Loss Prevention

Simply Corporate Risk provides specialist advice enabling companies to minimize risk through the creation, development and/or restructuring of controls, policies and procedures, together with the use of physical security equipment, as part of an overall risk management strategy.

A wide range of risks would be considered, including internally and externally caused losses, legal and reputational damage.

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Understanding Loss Prevention

What is a good loss prevention environment?
The benefits to employees (of a good loss prevention environment).
Understanding shrinkage.
How shrinkage is quantified.
Why shrinkage calculations are so important to a business.

What is a good loss prevention enviroment?

Three factors are involved in the probability or improbability of loss. Need - The personal need of the employee. This is typically out of the employers’ control and is not connected to pay scale (all grades can have financial difficulties).

Risk - The employees’ perception of the risk of detection. The employees’ awareness of the management, monitoring and control of systems and processes creates an environment in which the risk of misconduct is reduced to a minimum. Opportunity - The number of existing opportunities for theft.

Good loss prevention uses strategies by identifying the opportunities for losses to occur and removing them. This is particularly relevant to internal and administrative shrinkage. The management of processes and procedures creates an accountable environment that enhances employees’ awareness of the risks involved in theft, poor performance, or non-compliance.

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The benefits to employees (of a good loss prevention environment).

The implementation of effective processes, procedures and controls has obvious benefits for the employer. However, it benefits the employees too, by providing them with a safe working environment, which the employer also has a duty of care to provide. Good loss prevention practices will ensure that an employee’s actions cannot be misconstrued, and will prevent anyone being unjustly suspected.

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Understanding shrinkage

Financial loss can be categorized into three areas. These are internal, external and administrative shrinkage. Internal and external shrinkage are invisible. Administrative shrinkage can be either invisible or visible where records are kept of damaged stock throughout the year. Internal shrinkage is theft by employees of either money or products. Research on shrinkage figures from High Street retailers shows this shrinkage type constitutes up to 40% of total losses. External shrinkage is theft by members of the public. The same research indicates that external shrinkage also constitutes up to 40% of total losses. Recording the causes of administrative shrinkage enables them to be managed and reduced, as damage often occurs where there is a lack of controls, poor processes, or performance issues not being identified and resolved. The same research indicates that administrative shrinkage attributes around 20% of total losses.

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How shrinkage is quantified

Shrinkage is calculated at cost for accounting purposes (what it costs the business to buy), However, shrinkage is also calculated at sell (what the product would have been sold at), to better quantify the true value of loss or shrinkage. The stock in the building is counted at the start of the year. Records are kept of the additional stock delivered into the store over the stocktaking period. The opening stock plus the stock input over the stocktaking year should equal the final stocktaking count minus the sales. Any variance is shrinkage, or missing stock.

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Why shrinkage calculations are so important to a business

Calculating shrinkage is a financial safety net for a business. If money or stock is being lost through poor procedures or controls (e.g. being invoiced for stock that is never received), or is stolen from the business (either products or cash), the stock take would show the loss. Such loss would involve system manipulations to facilitate the theft of cash, as when refunded stock adds to the stock account, thus creating a bigger variance. Stock that is not physically present would not be counted. Identifying this issue is particularly important in quantifying and managing invisible shrinkage.

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