1. Return fraud identification JOE Henderson, CFI Regional Loss Prevention Manager

2. agenda Overview of the AutoZone Loss Prevention Team
Returning Merchandise – Understanding the customer experience
Store Level Tools
Field Level Tools
Case Study
Q&A

3. The AutoZone lp team LP Process Improvement Team
3 project managers led by LP Process Improvement Manager
Identify gaps in store process and procedure
Work cross functionally with Store Operations, Supply Chain, IT, etc.
Develop and implement methods to close gaps
Reverse engineer shrink related scenarios (questionable shrink results, billing issues, etc.)
LP Analytics
2 Analysts led by LP Analytics Manager
Responsible for all things analytical from an LP perspective
Reporting tools
Predictive Modeling
Regression Analysis

4. The AutoZone lp team Divisional Loss Prevention Managers
Team of six (6) DLPM’s led by Director of LP Field Ops, Analysis, and Process Improvement
Responsible for approximately 1,000 stores and 8-10 RLPM’s each
Divisional Investigators
Fast paced team of five (5) experienced Loss Prevention professionals led by the Director of LP Field Ops, Analysis, and Process Improvement
Responsible for coaching, training, and development of the field LP team
Primary focus on high-risk regions
Regional Loss Prevention Managers
Team of 54 RLPM’s led by one of the six (6) DLPM’s
Responsible for all aspects of Loss Prevention, Safety, and Environmental compliance

5. Returning merchandise – the customer experience
Our returns processes are unique versus other specialty / small-box retailers in that we require customers to pass through our parts counter and then POS before receiving funds from a return
Directs all returned merchandise to be verified by a member of management at the initiation of a return
Condition of merchandise (Damaged vs Undamaged, AutoZone part vs OEM, etc.)
Merchandise warranty is verified (if applicable) and testing is performed (is the specific part the issue?)
Non-Receipted returns are validated through 3rd party software
Customer identification is verified through warranty database and customer signature is captured
Random 2nd level management password required on high dollar items

6. Store level tools
Same day verification of all returns processed by the Store Manager
Regardless of who “generated” a return, the Store Manager must verify the return using an RF Scanner
Aside from the AutoZoner who generated the return, this provides our 1st opportunity to identify a potentially fraudulent return
Provides an electronic footprint that signifies:
The part was present in the store at the time of the return
The return is a legitimate return (right part, right package, etc.)

7. Store level tools Return Signature Report
As a part of the Return process customers signatures are captured
Based on the assumption that a customer was physically present at the time of the return
Can be used to compare signatures from prior returns
Identifies returns where the employee who generated a return was also the customer
Helps the store or field LP team identify patterns

8. Store level tools Manager’s Next Day Review Process
2nd opportunity for a Store Manager to validate a specific return
Multiple step process performed the day following a return using the RF Scanner
Check QOH for return to stock merchandise
Verify damaged returns that are returned to DC for store credit
Provide electronic footprint that “manager dispose” merchandise has been destroyed and discarded per vendor agreements
Validate reasons for non-payment on special order merchandise
System logic will direct the manager to contact customers via telephone to further validate the return
Only select / high-risk returns are populated to this tool and are based on dynamic criteria
Item was / was not sold at returning store in last 90 days
Item was returned early in the day or late at night
Item was not found in our national warranty database (Forced Return)
Return was processed at point of sale more than 15 minutes after it was created
Return Denial was overridden by member of management based on Returns Authorization logic

9. Store level tools (cont.)
Uncredited Returns Reporting
Allows real-time visibility to merchandise that was returned and store credit was not given by the DC
Gives the field LP Team visibility to exceptions within their store hierarchy
Helps identify training / execution opportunities, as well as integrity issues

10. Store level tools (cont.)
LP Dashboard
Enterprise wide reporting / awareness tool that is visible to every AutoZoner in the organization
Updates weekly and provides details to shrink inducing activities
Store Manager is required to print and review with each AutoZoner

11. Store level tools Monthly communications that target Return Fraud
Quarterly awareness posters placed in areas visible to AutoZoners
Period training (compliance tracked by field LP team)
“ShrinkBuster” recognition program
New-hire ShrinkBuster certification / training material

12. Field lp team tools
The Field LP Team takes a multi-layered approach to identifying Return Fraud. In addition to the store level tools, the Field LP team uses the following resources:
Proact
P&L Exception Reporting
LP Dashboard
Returns Authorization
Predictive Modeling

13. Field lp team tools - proact
Dynamic toolbox to identify Return Fraud
Return Rate, Return Dollars, Average Return Dollars by CSR
Number of Days Between Sale and Return
Returns Over 15 Minutes
Multiple Returns of the same SKU by the same CSR
Forced Returns
SKU / Activity specific Returns by CSR

14. Field lp team tools - proact
Proact is dependent on user ability to extract and interpret data
Reviewing changes in return dollars, return count, Avg Ticket etc. won’t identify the employees with experience in Return Fraud
Could lead to “data overload”
Proact is set up to drive the Field LP Team to low-level data / exceptions
Targeted queries that are highly correlated to Return Fraud

15. Field lp team tools - proact
Days Between Sale & Return
Identifies undamaged returns that fall outside of the 90 day returns policy
Identifies undamaged returns on high dollar items that could indicate “warranty surfing”
Items like starters, alternators, batteries, fuel pumps, and ignition parts have a warranty registered to them
Over time, the likelihood of the part failing reduces significantly
AutoZoners could “surf” through warranty files looking for old parts that have not been returned
The higher the number of days between the sale and return / the higher likelihood of fraud

16. Field lp team tools - proact
Returns Over 15 Minutes
Returns that take longer than 15 minutes to process at POS increases the likelihood of fraud
We can identify Returns Over 15 Minutes through Proact, the Managers Next Day Review, and other store level reporting
If the same CSR generated and processed the PCI, the return is highly correlated to fraud

17. Field lp team tools - proact
Multiple Returns / Same Part / Same CSR
Highly indicative of Returns Fraud
Identify patterns of low-risk / low-visibility items
Items commonly found around the parts counter, POS, and items that commonly have QOH issues

18. Field lp team tools - proact
Forced Returns
Returns processed on items that could not be found in our National Warranty Database
Identifies potentially fraudulent returns where a part was taken from the shelf and no customer was present

19. Field lp team tools – p&L Exception report
Finding a needle in a stack of needles in a needle factory
5,000+ stores across continental United States, Mexico, and Brazil
Exception Report designed to identify the bottom 15 of a Division or Region in regards to:
Average Ticket Change vs Last Period
Return Rate Change vs Last Period
Undamaged / Damaged Return Rate vs Last Period
Gross Through the Register vs Last Period
Ranks each individual store (benchmark against peers)
Lists the number of exceptions by store
Stores with higher number of exceptions = potential opportunity

20. Field lp team tools – lp dashboard
At the field level, the LP Dashboard is a tool that helps drive the Field LP Team where the exceptions exist
Stores with exceptions at the individual AutoZoner level are highlighted in red
Also helps identify execution issues around Recalls, Uncredited Returns, Returns Authorization Overrides, and Training compliance

21. Field lp team tools – returns authorization
AutoZone uses TRE for an “off the shelf” solution to non-receipted returns
Focused on external return fraud
Store has the ability to override a “denial”
Password is required
Activity is tracked at all levels
Historical view available based on consumer ID number
Reporting is dynamic and offers both a real-time and YTD view

22. Field lp team tools – predictive modeling
Predictive Modeling allows the Field LP Team to “intercept” a high trending store before a high shrink result is booked
Based on Item Adjustments and Uncredited Returns since store’s last inventory
Offers a 50 bps range to help identify the underperforming stores (i.e. 0.75% %)
Identifies stores that are trending over company threshold which drives the Field LP Team to initiate a Predictive Model Assessment
Series of audits, thorough review of exception reports, general loss interviews, etc.

23. Case review
Based on the Predictive Model, it was found that a specific store was trending abnormally high; completely out of character for this store
The usual suspects of reporting were researched and multiple employees were identified as having a high dollar amount of “Express Part” Returns (special order items) over the course of several weeks; also out of character for this store

24. Case review
Our PCI signature report gives the Field LP Team the ability to review signatures signed to the electronic debit pad
The majority of the returns in question had a legitimate name and phone number, however, the signature was an indicator of a potential problem
Additional signatures were reviewed and it was identified that the AutoZoner in question had actually slipped up and generated a return in his own name (not visible to protect identity)

25. The Managers Next Day Review for the returns in question were worked per policy
Unfortunately, this store did not have a Store Manager and a 2nd level manager, or PSM, worked the process (or so it appeared)
Digital video revealed that when the Managers Next Day Review was being worked, it was being worked by the person processing the questionable refunds (Wolf watching the hen house) using another managers password

26. Case review
The returns in question drove us to review the electronic journal on specific business dates.
There was a total of 5 MSD Ignition Controllers returned, and a total of 2 Reman Cylinder Heads; all fraudulently
The funds from the refunds were placed on to a merch card (store credit)

27. Case review
After making note of the multiple returns where the return tender was a merch card, we tracked the transactions where the dollars were redeemed
There was a total of eight merch cards activated within the same week
Same store, typically within the same day, and the transaction was processed by the same person who generated the refund
For the transaction shown, the parts were warrantied to the AutoZoner who generated the returns, processed the redemption transactions, and he even used his own AutoZoner discount card.
Despite the reporting telling us multiple people were involved, the details in this transaction proved different

28. Case review
At the conclusion of the investigation we conducted an interview with the AutoZoner in question
$1,900 admission
Admission of using another managers confidential password to generate fraudulent refunds
Admission of forging customer signatures on the debit pad
Admission of using a 2nd managers password to work the Managers Next Day Review
Admission of taking unpaid AutoZone merchandise from the store
AutoZoner was terminated and prosecuted
2 additional AutoZoners were terminated for giving out their management password
Close the gap!

29. Moral of the story
Returns Fraud cases can be very simple or they can be very complex
The case example shown was complex and it involved a lot of moving pieces from an inventory perspective, a POS perspective, and it appeared that there were multiple people involved.
Don’t limit yourself to one report or just one system for the reporting
For instance, this case required us to use five different sources to complete the investigation
Predictive Model
POS
Proact
KPI Reporting
Digital Video
Rocket Shuttle (details for merch card usage)
Step out of your comfort zone and trust the data / follow it where it takes you
Don’t hesitate to question the data when necessary; it helps boost your confidence as an investigator
Reverse Engineer every investigation that challenged you or was out of the norm vs a routine investigation
Develop a method to identify the behavior faster next time

30. Closing
Q&A