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Developing Effective Audit Programs

Posted on 6/4/14 2:05 PM


Store Audit Development: Operational Audits vs. Shrink Audits


What Type of Audit is Best for You?

The practice of auditing store locations has become a great way to provide a snapshot of the health of your store locations. However, many retailers struggle with the type of audit they should enact in their stores. For loss prevention departments, there are two main types of audits to consider, including Operational Audits and Shrink Audits.


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So what is the difference between an Operational Audit and a Shrink Audit, and which one would best suit your needs? One way to consider the two audits is like this: When you are ill, do you need to see a general practitioner, or do you need to see a specialist? The same is true of the type of audit to deploy in your store locations.


Operational Audits: Your General Practitioner

Operational Audits are the 'General Practitioner' of store audits. These audits cross company departments and focuses, including human resources, security and safety, inventory, finance, administration, and more. Essentially, Operational Audits provide a broad stroke which checks on the health of your store locations. While shrink can be considered during an Operational Audit, most often the focus of the audit is to ensure that all operational controls and policies are being followed, and if applicable, ensures that store locations are meeting guidelines created by government regulations such as Sarbanes-Oxley, etc. For example, an Operational Audits can cover anything from employee knowledge of how to handle security and safety issues, validating nightly deposits and other paperwork, ensuring the fire extinguishers are fully charged, and so on.

As the approach to an Operational Audit is more of a 'checklist,' most audits are conducted by district managers, or other employees of the company. While these key personnel should ideally be experienced enough to spot glaring LP issues, most are not specialized enough to truly research and understand the key indicators of theft and loss within their stores.


Shrink Audits: Your Specialist

On the other hand, Shrink Audits provide a highly-specialized view into the loss prevention controls within your store locations. These audits remove the generalist elements of the compliance audit, and specifically focus on items that are causing store loss. Shrink Audits dive deeper into the information reviewed in certain parts of compliance audits. For example, a Shrink Audit may require the person conducting the audit to review all signed return receipts of merchandise to uncover trends and patterns that could point to certain types of theft.

Shrink Audits shift the focus of the audit from a hurried checklist to a discussion and a valuable training opportunity with in-store associates. For example, rather than simply checking that associates are aware of your sales policies and procedures, shrink audits can engage associates in a discussion of if they were aware of customers on the store floor and how they handle those events. This provides your organization with the opportunity to reinforce your loss prevention and operational procedures and policies, as well as get a much better 'temperature check' on the health of your store location and associates.

Shrink Audits can also serve as a precursor to your overall shrink results. For example if a store location scores low on a Shrink Audit, one can be assured that the shrink number for that location will also suffer. However, if a store scores poorly on a Shrink Audit, immediate steps can be taken to put in place the necessary controls and processes needed to ensure that the store shrink number will be lowered and profitability of the location will grow.


Which is Best?

Choosing the type of audit that would work best for your store locations depends entirely on your needs and expectations of your audit program. The focus of your audit largely depends entirely on who you plan to use to execute your audit. For example, utilizing your district or store management team to conduct a Shrink Audit may potentially leave key indicators of internal theft uncovered, as these professionals are simply not trained or experienced enough to recognize the warning signs. As well, utilizing this resource to conduct Shrink Audits could lead to compromised results or data, as Shrink Audits tend to focus in highly sensitive areas of personnel and financial reporting practices.

However, Operational Audits can be easily conducted by your existing staff, and can even be streamlined to relieve some of the paperwork burden off of your team. For example, if your existing audit includes a customer service focus, and you have a mystery shop service company, you may want to consider removing the customer service questions from your audit and augmenting your shop service program to fully answer your needs. Or, if you do not have a mystery shop service, you may want to consider implementing surveys at the Point-of-Sale with a small giveaway offer to ensure customer feedback.

Another consideration is to answer why you have an audit program in the first place, and what are your expectations of the results. If you just need to know how a store is operating, Operational Audits may be for you. If you require deeper information into the underbelly of your store, including uncovering where your shrink is coming from, Shrink Audits are the appropriate avenue for you.

Topics: store operations, loss prevention program, loss prevention, store audits, lp development, Outsourcing, train employees, educate

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