Small business owners, are you prepared for holiday scams, fakes, and cheats?

The National Retail Federation provided staggering estimates that retail fraud cost businesses $9.6 billion dollars in 2009. $2.7 billion of these losses were during the holiday shopping season alone. The details of NRF’s survey of large national retailers point to some alarming statistics:

According to the survey, 93.1% of retailers said stolen merchandise has been returned to their stores in the past year, up from 88.9 percent in 2008. In addition, three-quarters of retailers (75.4%) say they have experienced returns of merchandise purchased with fraudulent or stolen tender while 43.1 percent say they have experienced returns using counterfeit receipts. Nearly half (46.2%) also report that wardrobing—the return of used, non-defective merchandise like special occasion apparel and certain electronics—has been an issue for their company within the past year.

The same survey, however, also indicates that there is some hope:

Though return fraud continues to plague the retail industry, changes in policies have helped companies see improvements in some areas. According to NRF’s annual Return Fraud Survey, completed by loss prevention executives at 134 retail companies, two-thirds of retailers (69%) say their company’s return policy has changed in the past to account for fraud. However, the losses remain staggering: the retail industry will lose an estimated $2.7 billion in return fraud this holiday season and an estimated $9.6 billion this year.

But where do you begin if you’re a small business? National and regional businesses have more resources, which often include their own in-house loss prevention specialists. Because they need to have comparable return policies as their larger competitors, but lack security expertise, small business retailers are more exposed to the risk of fraudsters. This is one reason to permanently retain a professional investigator or security consulting company. According to Dr. Craig Engstrom, a small business consultant and assistant professor at The University of Montana, “Small retail and restaurant owners understand that bogus returns and counterfeit coupons put a major dent into their profits. However, most small business owners—especially those with fewer resources—seem to be at a loss about where to begin. I recommend to my clients and students to outsource to professional investigators.”

In a previous blog, I already explained the benefits of retaining a private investigator as a small business owner. However, there are a few additional reasons to make a private investigator a permanent part of your business operations:

1. Reduced fees. The first benefit of permanently retaining a private investigator is lower service rates. If you contract with a private investigator and pay a large, and often refundable, retainer, she or he is likely to reduce the rates of services.
2. Specified expertise. By permanently retaining an investigator, you will have investigators permanently on call to respond to issues. What is more, the investigative company will better understand your business and be able to respond quickly to fraud, when time is precious. Because the investigative agency will do a comprehensive security assessment of your business, your risk exposure will be mitigated. Should an unforeseen problem arise, however, you’ll have a trained expert ready to begin an investigation to quickly identify or prepare a case against shoplifters and individuals who fraudulently return merchandise.
3. Lower insurance rates. If you retain a professional investigator with security expertise, you can make a case to your insurance company that you should receive a discounted rate. Just as an alarm system lowers your insurable risk, so does having a team ready to respond to crisis. You may be surprised to learn that many private investigations companies actually write comprehensive risk assessments and offer crisis management training and preparedness to many small- and medium-sized enterprises. Do you have a crisis management plan and are your employees trained to handle crisis? If the answer to either of these questions is “no,” then you should consult with a professional investigator soon.

With the holiday shopping season now in full swing and the economy still in recovery, the risk of fraud has never been greater. Practicing due diligence by having a private investigator ready-at-hand can reduce your risk to fraud and exposure to crisis. An investment in security may be one of the best decisions you could make now or in 2011. According to Entrepreneur, to be successful in 2011, businesses should, among other things, “overhaul… business plans” and “team up” with other companies. One thing you should seriously consider adding to your business plan is “risk management” and instead of guess what may or may not work, team up with an expert, such as a local licensed private investigator. Two things to remember: Don’t forget to ask the right questions in your first phone consultation and if you can’t afford the investment on your own, perhaps team up with several other local business and pool your money together to hire an investigative agency that will look out for all your interests.