Retail shrink continues to cost businesses billions of dollars annually. The National Retail Federation’s (NRF) 2023 National Retail Security Survey reported that shrink accounted for $112.1 billion in losses in 2022, while a December 2024 study by the NRF indicates that retail theft has surged by 93% since before the COVID-19 pandemic.
These challenges are only expected to increase as organized retail crime (ORC), internal theft, operational failures, and fraud sophistication continue to grow.
As threats multiply and evolve, your organization needs more than reactive investigations. You need proactive, systemized evaluations, and a loss prevention (LP) audit should be a critical part of your risk management strategy.Â
In this guide, we’ll walk through exactly how LP leaders can build, execute, and optimize a highly effective loss prevention audit – using both proven processes and modern AI-powered technology like cloud video and POS integration.
A loss prevention audit formally reviews the people, processes, policies, and technologies that protect your business from loss.Â
Unlike one-off investigations that respond to specific incidents, audits are proactive and designed to:
Surface hidden vulnerabilities before losses occur
Evaluate whether staff are following policies correctly
Validate that security and operational controls are functioning as designed
Ensure multi-location consistency across stores, regions, or franchises
Identify both internal (employee theft, refund fraud) and external (shoplifting, ORC) risks
The best LP audits are multi-disciplinary, pulling in not only loss prevention professionals but also operations, HR, IT, security, and finance. Shrink is rarely the result of one issue; audits help teams see how multiple factors combine to create risk.Â
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Internal fraud hides in refund abuse, no-sale manipulation, or sweethearting
Increasing labor shortages are leading to operational corner-cutting
Hybrid online/offline inventory models are complicating shrink calculations
Privacy laws demand stricter audit trails and access logs
An effective loss prevention audit helps retailers stay ahead of these risks, demonstrate due diligence to regulators, and, most importantly, protect margin.
How often should you conduct a loss prevention audit?
Of course, loss prevention audits aren’t one-size-fits-all. The frequency of your audits should be tailored to your company’s risk profile, historical shrink data, and operational complexity. Here are a few typical frequencies:Â
Quarterly audits for higher-risk or high-shrink locations
Semi-annual audits for low-shrink locations
Event-triggered audits when there’s a pattern of elevated refunds, margin erosion, or incident frequency
Annual audits for full corporate compliance
Some large operators even embed continuous auditing supported by cloud video platforms, real-time data integration, and AI-powered anomaly detection.
Loss prevention audit framework: Key areas to review
Loss prevention audits can feel overwhelming without a structured process. To ensure you’re covering every aspect that contributes to shrink – from physical security to internal controls and data-driven anomaly detection – it’s critical to break your loss prevention audit into clear, repeatable categories that help standardize audits across multiple locations and teams.Â
With that in mind, let’s break your LP audit into six core categories:
1. Your physical security infrastructure
This is where most LP audits start. Validating that your core security hardware is protecting your store.
What to review:
Are all cameras functional and positioned to eliminate blind spots?
Does video provide clear resolution to support investigations and legal action?
Are restricted areas secure with proper access controls?
Are doors, safes, and backrooms properly locked during non-use periods?
Are video retention and access logs being maintained correctly?
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Inventory management sits at the center of every loss prevention audit, because even minor breakdowns in receiving and stock control processes can quietly erode profits. Unlike external theft or internal fraud, inventory-related shrink often builds over time through procedural failures: missed shipments, miscounts, misplaced items, or improperly documented receiving.Â
That’s why every audit must carefully review how inventory is received, stored, and reconciled — long before it ever reaches the sales floor.
What to review:
Are physical inventory counts matching system data?
Are receiving staff following chain-of-custody protocols when shipments arrive?
Are stockrooms organized, labeled, and properly secured?
Is there video verification of delivery receipt and putaway procedures?
If inventory is where physical loss occurs, the point-of-sale (POS) is where much of the financial manipulation happens. Refund fraud, void abuse, sweethearting, and manual overrides often hide inside legitimate transactions, making POS monitoring one of the most critical elements of any loss prevention audit.Â
Without tight controls and transaction-level visibility, even small manipulations can quietly accumulate into significant shrink over time. Modern LP audits need to go far beyond simple register reconciliation and instead leverage integrated video and transaction data to expose patterns of internal fraud.
What to review:
Is there excessive refund or no-sale activity tied to specific employees?
Are discount codes being applied appropriately?
Are managers reviewing high-dollar voids or overrides?
Is there synchronized video verification for each transaction event?
4. Cash handling & financial controls
While digital payments continue to grow, cash remains one of the most vulnerable points of loss inside any retail operation. Cash handling procedures – if not tightly controlled – create daily opportunities for theft, human error, and policy violations that are often difficult to detect after the fact.
From the moment cash is received at the register to when it’s deposited at the bank, every step introduces potential exposure.
What to review:
Are registers balancing daily?
Are cash counts supervised and dual verified?
Are deposits prepared according to policy and securely transported?
Are safe counts regularly audited with full documentation?
5. Employee conduct, policy adherence, and training
Even the most advanced security systems can’t prevent shrink if the people behind them aren’t following proper policies and procedures. Loss prevention is ultimately a human discipline: it relies on consistent employee behavior, clear accountability, and a strong compliance culture.
What to review:
Is every employee properly trained on LP policies?
Are staff following open/close procedures?
Are restricted access areas consistently locked?
Are incidents reported promptly and thoroughly documented?
6. ORC risk & external theft vulnerabilities
Organized retail crime is no longer isolated to individual stores, it’s now highly coordinated, multi-location, and increasingly sophisticated. These crime rings often target chains across entire regions, moving stolen merchandise quickly and exploiting gaps in communication between stores.Â
That’s why loss prevention audits must include a dedicated focus on ORC vulnerabilities, not just at the store level, but across the entire enterprise. Without centralized visibility and data-sharing, patterns go undetected, repeat offenders slip through the cracks, and investigations take far longer than they should.Â
What to review:
Are ORC patterns being tracked across stores?
Is stolen merchandise recurring by store or region?
Are frequent offenders being identified and flagged?
Are your locations collaborating with law enforcement?
How Solink makes loss prevention audits faster and more effective
Solink’s cloud video analytics platform helps loss prevention teams simplify audits at every stage with:
Best of all, Solink integrates with your existing camera infrastructure – no rip-and-replace required.
Interested in seeing how the Solink platform works first-hand to enhance your loss prevention strategy and help your business increase profitability? Book a demo today.Â
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