Why wait until fraud or theft has grown to the point that someone actually needs to be walked out the door? A fraud analytics system aims instead at ferreting out the small deviations in individual employee behavior, allowing discrepancies to be detected long before they must be handled with legal action — and before they cost the company related funds.
 

“The bottom line is that this is about earnings per share,” says Charles Nicholls, CEO of SeeWhy Software, which recently partnered with U.K.-based Retail Business Solutions to integrate its insider-fraud analytics piece into RBS’ offering. “If you could detect all of the thieving going on in any business, would you want to get rid of everybody?”

SeeWhy undertook an exercise with a major supermarket in the U.K.; in the course of one month, the company fired 70 staff across its stores. “The impact that has on a business is very significant,”
Nicholls says. “If you take people off the tills, that causes customer service issues and affects the recruiting budget. And when you replace them, you may be bringing in more bad pennies.

“The way to make loss prevention more profitable, then, is to keep people on the straight and narrow in the first place, to keep them on the right approach,” he says.

Rather than analyzing data on a batch basis, creating reports and sending them out, SeeWhy’s real-time software-as-a-service (SaaS) system works continuously.

“Every time somebody makes an interaction at the point-of-sale terminal, it’s analyzed,” Nicholls says. “Now, let’s say that the rates are normal, showing a regular pattern based on the shift the employee is working and the roles he’s fulfilling. But then all of a sudden, that changes.

“Very often it starts with a little bit of experimentation or an accident,” Nicholls says. “They’ll try something, and they don’t get caught. Then, because they didn’t get caught, they might let it digest for a couple of days, and try it again. If they don’t get caught that time, what you find is that the problem begins to escalate, and once it gets to the point it can be caught by traditional technology, it’s clear dishonesty. You need to get them out, because they’re a bad penny.”

If, however, the discrepancy is noted immediately, the situation could be handled with further training or “a rap on the knuckles,” Nicholls says. “And ultimately, you get to retain the employee.”

In addition, the system’s automated processes can kick off other business processes. Should a fraud be noted, for example, the till could be locked or cards suspended until the problem is solved.

The way Nicholls sees it, the biggest question is not whether to implement the program — it’s whether to tell the employees. Some retailers choose not to inform them in an effort to catch fraud, he says, but “the more enlightened ones” realize that employees who react negatively to such a system may well be the ones trying to get by with questionable behavior.

“It goes with the territory, I’m afraid,” he says. “With any of these kinds of solutions, employees will come under more scrutiny. The reality is that there’s a huge gulf between what the central office believes happens in the field and what actually happens in the field. But what ends up happening is an overall tightening up of the business process. … This closes up the loopholes.”

U.S. rollout underway
So far, the system has been primarily implemented in the U.K.; rollout is just beginning in the United States, where Nicholls expects it will be well received.

“I don’t think there are too many differences between the markets,” he says. “To be honest, they’re very similar. But I do think that, culturally, the U.S. is further ahead in loss prevention than the U.K. There’s much more emphasis on exception reporting, and there are many more reporting packages.”

According to SeeWhy’s shrink calculator, a $2 billion revenue-per-year retailer with industry average profitability would have to sell $200 million of additional product to deliver the same profit contribution as a 0.1 percent reduction in shrink.

“So, which is easier?” he asks. “There’s an element in retail that thinks if shrink is part of business, we just have to accept that, or that as long as it doesn’t go above 1.3 percent or whatever the number is in that sector, we’re O.K. and we’ll just build it into the business plan,” Nicholls says. “But when a technology like SeeWhy comes along, they may need to start re-evaluating that.”