Retail Store Audit

Inspect what you expect

Audit tools and approach

SUPERVALU Laboratory
for Best Practices

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Best Practices

Internal Audit and Loss Prevention

have a partnership to audit the stores
Backup other Asset Protection
resources
Ideally working off the same audit
platform so we can leverage each
others work
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What to Audit?

Tough Question
Depends on location

L.A. versus Fargo

Depends on company structure

Quality, size and training of other areas (LP, food safety, safety, etc)

Type of store and product at the store

Prepared food
Limited assortment

Time it takes to audit (Once you are in the store adding a few
minutes is a way to leverage your visit)

Ideally, your audit is based on company goals

We have provided examples of different store and
pharmacy audits

You Get What You

Measure

Working with senior management to align

company goals
Controlling risk and losses
Reducing expenses
For

example: energy prices spiked last summer

We try not to set policies

Auditing needs to be objective, stay away
from opinions (Method Sheets)
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Basic Cash and Front-end

Controls

Important to have store management

that is properly trained in this area
Typically the bookkeeper has a very
strong understanding of your systems
and we have found them to be one of
the largest sources of fraud

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Examples of Frauds Discussed at

FMI Internal Audit Conference

Safe funds reported incorrectly

Management did not verify cash balances
Bookkeeper called by Sales Audit to explain large increase in cash

Self Check Out Lanes installed with a large cash error

System installation provides a great opportunity to steal
Management had this as a reconciling item on the safe balance

Cash deposits and withdrawal in a STORE ATM verified

by LP and the bookkeeper
Bookkeeper stole funds by falsifying the paperwork and stealing
the cash
This was one of the only store owned ATM at the retailer, need
to watch one offs
Management did not verify the cash in the ATM
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Basic Cash Controls

Store must balance sales to cash

Verify that management is verifying cash and
other safe tenders at least once a week
Dont forget lottery and stamps

Verify that miscellaneous sales tie to

supporting documentation (for example:
money orders, lottery sales)
Verify that cash payout ties to supporting
documentation
Verify pick-ups and deposits

Basic Front-end Issues

Holding cashiers accountable

Protection of customers credit card information
Are your card readers PCI compliant?

Limited access to POS

Supervisory transactions

Compliance with the U.S. PATRIOT Act

Security of customer and employee information
(identity theft)
Video and keg rental, Rug Doctor, and paperwork for
large cash transactions
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Examples of Front-End
Issues

IRS is auditing compliance to U.S. PATRIOT Act

Money Order and Money Transfer

Dont forget Coinstar and payroll check cashing

Cashier accountability paperwork is great, but

meaningless unless your stores are following up
with disciplinary action
Credit card skimmers have hit retailers
Examples found on the internet

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Food Safety

Focus on follow-up and the basics

Technical issues such as sanitation
and temperature control are audited
by Food Safety professionals

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Pricing

Audit prices for accuracy

Sample based on the size of the store
Looking for pricing accuracy of 98% or better (focus on not
overcharging customers)

How does the store self-audit themselves

What do they do when they have an error?
When do they expand their sample?
Do they understand the root cause of the error?

Audit exceptions / hold down reports

How long are items held down big source of margin erosion
Is the store understanding when they are selling items below
normal retail
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Safety Review

Focus on basic safety issue

Ergonomics and behavioral
modifications audited by safety
professionals

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Safety review - Basic

Fire safety (blocked exits, sprinkler

heads, electrical panels, fire
extinguishers, safe wiring)
Power equipment not used by minors
Knife safety (storage, gloves)
Eye wash stations
Storage of pallets and racking
Storage of gas cylinders
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Receiving

Are company receiving policies followed?

Is the area secured?
Does the store verify merchandise received at the
time of delivery?
Is the DSD system reconciled to the invoice by the
receiver?
Does the receiver process credits daily on separate
invoices?
Does the store process all receiving receipts on a
daily basis?
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Shrink Audit

Does the store approve their DSD

purchases?
How are store and department transfers
monitored?
Did management review voids and returns?
Are employee purchases monitored in the
breakroom (food and magazines)?
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Audit of Environmental
Issues

Very Easy to audit

Is the store recycling plastics and noncontaminated cardboard?
Expense

control and income potential

Does the store sell reusable shopping bags?

Expense

control

Does the store have receptacles for the

customer to recycle bags and batteries?
Customer

perception
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How to Improve Compliance

Store Audit Guide

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Store Audit Guide

Makes the audit an open-book test

Defines corporate standards and goals
We do not set standards or procedures
Developed in a partnership with other
functional areas (Internal Audit, Safety,
Retail Integrity) and operations
Used as a training guide for the stores
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Audit Tools

Electronic Audit Program linked with the stores

action manager (tool to control tasks at the
stores)
Reduces e-mails and makes resolving audit issues
part of the every day work of the store
Visibility to the District Manager

Internet Reporting Tool

Reduced average time to audit a store by 33%

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Electronic Audit Program

Automates the work process

System tracks audit completeness
Wont allow you to assign tasks unless the audit is complete
Standard responses and recommendations

Used by other departments (Loss Prevention, Internal

Food Safety and Safety)

Store Action Manager

Able to share audit results

Stores have one system to learn
Leverage each others work
Action Plans for each audit finding
This is linked with other store tasks

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Internet Reporting Tool

Reports available to Districts and Regions

Users are able to customize level of information (district or
group of stores) and time period

Automatic follow-up e-mails

To-do lists
E-mail that an action item is coming due
E-mail that an action item is due or late
Distribution can change per e-mail (Late store action plans
are sent to the District Managers)

Automatic report distribution

For example: Send out a package of reports on the first of
every month for the audit activity for the last 90 days
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Reporting

Type of reports
Top Finding Reports
Score by question
Score by section (Cash, Front-end, Food
Safety)
Benchmark Report (Audit score)
Follow-up reports
Open

Audits by auditor and store

Open Action Items by auditor and store
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SAMPLE NUMBERS: EXAMPLE ONLY

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Results by district/region/banner and total

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SAMPLE NUMBERS: EXAMPLE ONLY

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Scoring by Question

Results by district/region/banner and total

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SAMPLE NUMBERS: EXAMPLE ONLY

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How we select stores to

audit

Financial Matrix
Other Audit
Safety Audit
Food Safety
Loss Prevention

Input from Operations: audit requests

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Financial Matrix

Focus on high-risk stores in a district

Analysis must be comparable apples to
apples for the region
Cost per customer, per hour worked or a % of sales

Color coded

Green is average or better

Red is the bottom 25%
Yellow is below average

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Location

Shrink as
a % of
Sales

Shrink as a
variance
from
budget Fav /
(UnFav)

Workers
Comp per
Hour

General
Liability per
Customer

Over/
Short as
a % of
Sales

Return
Checks
and Fees
as a % of
Sales

Division Avg

3.18%

-0.20%

0.68

0.0740

0.006%

0.039%

Bottom 25%

3.67%

-0.57%

0.90

0.0989

0.016%

0.057%

Store 1

3.67%

-0.46%

0.43

0.0639

0.000%

0.010%

Store 2

2.60%

0.30%

1.56

0.2020

0.009%

0.038%

Store 3

3.13%

0.05%

0.35

0.0331

0.002%

0.021%

Store 4

3.49%

-0.53%

0.37

0.0703

-0.008%

0.057%

Store 5

3.15%

-0.02%

0.11

0.0305

0.002%

0.055%

Store 6

3.29%

-0.02%

0.45

0.0757

0.021%

0.011%

Store 7

4.11%

-1.02%

0.66

0.0812

0.123%

0.085%

Store 8

3.94%

-0.86%

0.26

0.1457

0.021%

0.043%

SAMPLE NUMBERS: EXAMPLE ONLY

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Shrink
as a % of
Sales

Shrink
as a
variance
from
budget

Workers
Comp per
Hour

General
Liability
per
Customer

Over/
Short as
a % of
Sales

Return
Checks
and Fees
as a % of
Sales

Average

3.18%

-0.20%

0.68

$ 0.0740

0.006%

0.039%

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Bottom 25%

3.67%

-0.57%

0.90

$ 0.0989

0.016%

0.057%

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Store 1

10

Store 2

13

Store 3

Store 4

11

Store 5

Store 6

11

Store 7

17

Store 8

17

SAMPLE NUMBERS: EXAMPLE ONLY

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Risk Assessment versus Audit Scores

Risk assessment changes as you learn

the relationship between the

assessment and the audit scores
About 70% of the stores that score
above average on the audits are
assessed as low-risk (Green) stores

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How often should you audit?

Frequency is based on the last quarters audit score by

district.
Shows results by district/region/banner and total
The top 25% are audited every three years
The bottom 25% are audited annually
Middle 50% are audited every other year
60% of the stores are audited each year; we re-audit
and spot audit an additional 10% of the stores

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Questions

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