Article | April 3, 2018

Auditing: An Essential Tool For Any Effective LP Program

By Mike Keenan, CPP, CFI, LPC, Managing Director, Retail Loss Prevention at TAL Global Corporation

Wren Audit

By monitoring execution and correcting identified deficiencies throughout the year, you can improve compliance, control loss, and keep both employees and customers safe.

Early in my career, I heard a quote that I found to be consistently accurate.  “A well-run facility equates to low shortage.” But how do you ensure that a facility is running well?  By “inspecting what you expect” with an effective LP audit program. An LP audit program enables you to monitor store, DC, and fulfillment center compliance to loss control policies and procedures on a periodic basis. 

Two Keys to a Successful LP Audit Program

The two keys to a successful LP audit program; the first key is objectivity. The audits must give an accurate picture of what is actually happening in a facility.  If they don’t, they have limited value.  In order to correct issues, you must know what they are.  Auditors must be able to objectively report their findings.  Of course, that makes sense, but it doesn’t always happen.  Here’s why.  If the person who conducts the audits reports directly to a person in company leadership who is responsible for running the facility, can they truly audit objectively?  Will the LP auditor worry about jeopardizing their relationship with their boss?  Ideally, your LP auditors should report independently from the people who run the facilities they are auditing.  However, if that is not the case, make sure that company leaders understand why LP auditors must be objective.  The goal is to improve results not find fault with individuals unless those individuals are not performing as expected.  And if they are not performing as required, leadership will want to know that.

The second key is accountability.  If a facility fails an audit, what are the consequences?  Are the consequences serious enough to get the attention of the person being audited?  For example, if a facility fails an audit, does it result in disciplinary action?  Does it impact their performance evaluation or bonus?  If the consequences aren’t meaningful, facility leadership will not focus the appropriate attention on taking the actions necessary to pass the audits.  You must elicit Senior Leadership’s support in developing the appropriate consequences so that those being audited know that passing audits is a company priority.  

If you don’t have an effective LP audit program or don’t have one at all, how do you get started?  Create a Task Force that includes loss prevention and facility leadership.  By including facility leadership in this process, there will be more of a sense of ownership and the audit will have more credibility.  Develop an audit that addresses controlling loss and keeping people safe in all areas of facility operations.  This process does not normally include creating new policies and procedures but just selecting those that will make a difference in reducing loss.  The contents of a store LP Audit should include, Cash Office, Receiving, Point of Sale (POS), Safety, Physical Security, product protection strategies, etc.  The contents of a distribution center/fulfillment center LP Audit should include Shipping, Receiving, access control, perimeter protection, etc.  As a side benefit, this process can result in strengthening controls in almost all existing procedures because when the Task Force reviews each procedure they will usually find ways to improve them. 

To ensure that the new audit works effectively, make sure you “field test” it.  This enables you to identify problem questions and correct them before you roll out the program to the entire company.

One way to ensure auditing consistency is to create a Loss Prevention Auditor’s Manual, which contains detailed explanations of what the auditor should be reviewing for every question on the audit.  This manual will ensure that all auditors review the same areas in exactly the same way.  Effectively communicating this information to the stores will eliminate many of the challenges when points are not awarded.

Once finalized, the revised procedures, audit forms and audit manual should be provided to all facilities.  Facilities should be given some time to “ramp up” before the audits are scheduled to begin. 

Another component of an audit program that gets results is a random and unannounced audit schedule.  The only way to get a true picture of what is really happening in a facility is to show up when the facility doesn’t expect you.  Another benefit of a random and unannounced audit schedule is that all facilities will operate more consistently on a daily basis in expectation of receiving an audit.

Audits must be conducted often enough to allow “course correction” during the year.  It is the consistent execution of shortage control policies and procedures that provides positive year end results.  One formula that works well is a quarterly audit in all facilities and a monthly audit in high loss locations.  Of course, your program must fit your company’s structure and budget.  Timely reporting of audits is also important.  As soon as an audit is completed, the results should be communicated to the applicable leadership.  After that, audit scores should be tracked along with all of the other company performance measurements and be included in annual performance evaluations.

To maximize efficiency, audits and audit instructions should be online and accessible through tablets and smart phones.  This eliminates paper and the manual tracking of results.  However, if you cannot put the audit online, paper audits work just the same. Although they do require more manual effort to track findings.

There are many benefits to an online audit. 

  • Ease of use by the auditor.  The audit is always with them.  There is no need to carry paper audits and an auditor’s manual.
  • Ease of changing questions and/or audit instructions.  One change done centrally is available to all auditors instantly.
  • Immediate communication of pass/fail audits to the applicable employees
  • Easy access to results by facility, geographic region and the total company
  • Ability to identifying common findings.  For example, if all facilities are failing the same question(s), an analysis should be done to identify why.  Once identified, course correction can be implemented.

Another advantage of a smart device is the ability to take photos of a finding.  For example, if boxes of merchandise are blocking an emergency exit, a photo clearly shows the violation.  It is hard to argue with a photo versus an auditor’s observations. 

By implementing an effective LP audit program, compliance and execution will improve which will reduce loss, keep people safe, and drive better bottom line results.