Combatting Till Fraud in the APAC Region using AI - Part 1

"As till fraud continues to expand in line with retail shrinkage, its growth leads to the unpalatable conclusion that either the number of fraudulent staff on the team is increasing, or a constant number of fraudulent staff is stealing more, and becoming much more adept at avoiding detection"

Combatting Till Fraud in the APAC Region using AI - Part 1

Introduction

The APAC region is not immune from the global rise in retail shrinkage of all types, but Point-of-sale till fraud is the area where the data collected can be used to quickly and effectively detect the fraud. Although several Asian countries are managing to stay at or slightly below the global shrinkage average, in absolute terms their losses remain uncomfortably high. Despite this, many APAC retailers continue to fight till fraud using standard techniques. As fraudsters become more sophisticated in their approach, traditional detection and prevention methods are no longer adequate. We believe they will need to be enhanced, or even replaced, by new techniques based on data analytics.

In the first of a two-part article, we’ll review the established methods used in APAC to fight till fraud, and comment upon their shortcomings. In the second part, we’ll present the opportunities offered by POS data analytics in the development of new fraud detection techniques.

Till Fraud in APAC is increasing

Retail fraud continues to grow in the APAC region. The picture is mixed across individual countries, with some managing to stay below the global shrinkage average. Even so, losses are mounting to the extent that APAC retailers cannot remain complacent and not tackle the problem.

Till fraud is one of the main components of retail shrinkage, accounting for around 30% of the total. As till fraud continues to expand in line with retail shrinkage, its growth leads to the unpalatable conclusion that either the number of fraudulent staff on the team is increasing, or a constant number of fraudulent staff are stealing more and becoming much more adept at avoiding detection. No company likes to think that some of their staff are dishonest, but the numbers speak for themselves.

Matrica - Lady At Open Till

Over-reliance on standard techniques

Many APAC retailers continue to fight internal till fraud using established standard techniques, such as :

  • Balancing the cash in the till at the end of the day or shift, and charging the cashier for any shortfall in the balance;
  • Recording the till area via CCTV, and attempting to correlate the cashier’s behaviour with any anomalies in the transactions, such as under-ringing, or voiding transactions but allowing the customer to take the goods anyway;
  • Relying on honest staff to report on their dishonest peers.

Unfortunately, these traditional techniques are becoming increasingly ineffective against the modern till fraudster.

Methods of evasion

So how do cashiers get around the traditional fraud-catching techniques?

The starting point is simple - even the most basic fraudster is aware that they are the subject of some kind of surveillance, and soon develop a basic knowledge of how their employer’s existing security controls and techniques operate. If not caught early on in their careers, they may graduate to a level where they know more about the weaknesses of the security system than the designers, and circumvent it with ease. Alternatively, they may go on to become part of an organised team that colludes (possibly with outside help) to defeat internal security.

Balancing the till at the end of the day or shift is a good start to fraud detection, but a balanced till does not mean that no fraud occurred, it just means that the ins and outs recorded on the till roll balanced with the contents of the drawer. Incoming payments by cash, card, and low-value sales can easily be manipulated at the hands of an expert user. Outgoing payments through voids, refunds, returns, under-ringing, and the misapplication of public and staff discounts can easily be aligned with incoming payments to give the illusion of a balanced till.

Using CCTV to monitor the till area isn’t always practical. Siting of the camera to get a full view may not always be possible, and any skilled fraudster could conceal their movements, or at least introduce a degree of ambiguity to throw the pursuer off their trail. Continual analysis of all CCTV footage is not practical, so would only be referred to after the fraudster had already aroused suspicion. Where CCTV storage capacity is limited, and subject to regular purging, the window of opportunity to catch a suspected till fraudster on film may be too short to be effective.

Reliance on honest staff ‘whistleblowing’ on their fraudulent peers is fraught with difficulty. Globally, some cultures frown upon persons acting as informants no matter how noble their intentions. Honest staff may be intimidated into remaining silent, or in extreme circumstances, be incentivised to join in the fraud. If the suspected fraud reaches the investigation stage, there are always the legal issues around managing the evidence and dealing with false accusations that may be motivated by personal issues broader than those confined to the workplace. Some companies may fear true discovery of how deep retail fraud has penetrated their organisation because of the threat to reputation.

Not all fraudsters operate alone. Some may involve family, friends, even colleagues to operate schemes such as under-ringing, abusing discount coupons, use of fake coupons, returning discounted or even stolen goods for a refund at full price. More organised fraudsters will operate with persons with whom they have no visible personal connection. This type of fraud based on collusion would fool most CCTV or security systems, as there is nothing overtly suspicious to see.

A new approach is needed

In conclusion, APAC retailers are finding that traditional techniques for combatting till fraud are becoming less and less effective against increasingly sophisticated till-users who possess a knowledge of in-house security systems arguably greater than that of the security staff.

That said, modern tills create huge amounts of POS data that can be used by linear programming and electronic surveillance technologies. The only effective countermeasure is to supplement, even replace, traditional techniques with one based on detailed analytics of till data.

In part 2, we’ll focus on the use of POS data to resolve this and prevent retail shrinkage and see how till fraudsters tend to leave characteristic traces or patterns of their activities in the POS data that can be detected using data analytics. Indeed, we believe that deploying till fraud-prevention systems based on pattern-recognition technology is the best way forward to fight retail shrinkage in the APAC region.


Reference - ACMA Currency Notes March 2022 Vol 5 Issue 3.

By Dr M F Earthey
7th April, 2022