Cost-Effectively Reducing Shrinkage and Risk Exposures with Validated Assessments

13th October 2011

PRESENTED BY: Eric Hutchison Vice President, Risk and Talent Management Solutions Vangent Limited, a General Dynamics Company

© 2011 Vangent Limited. All rights reserved

Cost-Effectively Reducing Shrinkage and Risk Exposures with Validated Assessments Loss Prevention Risk Assessments: How to have IMPACT operationally TODAY and strategically TOMORROW Mitigating current employee fraud and theft at High shrinkage/High Risk stores Integrating your Loss Prevention risk assessment with your HR process Shrinkage impact from use of a pre-employment Risk Assessment at a major retailer – Case Study INNOVATION ALERT! Assessing cyber security through pre-employment assessments

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Why We’re Here

“Shocking employee theft figures” in UK retail industry: One in ten retail employees have stolen from their company in the last year; 55,000 workers have stolen money directly from their employer’s tills within the last 12 months; 110,000 confess to consuming un-purchased food and drink. ‒ G4S Secure Solutions, February 2011

Stores spent £977m in developing methods to deter and combat instore theft on solutions including background checks, investment in theft detection technology and increasing levels of supervision. ‒ The Guardian

At a recent retail conference Vangent sponsored, many attendees indicated they do not presently screen job applicants for theft behaviours, information security, safety concerns or other risk exposures. © 2011 Vangent Limited. All rights reserved

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Vangent Overview 60+ year history in Human Capital Management Over 7,000 employees working across the UK, US, and Canada with annual revenues of over £500m. Now a General Dynamics Company. 1,500 active customer engagements and over 100 million pre-employment job applicants processed Charter and founding member of the Association of Test Publishers (ATP) Vangent’s Psychologists are members of the American Test Publishers Association (Board Member) and members of the British Psychological Society (BPS) CORE CAPABIL IT IES

– Talent Acquisition

– Leadership Development

– Validated Assessments

– Competency Modelling

– Behavioural Interviews

– Leadership Surveys

– Succession Planning

– Training Solutions

© 2011 Vangent Limited. All rights reserved

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Loss Prevention Risk Assessments: How to Have IMPACT Operationally TODAY and Strategically TOMORROW

© 2011 Vangent Limited. All rights reserved

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Importance of Human Capital Risk Management Shrinkage on the Rise, According to Preliminary National Retail Security Survey Findings – National Retail Federation, June 2011 Employee deviance - ranges from counterproductivity to criminal behaviours Can endanger an organisation’s financial status, brand reputation and organisation’s security About 49% of employees have witnessed misconduct on the job (2009 National Business Ethics Survey); 30% to 80% of employees in the UK engage in theft and other counterproductive work behaviour. Employee misconduct costs UK employers over £1.5 billion annually (as of 2005). Competitive pressures on budgets increase pressures to prevent losses caused by employees UK employers rate honesty/integrity as the most important characteristic required in prospective employees.

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Vangent Employee Risk Management Value Chain

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Mitigating Current Employee Fraud and Theft at High Shrinkage/ High Risk Stores: An Assessment-based Approach

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The Need for Screening of Current Employees At a recent conference, Professor Joshua Bamfield, Director of the Centre for Retail Research, indicated that many organisations significantly underestimate the percentage of shrinkage due to employee theft. Bamfield shared that shoplifters account for approximately £1.9b in retail losses, while employees account for £1.6bn. Average employee theft was valued at £1585, almost 10 times the value of the average shoplifting theft. Segments that experience ABOVE average shrinkage include Grocery, Specialty Accessory, Furniture, Men’s & Women’s Apparel, Books & Magazines, Discount and Mass Merchandise. You can’t hire all new staff. So how does a retailer address existing shrinkage problems?

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A Better Way? Loss Prevention professionals need to maximise resources and efforts in their loss investigations. – Interviewing every employee at high risk locations is time intensive – Limits number of locations that investigators can reach – Individual interviews alone not always effective

A better way ‒ Vangent recommends validated assessment tools that detail employee admissions, knowledge and attitudes about workplace theft incidents – Assessment tools can help you to • quickly identify high risk employees • augment loss investigations and interrogations with specific data, and • audit your organisation and identify locations at high risk of becoming high shrink © 2011 Vangent Limited. All rights reserved

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Use of the Employee Attitude Inventory for Efficient Investigative Interviewing The Employee Attitude Inventory is an assessment tools that helps to strengthen individual employee investigative interviews with a valid assessment instrument that details employee admissions, knowledge and attitudes about workplace theft incidents that field investigators can explore. It is designed to be used in a highly-efficient 2-tier investigative model:

Tier 1 EAI provides validated "top of the funnel" assessment data to: quickly point investigators in a promising direction.

Tier 2 Field investigators can focus their efforts on key at-risk employees based on the EAI rather than the traditional and time-consuming method of interviewing every employee at high shrinkage locations. LP professionals can thus cover more ground and reach more high-shrinkage locations, improving impact with fewer resources and lower costs.

© 2011 Vangent Limited. All rights reserved

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Integrating Your Loss Prevention Risk Assessment with Your HR Process

© 2011 Vangent Limited. All rights reserved

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Aligning Personnel Selection Strategies UK legislation has increased organisations’ liability/risk exposure vis à vis their employees. Best line of defence – screen out job applicants at greatest risk. Failure to measure integrity, ethics, and safety consciousness can result in: – Hiring of dishonest, unethical, and accident prone employees – Increased insurance costs and asset losses – Adverse impact to the bottom line © 2011 Vangent, Inc. All rights reserved

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Phase II HCRM Screening What is Phase II Screening? – A supplement to initial “screen in” evaluation processes – Prevents high-risk candidates from being hired and meet the needs of Loss Prevention, Corporate Safety, HR and others

How does it work? – Administered to pre-screened applicants who completed Phase I assessments. – Measure risks such as counterproductivity, on-the-job theft potential, illicit drug use tendencies, unreliable work background, and negative social behaviours.

Vangent’s Phase II process is described in: “Mitigate Employee Deviance” (Jones, 2009) Talent Management Magazine.

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Shrinkage Impact From Use of a Preemployment Risk Assessment at a Major Retailer – Case Study

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Risk Assessment Case Study Client Profile: Global top 100 organisation Concern over reduced brand equity and competitive advantage due to unethical and fraudulent employee behaviour Programme Goals: – Reduce counterproductive behaviour, involuntary turnover and disciplinary issues with new candidates – Implement a seamless “Phase 2” Risk Assessment to compliment current recruitment and selection solution

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Risk Assessment Counterproductivity Admissions Admissions of Counterproductive Behavior ‒ n = 300,000+ Applicants Frequency

Specific Behavioral Admission Item

Frequency

Theft, Fraud, & Dishonesty

Specific Behavioral Admission Item Illegal Substance Use

7,675

Gave unauthorised discounts to others in the past three years

532

Recently used marijuana away from work more than once

2,939

Committed a crime involving theft, fraud, or dishonesty in the past five years

322

Recently used marijuana at work or just before at least once

2,515

Convicted of a crime involving theft, fraud, or dishonesty in the past five years

285

Not willing to take a drug test

1,624

Took something from a store without paying for it in the past five years

92

Recently used cocaine, crack or ecstasy away from work at least once

102

Recently used other illegal drugs away from work at least once

10,691

Ignored safety rules at work sometimes or more often

40

Illegal drugs recently affected performance at work at least once

Work Misconduct

9,037 869 486

Engaged in shouting matches at work at least once Committed or were disciplined for sexual harassment at work Engaged in shoving matches or fistfights at work at least once

Turnover Risk 6,947

Quit 3 or more jobs in the past 3 years

2,488

Plans to work for the company less than one year

1,525

Was fired more than once from past jobs

1,798

Had three or more unexcused absences from work in the past year

157

Was late without permission, more than three times a month Total Admissions – 50,000+

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Business Results Comparing full year 2009 to 2010 (over 300k candidates): – 34,000+ candidates identified as “high risk” (50,000+ admissions of counterproductive behaviour) – Total theft related loss, involuntary turnover, written disciplinary violations, and overall turnover all reduced by over 20%

Estimated that Vangent’s Phase 2 risk assessment screening program yielded ROI for reduced shrinkage and turnover alone exceeding GBP £5.64m (£3.75 to £1 ROI).

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INNOVATION ALERT! Assessing Cybersecurity Through Pre-employment Assessments

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The Need for Cybersecurity Screening

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“Top cybersecurity concerns: Malicious code, employees run amok”

‒ Network World, August 2011

“Nearly 45% of responding corporations, agencies, and institutions stated that at least some of their losses due to cyber attacks were attributable to malicious insiders”.

‒ Computer Security Institute 2009 Survey

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Information Security Express Admissions Admissions of Information Security Behavior ‒ n = 30,000+ Applicants Frequency 660 125 6

Information Security Counterproductive Admission Spends more than 60 minutes of a typical work day using the computer for unapproved uses (e.g., net surfing, online shopping, etc.). Has used his/her computer at work to access unauthorised company or client information a few times or more often in the last THREE YEARS. Has often left confidential company/client information in his/her work area without locking it in his/her desk or a file cabinet.

30

Has violated company policy regarding data security to get his/her job done faster at least once.

95

Has gotten into trouble at work for not following company policy regarding data security (e.g., not protecting confidential information, gaining unauthorised access to organisational information, and/or misusing customer information) at least once.

395

Has engaged in the identity theft of someone else’s personal or financial information in the last THREE YEARS.

23

Has sent unsolicited spam or other offensive e-mails a few times or more in the last THREE YEARS.

6

Has engaged in the theft of valuable and/or confidential data in the last THREE YEARS (e.g., Social Security Numbers, credit card information, trade secrets, etc.) at least once.

7

Has taken company computers, data storage devices, networking devices, or other computer equipment without authorisation at least once.

83

Has used his/her computer for any type of illegal activity at least once in the last THREE YEARS (e.g., accessing and downloading illegal content, gaining access to a secure network, engaging in fraudulent transactions, etc.).

299

Has inappropriately used someone else’s personal or financial information (e.g., credit card numbers, Social Security Number, account passwords, etc.) without their permission in the last THREE YEARS.

21

Has gained unauthorised access to company software, databases, or other protected online information at least once.

1,750

Total Cybersecurity Admissions

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Questions? Eric Hutchison Vice President, Risk and Talent Management Solutions, Vangent [email protected] 001 678 493 3442 Martin Dove Head of Risk and Talent Management Solutions, UK, [email protected] 0207 939 3661 4th Floor Cottons Centre Cottons Lane London SE1 2QG [email protected] www.vangent-hcm.com

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