Over the past few years DTE Energy, a Detroit, Mich.-based utility, has lost tens of millions of dollars in revenue because of energy theft. People are literally manipulating live wire that could easily create shock, fire and explosions that can lead to property damage, personal injury and even death. Energy theft is a nationwide issue for utilities, but for Southeastern Michigan the problem has become an epidemic in recent years given the economic strain there.

DTE’s corporate security department, led by Michael Lynch, chief security officer, has learned to use technology in a way that is not being used anywhere else in North America, possibly anywhere, to catch the bad guys and reduce theft. And while its advances have been dramatic, Lynch is quick to point out that the results have only been achieved through a transformational relationship with internal and external partners.

But energy theft was a problem for the utility even before the economic issues developed in the area. “Energy theft has steadily increased over the years as customers came to realize that the crime was under-reported and enforcement was non-existent,” says Lynch. “Illegally restoring gas or electric is not only dangerous to the individual committing the act, it’s a danger to the entire community. Building explosions can occur when gas services are tampered with and building fires are even more common when electric services are tampered with by untrained individuals. Moreover, in many instances the hook-up man risks serious injury or death when tampering with the service.”

DTE Energy has a team of individuals, part of its Revenue Management and Protection organization, dedicated to investigating energy theft on a daily basis. “Although this team is quite talented and persistent, the struggle to keep up with reports of energy theft can be overwhelming,” Lynch says.

About a year ago, DTE corporate security was challenged with investigating and prosecuting a specific subset of high-profile theft cases. This would require recruiting law enforcement to conduct an additional investigation and taking the cases to the prosecutor’s office. “The challenge was to send a strong message that energy theft was against the law and would no longer be tolerated by the utility. Law enforcement and the prosecutor’s office were key to the success of this challenge,” Lynch explains.

To accomplish this goal, corporate security targeted the following groups: hook up men, (those individuals who got paid for hooking up electric and gas service), commercial customers who were making a conscious decision of steal rather than pay their bill, and finally, landlords that take advantage of tenants and put them at risk by stealing energy. Clearly, corporate security was targeting the greed versus need group.

In 2009, corporate security had moderate success. “The most notable case involved a well-to-do suburbanite who was alleged to be bypassing his electric meter and stealing for 20 years,” Lynch says. 

“Corporate security was able to work with the Revenue Management and Protection unit to successfully prosecute the individual responsible. The homeowner was living so lavishly that he used the free electricity to heat his swimming pool to 92 degrees. Again, greed versus need.”

But during this period, corporate security struggled to get a foothold into the problem. Successes were episodic and not sustained.

It wasn’t until local reporter Bill Spencer challenged corporate security that things started to move quickly. Spencer challenged Lynch to obtain live video of a hook-up man restoring the service on the utility pole and being arrested. If successful, Spencer promised to use the video as the leading story for the local news.

With the assistance of Revenue Management and Protection, Lynch identified target-rich locations to set up stake outs. Lynch’s vision was to shut off the power at these theft locations and then watch them using his team. Lynch’s team was highly qualified: Three members are former/retired FBI agents with others having law enforcement experience. Lynch himself has been conducting investigations for more than 30 years. But the team’s experience was no match for the street wise criminals they were targeting. The surveillance missions ended in failure. Nothing happened. No arrests. And no video.

But reporter Spencer’s challenge was not forgotten. Lynch sought the input from some of corporate security’s largest vendors – the multi-national security firms that do government contract work and have offices in all the major cities. Lynch challenged the biggest to create a video system that would allow the surveillance team to monitor the location remotely, safely and anonymously. The equipment would have to be portable, light, unaffected by the elements and capable to sending video images to the surveillance team.

“Not one of our vendors was able to fabricate a model,” Lynch says. “In fact, most didn’t even seem interested in the challenge. If it wasn’t a product that was on the market and available off the shelf, they just didn’t seem to have the bandwidth to think beyond their current paradigm.”

After getting the challenge rejected by his major vendors Lynch sought the help from a person the company had only limited pervious exposure. But this fellow was different. Lynch refers to him as the “mad scientist”.

“The guy was literally working out of his basement,” says Lynch. But he met the challenge.

“Essentially, we used a plastic weather proof box only slightly larger than a shoebox that could be installed high on the pole in a few minutes in target rich environments,” Lynch explains. “Our intrepid partners, the Detroit Police Department would be miles away and be alerted when activity (an illegal hook up) began in the target area. The person monitoring the video images was watching the action unfold from an Internet connection within their home. Not only did this ‘remote’ viewing allow for a more stealth surveillance and was, therefore, much more effective, but it was also much safer for the team.

“Our rapid experimentation continued,” Lynch adds. “Further generations of the equipment included recording ability, night vision and at least one pan-tilt-zoom camera. All video was broadcast over a secure Web site, so we are able to monitor the site from any computer with Internet capability.”

As a result, Lynch has captured video that has never been seen before. “We met the challenge issued by the television reporter and went way beyond. In the past eight months we have more than 30 videos of individuals captured in the progress of stealing energy. But great video without the support of law enforcement would be useless,” he says.

“The efforts of the Detroit Police Department in addressing energy theft far surpass our technology,” Lynch explains. “This is by far the best collaborative initiative that I have been associated with in my career. The Detroit Police Department’s Copper Theft Task Force (CTTF) has taken a keen interest in energy theft. Leveraging the police techniques and their work ethic, the team has been directly involved in more than 100 arrests for energy theft in the first eight months of 2010. Realistically, if you were to add all of our company-initiated criminal complaints for energy theft over the past 20 years it wouldn’t come close to the number of arrests that we have had in the first eight months of this year.”

Lt. Hassan, who leads the CTTF, had the foresight to seize complete control of the enforcement process. Unlike other units, the CTTF works its cases completely within the unit. They conduct the surveillances, interview suspects, do all the follow up and write the warrant requests.

The result has been a perfect storm of energy theft prosecution. “I don’t know of a better private and public sector partnership,” says Lynch. “The technology is out of this world. Quite frankly, the technology has been an enabler. The real strength of the effort is the phenomenal work of the Detroit Police Department.”

Shoplifters and dishonest employees stole more than $6 billion in 2009 from just 25 major retailers, according to the 22nd Annual Retail Theft Survey by Jack L. Hayes International. The 25 surveyed retailers apprehended more than 1 million shoplifters and dishonest employees in 2009 and recovered more than $163 million from these thieves. In all, total shoplifter and dishonest employee apprehensions increased for the fourth consecutive year, up almost 15 percent from the previous year. Why? According to the report:

• A struggling economy is causing more shoplifting to take place.
• There are fewer employees on the sales floor, creating more shoplifting opportunities.
• There is a reduced social stigma of shoplifting.

Many thieves have found that selling their stolen items through various on-line auction sites results in quicker sales and much higher prices than the traditional selling of items on the street or at a local flee market, the report says. This easy access to a much larger audience has resulted in shoplifting becoming a highly popular way to quickly get cash.

There’s also an increase in fraudulent returns and refunds, which are estimated at $16 billion a year. Thieves create fraudulent receipts with desktop publishing software and color printers, and then return stolen items to the store for their full retail value (versus 50 percent or less when sold over the Internet or on the street).

Louis D. DeFalco, corporate director of safety, security and investigations for ABC Fine Wine and Spirits, tells Security that training is so important to prevent internal and external theft that he began an incentive program for store employees. “If a store is shoplifted, my loss prevention analyzers will look at the video, and as long as everyone was doing their job, I give them a ‘credit’ so that the loss doesn’t go against their inventory. But I also use the incident as a training tool if they weren’t doing their jobs.

“We are constantly telling our store managers to keep awareness at its highest level at all times,” he adds. “We no longer have a peak season of thefts; it’s all year long. With the economy, we’ve had to do some payroll and staffing reductions that make it even harder to watch our stores. And people are doing things [thefts] they would not normally have done in a different economy.”

DeFalco also placed “Under Surveillance” signage near high-ticket items in the stores, added large security video monitors at the front doors and at check out counters and recently converted to IP cameras. “I also store more video,” he says. “A lot of retailers only keep 30 or 60 days of video, but by the time they find a problem, they can’t track it. I keep four years of video at every location.”

“When I took over six years ago our shrink was two to three percent. Now we are at .25 percent, and that’s huge when you talk about the amount of business we do each year. We also cut down our inventory to every 90 days. If we have a similar product missing in inventory, we increase that cycle count. And we require our store managers to tell us what they have, versus us telling them what they should have.”

Joe Wojcik, loss prevention night investigator for Randalls/Tom THumb Food Markets, also sees training as a valuable tool. “As the old loss prevention saying goes, ‘You have to think like a thief to catch a thief.’ So, we have to encourage our associates to communicate to us when a change of product arrives at the store that they feel may be attractive for resale. The incidents of theft seem to be on the rise, both internally and externally. It will probably continue in that direction, until the economy gets better. We have to always think of ways to work smarter, and not harder, in order to maximize our resources.

“Our company culture stresses the importance of associate training and education regarding the reduction of internal theft and its relationship to the overall success of the company,” he says. “We get a lot of tips from associates regarding associate theft. Our focus on customer service enables our associates to deter theft in a non threatening manner. Our associates are our most valuable asset and we develop and close several internal and external cases a year based on their information.”

“Awareness is key,” adds Joseph Reyes, area asset protection manager, southeast Texas for Best Buy. To that end key store level personnel are required to become Asset Protection certified via an internal online training certification process. The AP team provides weekly shrink recaps and weekly category adjustment reports to the store level managers. Those reports detail exactly where each store is in terms of shrink concerns. Each and every location is assigned a shrink budget goal and all stores have access to weekly shrink reports and are required to review current standings via a shrink barometer that is updated weekly. “Theft deterrence is a daily staple that starts during the pre-employment interview process, continues during on-boarding orientations, and remains a strong message throughout an employee’s tenure,” Reyes says. “Of course, physical security measures that include multiple merchandise protection standards and devices are employed, but our store level personnel are our primary line of defense. Positive customer experience and engagement is the expectation and the key to deterring thefts on a day-to-day basis.

“We face the same type of challenges all retailers face every day as we strive towards achieving a perfect balance that allows for an exceptional customer experience while in our stores,” Reyes adds. “This balance dictates that we allow our customers with direct access to high-end merchandise while at the same time doing all that can be done to minimize losses. The challenge, of course, is to strategically allow for one while protecting against the other. I’ve been in retail management in one capacity or another for many years and specific challenges such as professional theft rings continue to run in cycles with no definitive static increase or decrease. These challenges have always been a part of retailing and always will be. We are not immune to professional groups that target retailers, so we strive to maintain a high sense of awareness and exceptional customer engagement to address this type of concern.”

According to a survey by the National Retail Federation, 89.5 percent of retailers surveyed say their company has been a victim of ORC within the past 12 months, a slight decrease from last year’s 92.2 percent. The NRF survey also found that 58.9 percent of retailers have seen an increase in ORC activity in the last 12 months, down from the nearly three-quarters (73 percent) who said so last year.

As the economy continues its slow recovery, retailers are starting to invest more resources into ORC awareness and prevention. About 48.4 percent of retailers say they are allocating additional resources to address ORC, up from 41.8 percent of respondents last year.

Justin Gantz, loss prevention coordinator for Zallies Shoprite Supermarkets, tells Security that “keeping up with the new tactics of shoplifters and criminals is the biggest challenge. For every trick we find they are using, there is always a few more that we haven’t figured out. Over the years it has changed from ‘boxing out the cart’ and leaving with the bag, to just grabbing what they want in a hand basket or cart and making a run for it.”

Gantz says that all loss prevention associates receive a two week training course when they begin their employment, and also are certified each year on the proper techniques to use when apprehending a shoplifter. Communication between the stores is also key: Loss prevention associates communicate with each other via phone and email, which allows stores miles apart to quickly relay information to each other.

One recent addition to the company’s tracking of employees and goods is a program called Smartstore, which tracks transactions and posts warnings for certain ones (such as a high coupon amount, excessive voids, or manually entered coupons). The program has been in place for less than a year and has already helped in the termination of about eight associates for sweet-hearting and theft. “This program is used by our Front End Supervisors, but all loss prevention was also taught how to navigate and investigate various warnings generated by program,” he says.

Dave Abramson is using exception reporting software loss prevention training, and the field operations staff to hold all Hallmark store employees accountable. Abramson is manager of loss prevention for Hallmark Cards, Inc. He and his staff run the loss prevention operations for Hallmark corporate stores, in addition to providing consulting services to private store owners. There are more than 3,000 Hallmark stores nationwide, 375 of which are owned corporately. And don’t let the price point of an average greeting card fool you. Abramson says, “We lose a lot of low-priced greeting cards, some that cost just $1.00. People steal Mother’s Day cards that they then give to their Mom.”

Abramson has reduced Hallmark’s shrink levels from well over three percent to 0.8 percent of sales. “We’ve had some good success,” he says, “but it’s not one thing that we do, it’s a host of things to attack our losses. We’ve also have incredible support from our field operations staff and vice president of operations.

“We use exception reporting software to identify training issues in our stores to detect theft and make sure our employees are doing things correctly on the registers. We send an employee a letter showing them a transaction that concerns us from a loss prevention aspect and ask them to explain what happened. It raises the awareness in the stores that not only are we keeping track at point of sales, but it corrects training issues.

“Another area that we have aggressively attacked is returns to vendors, miscellaneous stock items and markdowns,” he tells Security. We sort the information electronically so that we can measure it against all other stores to see where a store might be out of line. We post those results on a district manager Web site and the district managers then discuss those issues with the store managers.

“You hear the clichés about working harder and smarter, but we focus on the stuff that makes a difference – we don’t follow the hot thing of the month, we try to keep it simple and hold people accountable,” he adds. “If a store manager fails two audits, his or her job is in jeopardy. If you violate a policy that results in a monetary loss, you are likely to be terminated. It’s simple, but you have to hold people accountable. Otherwise you will hit a wall from a shrink perspective and you can’t go any further.”

For John Dummett, Security Director of Southern Wine & Spirits of northern California, the price point of items stolen is higher than of greeting cards, but preventing alcohol from being stolen is equally important. “Theft avoidance is a very important concept to us due to the liabilities involved with alcohol,” he says. “At our distribution centers and satellite facilities, the security video system is a deterrent factor to theft, but we also have policies and procedures that consistently reinforce the deterrence factor and are a disincentive to commit acts of theft. It’s of paramount importance to emphasize theft avoidance as opposed to detection; the term loss prevention is accurate to what the industry should be, however we often find that we take on a very reactive approach. The fundamental piece for us is the emphasis on policy and procedure that breaks operations down to their lowest terms and provides checks and balances to prevent theft by removing opportunity.”

Dummett says that in terms of asset tracking, a loss prevention executive should focus on providing the highest ROI by investing in technologies that reflect the causes of loss. “If, like our company, the vast majority of non-breakage related loss is operational, then asset tracking measures as well as policy and procedure must be crafted to focus on operational loss as well as dishonesty.” In his case this was the implementation of a forensic review security video system that allowed the review of product on high speed conveyors during the distribution process. “Implementing a security video system, we were able to dramatically improve our ability to track discrepancies quickly and effectively,” he says. Since 2006, procedural improvement coupled with replacing the security video system in late 2008 have produced a steady decrease in shortage from approximately 22 cases of alcohol per month in this area of the operation, to approximately 1.5 cases per month. “In terms of straight loss this is a dramatic improvement, but even more so when factoring in processing and re-shipment costs of lost product,” he says.

Dummett notes that the technology available to the security and loss prevention executives is exponentially better than it was as little as five years ago. “Yet, the pitfall here is that security and loss prevention executives must invest more and more time into understanding it as it has become so much more complicated. While a top notch integrator, installer or consultant can recommend systems to meet the needs of many industries, the end user and loss prevention and security executives have the increased responsibilities now of having to better understand the technology, its benefits and what of the many options would best suit their application,” he says. “It is ultimately on us to understand options like these and implement the best system.”

David Kraus, director of security for Impax Laboratories, Inc., agrees with that assessment. Impax Laboratories is a solid dose pharmaceutical manufacturing company that is required to provide a strong security monitoring program because of regulatory compliance requirements governing its manufacturing and quality performance. “We recognize the fact that the vast majority of our employees are honest, yet our compliance standards require cameras in many of our manufacturing rooms that are monitored and recorded by security on a continuous basis,” Kraus says. 

“We use a variety of cameras and other controls to closely monitor material inventories of all manufacturing supplies,” he adds. “All security video cameras are recorded using DVRs and NVRs, with a minimum 30-day saved recording length. We use special raw supply holding areas, such as cages and vaults, to segregate controlled and special substances that are considered especially high-risk materials. These areas are specially equipped with cameras, alarms, detectors and keypads to strengthen perimeter and interior protection zones.” Security also uses a contactless employee ID card, which is also specially color-coded to indicate the employee’s authority level to be around certain types of controlled raw materials. Materials used and finished in production are continually weighed and inventoried during their processing. Additionally, security does random locker inspections of all employees to ensure that material and goods are not diverted or stolen. And, to help protect products and materials being shipped, GPS devices are used to track certain shipments in transit.

“The challenge comes again in the form of people,” Figueredo says. “Finding seasoned investigators isn’t a problem. Finding knowledgeable, well rounded loss prevention professionals who are self motivated and have the passion and desire to go the extra mile and provide quick resolutions is the ultimate challenge. The industry can teach folks how to conduct an investigation or find a suspicious transaction, but we can’t teach a person to have passion and desire. The industry itself has grown leaps and bounds in assisting the LP professional with improved investigative technology and techniques along with certifications and higher standards.

“For us, it all begins prior to employment. We carefully screen our candidates and select those applicants that meet our hiring standards. We then make certain our employees know and understand Tuesday Morning operations policies as well as loss prevention procedures. This is done through store manager training, partnering with other departments in drafting policies and procedures, awareness memos including LP tips and newsletters that are skillfully focused for the targeted reader. We then have many controls in place to deter theft or fraud and tools to protect our inventory, which also includes improved inventory control systems and physical security equipment. From there, ‘we inspect, what we expect’ by having various audits conducted that include store assessments, highly focused exception reporting reviews, and inventory cycle counts. We have recently begun to use various metrics that identify poor store performance, which can go hand in hand with acts of dishonesty or inventory control issues.”

In addition, the loss prevention team partners with accounting, store operations, human resources and all other levels within the organization. “We share information and act as a team in all areas of the store and the central distribution center,” Figueredo says. “Visibility is the key to loss prevention. We make ourselves visible not only in person, but throughout the organization with constant communication and participation in the day to day business operations. We have various programs designed to prevent theft and fraud internally and externally such as POS exception reporting, use of covert video analytics, check authorization service, customer return database program, and an in house credit card fraud detection program.”

Being visible is one method Joe Semasko, director of corporate security and safety for The Pampered Chef in Addison, Ill., uses to control loss at the company, which is a seller of high-quality kitchen tools. “It is the goal of the security and safety team to build a positive relationship with coworkers. I try to be very visible and approachable to the distribution center and office coworkers. Building these relationships encourages coworkers to feel free to talk to the officers and me about what is happening in the building. 

We limit access to the warehouse to coworkers who have a work related reason to be in the warehouse,” he says. “All visitors are required to sign in and be met at the entrance by the person they are here to visit. In most cases, they are escorted while in the building. All hand carried bags, packages and boxes are searched when coworkers and contractors leave the distribution center.”

Any time you have small products that employees can put into their pockets, that creates a challenge for asset tracking,” he adds. “One of the best methods we employ to monitor inventory is through our inventory control process. We have a very dedicated group of coworkers who perform cycle counts in our distribution center, and our inventory accuracy is in the area of 99 percent.”

It’s important that brands don’t simply use the current tough trading conditions as an excuse to ease back on their security efforts. Brands face threats from a variety of angles in today’s global market – particularly from counterfeiters and brand pirates who attempt to produce credible look-a-likes and pass-off products with impunity.

Diversion or grey marketing of goods from legitimate distribution channels is also growing. This was evident at last year’s Olympics, when suppliers to officially licensed merchandisers produced mascots in unreported quantities. These ultimately ended up being sold by street vendors.

Other threats come from the improper use of registered trademarks, ambush marketing and infringements of intellectual property – all of which exercise brand managers and teams of legal experts around the world on a daily basis.

Are some brands and products more at risk than others?
It used to be taken for granted that it was only luxury and high-end goods such as perfumes, spirits and designers clothes that were most at risk from counterfeiters and pirates. However, that’s no longer the case with counterfeiters – aided by advances in technology – turning their attentions to any branded item that will generate a profit. As a result, everyday household items including cigarettes, beverages and hardware items are equally targeted.

All sectors are affected in one way or another and popular targets include sports goods and merchandise, automotive parts, engineering components, pharmaceuticals, software and audio video parts. In many of these cases, protecting the integrity of brands can be the difference between life and death.

So what is the true scale of the problem?
Quantifying the size of the problem has always been difficult. Many cases of counterfeiting, piracy or diversion simply never come to light. However:

• Counterfeit drug sales alone will reach $75 billion globally in 2010, an increase of more than 90 percent from 2005, according to the U.S.-based Center for Medicines in the Public Interest.
• The automotive industry is losing approximately $12 billion globally due to fake parts.
• In 2007, European Union Customs seized more than 79 million counterfeit and pirated goods and handled more anti-counterfeiting cases than ever before. A total of more than 43,000 cases were dealt with in 2007, up nearly 17 percent from 2006.

How do these practices affect brands?
They threaten the revenues and profitability of legitimate companies. Credibility and reputation in the marketplace is also at stake with counterfeiting having the ability to undermine trust in even the most respected brands. 

And if revenues are affected, manufacturers have less money to reinvest in new product development and taxes are cut. The impact is therefore felt across the supply chain with everyone from manufacturer, supplier and distributor through to wholesaler, retailer and customer at the end of the chain affected.
In the most extreme cases lives can be put at risk, potentially invoking legal liability claims.

Are brand managers more aware of the threats to their products today?
Yes, managers and brand protectors are generally more attuned to product security in today’s market. Turning a blind eye is not an option. Those product manufacturers that remain unaware of the extent of the problem, or worse still ignore it, will eventually find that once the damage is done, the costs to repair it are far in excess of what prevention would have cost in the first place. In some cases recovery is impossible and the harm caused becomes fatal.

What role does authentication have in enhancing brand security?
With threats to brand integrity growing, there is an increasing need for quick and easy ways to differentiate fake products from genuine ones. The function of authentication technology is to help customs, police and consumer protection agencies identify the genuine product in ways that are not obvious to counterfeiters, who are increasingly adept at copying products and packaging. 

Authentication can be used anywhere. Devices come in a wide range of forms and have multiple applications on products and packaging in industries and sectors worldwide.

What does the future hold?
One of the big talking points at the moment is product coding and tracking systems, because they are seen as an effective means of controlling the supply chain and deterring counterfeits. 

Pilot projects are already underway in several industries, most notably the pharmaceutical sector, which has undertaken a three year, multi million EU-funded initiative called the BRIDGE project to test the viability of tracking every pharma product distributed in Europe. The food and drink sector in Europe is running its own TRACE project to monitor products from “farm to fork.”

If you had one message to get across, what would it be?
The main thing for brand and product owners is to be proactive and remain vigilant. This means installing different layers of security on products. The more layers of security you apply, the more difficult it becomes for the counterfeiter or the pirate to copy or misuse your brand. And ultimately this will very quickly lead to greater market-share, increase your profits, and most importantly of all, gain customer confidence.

If an employee works remotely, every six months or so, he suggests that security should ask the employee to bring in the laptop to back up the data, for example. “That reminds people that it’s the company’s property,” Brower says.

Also, he suggests a reminder that employees should NOT put their personal information on the company laptop. “From a legal point of view, it can be difficult to prove that it’s the company’s laptop if you allow employees to put their personal information on it. It also helps cut down on bad usage problems. It reminds people that the company actually cares where those laptops are.”

Laptops Disappear Regularly
• 100 Go Out
• 85 Return
• 5 Lost or Stolen
• 1 Recovered
• 11 Missing

Source: Aberdeen Group

He tells Security: “We’ve been working on this for a few years now. We had 75 percent of the requirement met leading up to the 100 percent requirement in August. So it was not a surprise at all. We were familiar with the process; it was just getting to the level of 100 percent screening, and we knew that we would accomplish that. We were familiar with the process – it was just getting to that 100 percent. And with a slower economy, it was a bit easier to get our hands around it. Yet we still had to make adjustments on the technology side. We invested in new x-ray equipment that can screen pieces up to 70 inches tall. And we had to evaluate how we hire people to work with us. It starts with a 10 year background check, a security threat assessment, completed questionnaires and checks against their criminal history. That’s the number one mandate.

“The next change will be with screening international inbound cargo – we need to ensure that all cargo is 100 percent screened before it gets to the U.S. But we don’t see that as a huge challenge. We’ve already faced and embraced them and we know what we have to do.”