Employee discounts are a great benefit to provide, but it is not at all uncommon for employees to abuse this benefit for themselves or for friends and family. How can you identify this policy abuse and develop operations and company culture to prevent it? Let’s delve into the issue of employee discounts and examine some best practices to combat this fraudulent and often criminal practice.

Part of the confusion surrounding employee discount abuse is the confusion over its definitions. For retailers, especially loss prevention professionals, discount abuse is a crime at worst and a severe and actionable policy violation at best.

However, that distinction is important in retail operations for two reasons.

  1. It determines the outcome for the violator and whether an employee is fired or arrested may make a difference as to how the employer wants to be seen in any given community.
  2. Because this may be seen as a gray area by middle or upper management, it represents an area where retailers are likely to make inconsistent decisions.

Ultimately, if a retailer chooses to provide discounts to employees as a benefit of employment, investigations into abuse regarding employee discounts are inevitable. Knowing the answer to whether employee discount abuse is considered a policy violation or a crime is critical not only to resolving cases but also in deterring employees from using their access to employee discounts for ill-gotten gain.

Another problem with spotting discount abuse is that it appears on the books as an erosion of profits rather than as an actual crime. Unlike the practice of ringing up false returns or selling items at the wrong price point, discount abuse uses a legitimate function of your point-of-sale system. However, implementing an advanced video surveillance system with video analytics, such as Envysion Insights™, can help retailers identify a pattern of abuse as well as connecting a practice of employee discount abuse to a specific employee or employees.

None of these arguments change the fact that employees can misuse their employee discounts to skim cash off your retail operation. Here’s how it often works: your customer pays full price for your merchandise and your employee collects the total amount. After the customer leaves, your employee swipes his or her employee discount card to lower the invoice amount. He or she keeps the price difference for themself. False discounts remain concealed from accounting because the sale is entered into the point-of-sale system. The invoice shows the merchandise items that were sold, and that the amount of cash collected plus the employee discount is equal to the total sales amount. What the invoice doesn’t indicate is who actually purchased the merchandise.

Your accounting system, cash controls and advanced video surveillance can help you ferret out employee skimming. You can also prevent short-term skimming by periodically counting the cash daily yourself instead of letting your employee do it. Envysion video analytics can help you identify and monitor which employees are responsible for generating “No Sale” transaction invoices. To combat unrecorded sales, use video surveillance or RFID tags to monitor inventory counts and compare the actual number to your electronic inventory. Look for count discrepancies, significant changes in your inventory shrinkage amount and excessive write-offs for damaged or destroyed merchandise. To uncover false discounts, place a dollar limit on the discount amount an employee can take each month or personally approve an employee discount before it is taken.

Employee discount fraud is unfortunately a common risk in today’s retail environment.  Understanding your employee discount benefits, developing proper security measures with the card and your point-of-sale system, and auditing your benefit program for faults and risks will better protect your retail operation from employee discount fraud. Decreasing the opportunities and likelihood of fraudulent incidents will then allow you to reward quality employees with employee discounts and increase the retention of your best employees.