In retail loss prevention, why does the word “audit” so often hold such a bad reputation? Across the industry, many LP professionals view the process as tedious, a gremlin scorecard that points to all the negative aspects of the retail operation. Devouring efforts and energy as we inspect, review, and evaluate is an aspect of the job that is unpopular with some and downright disliked by others. To further complicate matters, the store teams frequently loathe the assessment itself, representing tedious rules and missed steps that haunt everyday operations. The process is routinely viewed as an ongoing indictment of store performance, highlighting the glitches that typically live below the surface of the business.
Granted, other aspects of the loss prevention function are much more exciting to talk about. We will not find any best-selling novels or award-winning movies on the finer points of auditing. However, there is no doubt what a successful audit program will mean to the success of a loss prevention program and the impact that it can have on a retail business. And as is true with so much of what we do, attitude and approach are everything. Despite what some seem to think, “audit” is not a 4-letter word, and when managed correctly and appropriately, it can be a driving factor in the operation’s success.
The Importance of Controls
Identifying and mitigating loss is a much more complicated problem than merely examining merchandise theft. While internal and external theft is a significant contributor to company losses, retail shrink is a complex issue with a variety of factors that can lead to retail losses. As a result, shrink management strategies require a multifaceted and broad-based approach to design and administer the process successfully.
While sales drive the retail industry, all the different functions that support sales make the retail machine run smoothly. Everywhere that product moves through the retail network—from the point of purchase from the manufacturer or vendor to the point of final sale to the customer—a process is required to keep the product flowing through the system and maintain the business dynamic. When we consider the complexity of it all, it is easy to see that there are countless possibilities for issues, errors, and other operational mishaps, all of which can lead to shrink concerns. Establishing effective controls, therefore, becomes essential to the viability of the business.
The audit process is a means to monitor and measure the success of those operational controls. The breakdown of these controls is a primary contributor to many profitability dilemmas and a key component of a plethora of loss prevention concerns. Directly or indirectly, these breakdowns can have a negative influence on every aspect of the business. The outcome can be devastating for any company, regardless of the corporation’s size or the types of products sold.
As the economic environment tightens and the retail options available to consumers continue to expand, fierce competition for our retail dollar forces businesses to keep profit margins narrow. As the cost of doing business grows and consumer spending tightens, there are fewer ways of absorbing deficits or passing on losses. The failure to control shrink affects the productivity and competitiveness of a retail business and can threaten the company’s economic existence.
Basic Audit Principles
Audits provide an objective and consistent evaluation of company standards, operating procedures, and internal controls. Using both quantitative and qualitative metrics, they allow us to evaluate and address the variety of performance efficiencies that shape and influence service, sales, shrink, appearance, supervision, administration, organization, security, safety, productivity, and a host of other factors that will impact the overall management and profitability of the store or facility.
However, a well-conceived and executed audit is much more than that. Audits provide insights regarding the bigger picture. Analyzing the results can provide a deeper look into the overall operations of a store. It should be seen as a way to improve performance, working with the management team to open opportunities for learning and engagement. It can enhance the ability to plan, prioritize, and multi-task. It can influence how certain aspects of the operation are perceived and approached. It can help build a sense of ownership in the business’s success.
The audit itself may take on a variety of shapes and sizes. Some are thorough and complex, while others may provide a quick snapshot of a particular task or function. Some audits help manage and maintain a safe and productive work environment, some limit exposure to certain types of risk and loss, and others provide additional supplementary functions that further enhance the store’s performance and profitability.
Auditing is a process and should not be viewed as a single event that occurs on any given day. While it may provide a snapshot of how company policies, procedures, and protocols work at any particular moment, results should be reviewed and analyzed over time. Anyone and any store can show terrific results or lapses in efficiency at any given time—it is how those results are received, how they are addressed moving forward, and how they are managed over time that will provide accurate insights.
A Proactive Imperative
As the loss prevention profession has evolved, so too have many basic concepts that define that role in the eyes of company decision-makers. “Proactive” has become an essential word in our vocabulary and an essential function of the department. We have learned to drive operational efficiency and ensure controls are in place and adhered to throughout the organization.
Audits are a proactive imperative designed to help the business better achieve focal performance objectives. We have audits that analyze and review every area of the business—operations, performance, safety, data and information, information systems, control systems, legal compliance, financial statements and accountabilities, fraud, environmental accountabilities, human resource processes, and quality control.
Auditing has become deeply embedded in the fiber of the loss prevention role and is critical to our responsibilities. We serve as an essential element of the overall business plan based mainly on our ability to identify, inspect, investigate, assess, review, and instruct. These skills are not elective—they are a requirement of the profession. Those who aspire to have a prosperous career in loss prevention must not only accept but embrace this role and make it part of who they are as professionals.
As a business leader, this should be at the heart of what we do. We have learned the value of deterrence, limiting the desires and the opportunities for theft and other losses by integrating loss prevention concepts with retail practices. We have embraced a belief in training and awareness as being at the heart of a successful program. We have become more objective and practical in our methods, identifying shrink predictors and indicators that will recognize both efficiencies and opportunities, as well as improve performance. Our methods aren’t simply influenced—but founded on business insights and operational control concepts to manage shrink and enhance the profitability of our companies.
Factors for Success & Failure
A well-conceived audit program will provide a snapshot of the strength and operational foundation of the store or facility. Audit elements should reflect the spectrum of topics under evaluation and assess the scope of performance across various possibilities to appraise compliance. Questions and answers should reveal the level of conformity to policies, practices, and procedures and assess the employees’ awareness and understanding.
- The audit should support the company’s mission. We want to reinforce goals and objectives that enrich performance and achieve this in ways that echo support and cooperation.
- The audit should provide benchmarks for success and apply a process for continuing improvement. It should have known reference points that identify targeted knowledge, strategies, and skills and the necessary breadth and depth of compliance.
- Performance indicators should help determine whether success has been achieved or improvements need to be made. It is much easier for everyone involved to understand how things are going if there are well-defined benchmarks to serve as guidelines.
- If the audit is going to carry real significance, it should be actionable. Observations, insights, and ideas that translate into accomplishments help the audit serve its true objectives.
- A Management Action Plan details the steps needed to accomplish identified goals. The action plan communicates findings, addresses opportunities, and identifies ways to resolve issues sensibly and productively.
- Action plans should be realistic and mutually agreed upon, bearing in mind business needs and other considerations that impact the business’s successful operation. Solutions should be practical and sensible. Goals should be clear.
Audits are essential for ensuring operational compliance, enhancing awareness, measuring key performance functions, and providing valuable teaching and training opportunities. Still, the impact on the business is only as successful as our methods, approaches, and attitudes when conducting the audit, sharing the results, and supporting the store teams. Information is best used positively and productively. Our objective should be to improve the performance and productivity of the stores and add value to the organization.
Approaching the Audit
First, our attitude and approach must be positive, creative, objective, and open-minded. “Fair but firm” should always be our reference point. We want to instill the need to resolve issues and risks and reflect a spirit of support and cooperation whenever possible.
An audit is a tool—not a test. The audit should make the store or other facility more efficient and profitable, working with the store teams and providing a means to train and develop the associates. We must approach audit functions with a mindset to effectively serve the company, store, associates, and customers. That should be reflected in the way the audit document is constructed, the way it is completed, and the way it is presented. The spirit of the entire process should be one of growth and progress.
There will be challenges and opportunities which should be addressed accordingly:
- This is what we found
- This is why it’s an issue
- Here is how it should be corrected
- Establish an action plan that facilitates correction and improvement
- Establish a timeline to follow up on the areas of opportunity
There should be few, if any, surprises. The purpose is to reinforce guiding principles and practices and evaluate compliance with known performance standards.
While there may be a natural tendency to focus on challenges and opportunities, identifying strengths and recognizing positive results is just as important. Too often, positive achievements are not acknowledged during the audit process, which tends to emphasize a negative undertone. This tendency will influence the entire process. Our methods and mentality should reflect the approach of a teacher and trainer, recognizing the importance of education and awareness to send a message and improve performance.
Through training and development, the auditor can learn to stir performance and engagement. Compliance results from information effectively taught and behavior inspired. While results may occasionally improve otherwise, we see consistent success only when both exist in concert.
Bringing It All Together
It is no coincidence that there is a direct relationship between audit performance and inventory shrink results. Performance is fortified when a well-managed audit program is used to improve operational compliance. An audit can be a tremendous tool in helping validate performance and bring attention to store strengths and deficiencies. Still, it is how that information is used that will add value to the organization.
It is crucial to maintain a positive, objective approach when evaluating compliance and recognizing exceptional performance when it exists. Of course, it is vital to identify opportunities for improvement but also educate the store on why it is an issue, how it can potentially impact the store, and how they can improve. This requires thought and creativity, not just marks on a scorecard.
Audit is not a four-letter word. The audit function is designed to identify issues, correct those issues, and help make the business more efficient and profitable. But every audit is an opportunity. It is an opportunity to open doors and learn more about the store, the associates, and the business. It is an opportunity to teach and train others about our role and how that role can enhance the overall success of the company. It is an opportunity to build business partnerships and define our place beyond the stereotypical role that others see us filling. Expanding our role helps us mature as professionals, grow, and makes us better at what we do.