For retailers around the globe, one of the greatest sources of loss comes from the inside. The problems of employee dishonesty and payroll fraud are real. According to the Jack L. Hayes International 25th Annual Retail Theft Survey, internal theft issues are increasing at a rate of 5.5 percent every year and are having a significant effect on the bottom line.
This is happening more often than many retailers realize. A survey from the Journal of Business Ethics revealed that 60 percent of retail employees admitted to committing time theft in 20121, and 34 percent of the 18- to 29-year-olds surveyed believed that stealing from an employer is justified2.
Entire books have been written about workplace culture and the various economic and psychological reasons behind why an employee may steal. Many employees simply feel they are entitled to a raise. Others may steal to meet a financial obligation or personal need. But one painfully simple answer can speak for many cases: because the employee believes that it’s easy and that they can get away with it. Could biometrics serve as a type of employee theft insurance?
A Growing Problem
Employee theft comes in many forms. Employees can falsify merchandise returns, fail to scan items purchased by friends (a tactic called sweethearting), and fraudulently punch the clock for a coworker (“buddy punching”). They can punch the clock for themselves and take time socializing before actually getting to work (lollygagging), authorize discounts without permission, load up gift cards to be sold online or to friends, or remove register cash and store inventory the old-fashioned way.
The Jack L. Hayes International 25th Annual Retail Theft Survey revealed that employee theft makes up 42 percent of total retail inventory shrink—that’s more than shoplifting, which accounts for 35 percent of shrink results. Even when management notices theft, it is often difficult to pin the crime to a single culprit with any certainty. Common investigative screening strategies typically include data-mining transactions records. Algorithms look for employees who authorize an exceptional number of returns or load up large gift cards at rates well beyond the norm.
Once a dishonest employee is identified, additional investigative steps, such as reviewing transaction recordings, are still necessary to validate such trends and suspicions. When confronted, some employees may claim that someone else may be using the employee’s identification key. Whether borrowed, lost, human error, deliberate deception, or some other means—this must be addressed as part of the investigative and potential interview process to confirm the validity of the initial findings.
As some retailers are beginning to realize, one of the contributors to their employee dishonesty problems lies in their employee identity management system—the tools and resources that are used to tie an employee’s identity to their actions at work. Currently, most retailers employ a credentials system that verifies an employee’s identity using either something they know, such as a password, or something they have, such as a unique ID swipe card. These standard security gateways, however, can become lost, stolen, hacked, shared, or simply forgotten. Replacing lost swipe cards and keys, or resetting forgotten or compromised passwords, incurs costs and lost productivity for employees, help desk attendants and managers who must take time away from other responsibilities to maintain the credential system.
It’s time to start thinking of identity management systems as being employee accountability systems as well. While card-, key-, or password-based systems have been effective, they still leave room for buddy punching, security data breaches and human error. They also allow busy employees or managers to “hand off” their critical responsibilities to others, which only further opens the door to potential employee dishonesty concerns and fails to directly tie employees’ identities to their actions at work. When credentials can be share or handed off, do we really know for sure that the authorized person was present when the transaction occurred? Closing this gap in security could change the way store operations are monitored, and it may modify the way employees think about both their work responsibilities and their personal accountabilities.
Biometrics: A Different Kind of Employee Theft Insurance
Biometric fingerprint credentials tie an employee’s identity to who they are—not just what they know or what they have. Biometrics provides the ability to verify positive identity with a level of data integrity unequaled by other identity methods in use in retail environments. With a biometric credential system in place, an employee simply touches their finger to the biometric reader to report to work. Similarly, a cashier or manager would touch their finger to a biometric reader to log onto the POS terminal or authorize an exception or transaction. This speeds up checkout times, improves efficiencies, and provides an indisputable link between the employee and their actions at the point of sale.
Furthermore, the ability to establish a positive identity corroborates actions with individuals, which greatly enhances accountability. This serves as a type of employee theft insurance by working as a deterrent to employee dishonesty and fraudulent activity at the POS terminal. Because only one person has that fingerprint, biometrics eliminates the opportunity to commit payroll fraud via buddy punching. The added control can serve to boost performance, improve customer service, and support the investigative process when the need is necessary and appropriate.
If you look closely, you can already see cashiers using fingerprint readers at a number of retailers. For retailers who have deployed biometrics, the resulting rise in employee accountability has brought unexpected results. Increased accountability has deterred employee dishonesty and revealed the extent to which fraud, theft, and shrink problems were occurring.
In addition to increasing business efficiencies, savings occur in three primary areas: inventory shrink, time theft, and IT costs. These are all organizational costs, which often go unnoticed until they are eliminated.
Inventory shrinkage is a complex loss problem for many retailers. Accounting for an average of 42 percent of total shrinkage, employee theft is a large part of every retailer’s loss equation. Increasing employee accountability helps to curb inventory shrink. When workers know that their actions are unquestionably tied to their identity, it provides a significant deterrent to theft and employee dishonesty.
Time theft is easily eliminated with a biometric payroll deployment. According to the American Payroll Association, eliminating buddy punching can shave up to 5 percent off of total labor costs, which is one of retail’s greatest expenses in doing business.3 Fingerprint identification means no more buddy punching and no sneaking out early by having someone else punch out for them. Payroll is measured with greater accuracy and requires less maintenance.
IT costs provide one of the largest sources of unexpected savings. While more other forms of technology such as swipe cards and keys may provide a less expensive option than fingerprint scanners when first deployed, the long-term costs of maintaining these systems can add up. As e-commerce opportunities and mammoth data-breach threats flood the retail landscape, IT departments have their hands full with customer service and security priorities. As a result, when an employee forgets a password or leaves a swipe card at home, IT help desk hours increase, which takes time away from more productive activities. All of this consumes valuable time, impacting workflows and service levels. Fingerprint biometric systems can often pay for themselves in IT cost savings alone.
Integration and Costs
Many POS software applications already include biometric support within their software releases. Adding fingerprint readers can be as simple as activating the software feature and plugging in a biometric device to an existing POS system. Most retailers find that the cost savings from reduced employee theft and payroll savings easily pay for the technology within the first two months.
Benefits Beyond Employee Theft Insurance
Every retailer’s biggest potential cost is the risk of a data breach. With increasing frequency, retailers are making headlines with stories of massive breaches of customer payment card data—and lost customer trust. The sources of data breaches vary, but one exposed password or PIN could result in an expensive security breach. With traditional authentication methods, anyone can enter a compromised password or use a stolen swipe card to gain access to protected data. According to Verizon’s 2014 Data Breach Investigations Report, approximately 66 percent of all security breaches were accomplished by using stolen credentials.
Customer service and perception are incredibly important at the point of sale. In a 2013 Shopper Experience Study, inefficient or inaccurate checkout processes was rated as the number-one “dislike” during store checkout. Fast, easy checkout was the top factor for influencing in-store purchase decisions. Smoother and quicker transaction times make customers happier and more willing to buy. Biometrics only requires a touch of the finger for immediate login and authentication. The tedious (and negatively perceived) tasks of typing in passwords, or finding and inserting swipe cards or keys into POS terminals are completely removed from the transaction process. Logging in using a biometric system can even be performed while conversing with the customer. A smooth, friendly experience at the POS can make a big difference in a customer’s perception of a retail brand.
In the highly competitive retail industry, retailers are looking for technologies that provide an edge and contribute to the bottom line. Biometrics delivers both by improving POS workflows and reducing employee theft costs. Lower operational costs and payroll accuracy are valuable, but increases in customer satisfaction and employee accountability are absolutely invaluable. They affect every aspect of a retail business. On the sales floor, in the backroom and at the point of sale, both the retailer and the customer put their trust in employees to do their jobs quickly, carefully and honestly. In today’s retail market, a secure, friendly, and trustworthy store is a successful one.
1. Christine A. Henle, Charlie L. Reeve & Virginia E. Pitts, “Stealing Time at Work: Attitudes, Social Pressure, and Perceived Control as Predictors of Time Theft,” 2010, p. 53, Journal of Business Ethics
2. Blair Chancey, “Security Check,” 2013, from http://www2.qsrmagazine.com/articles/features/110/security-1.phtml
3. Acuity Market Intelligence, “Biometrics: High-Value Workforce Management, “ February 2008, p.1
This article was originally published in 2015 and was updated March 13, 2017.