POS-based intelligence with images captured by surveillance cameras.

Jeremy Melnick, partner and co-owner of Gordon’s Ace Hardware, a five-store chain in the Chicago area, beta tested insidePOS in one store in March 2012. A year later, he describes the solution as “great.”

Although Melnick had security cameras in most of his stores, they were only watched when a loss became apparent, meaning months could go by before a loss resulting from fraud was discovered. One such incident set the stage for Melnick’s decision to test insidePOS: During a routine inventory count in 2006, a pattern of fraudulent returns in one store over at least a seven-month period was uncovered.

“As a small business, we can’t have someone monitoring the cameras every day and we didn’t have the resources to investigate ourselves,” says Melnick. Ultimately, it was determined that a manager and most of the associates in that particular store were stealing through methods like sweet-hearting and fraudulent returns and voids.

A few years later, when Melnick needed help with another LP issue, he was introduced to Jim Close, managing partner for RMSLP. Close told him about insidePOS, for which Vector Security provides the hardware and integration services and RMSLP provides near real-time monitoring and analytical/investigative services.

Vector Security is able to integrate with a wide variety of surveillance camera systems — analog, digital IP or hybrid. It also provides the surveillance DVRs and other storage devices which have the capacity to hold large amounts of information and images. Surveillance images are stored in the devices or the cloud, then remotely monitored and analyzed by RMSLP. The analysis and relevant images are shared with retailers and used for investigative purposes.

Melnick, Vector Security and RMSLP collaborated to identify the primary events that the test store needed to monitor. The vendors “asked questions about what we were really looking for,” Melnick says. “They’d ask, ‘Does this make sense to create an alert for? Does that make sense?’ They can look for and create triggers and alerts for motion, voids, refunds, reverse transactions, etc.”

Melnick says he was “impressed” by RMSLP’s ability to notice and identify the potential for fraud. insidePOS has also helped identify and address operational issues that could negatively impact the bottom line, like leaving the lights on after the store closes or a sales clerk ringing up a sale without a UPC, which makes managing inventory and more difficult.

“The process doesn’t take a lot of time,” Melnick says. “RMSLP sends us an e-mail with a video clip attached and they ask if what we’re seeing does or does not make sense. … You can get two or three e-mails a week or you can go two weeks without anything. It’s been pretty amazing.”

There was no training required for Melnick’s store associates. In fact, he says, “once it was up, we used the system to train them. We show them clips about leaving the lights on or about what they did during a particular transaction that was not a best practice.”

Close and Miller say that there is currently a six- to eight-hour lag time between what the cameras record and when they are monitored. In the next phase of the process, which should begin by early 2014, monitoring will be happening in “real time” for the hours that employees are in the stores.

Monitors have captured events that require a closer look ranging from employees walking out with bags, questionable employee purchases and refunds to safes being left open longer than they should be. To date, these have all occurred because of procedural lapses, but the system has also proven to be a good theft deterrent because employees know they are constantly being monitored.

“I think it’s kept people on their toes,” says Melnick.

Increased customer focus
One measure of the program’s success is the fact that the number of alerts has slowed considerably. “It’s because of a lot of corrected procedural things like ‘don’t leave the cash door open after you ring up a transaction,’” says Melnick, who says his chain’s shrink (less than 2 percent) is about average for the hardware industry. But RMSLP has helped find videos of shoplifters as well as instances that required investigation of customer complains.

Sales have increased since the system was installed, possibly because store associates were able to spend less time on paperwork related to security issues and more time on the sales floor “focusing on the customer,” Melnick says.

If a retailer doesn’t need to install surveillance cameras, there is no upfront cost to install insidePOS, just a monthly fee. With more security to both prevent and catch internal theft and more opportunities to catch and remedy procedural mistakes, ROI can be realized almost immediately.

“The way I look at it, insidePOS is like having another employee,” Melnick says. “You could not hire an employee full time to stand in your store and get done what we’re getting done with this service.

“I’ve been doing this for 15 years now and this is the first time I feel like we’re getting a return on our security system.”