Analyzing Your 'Shrink': 'Tis the Season to Take Stock of Your Inventory-Loss Controls

Now's the time for retail employers to staff up for the holidays with part-time, seasonal employees. But no matter what your industry is, you should be concerned about inventory losses—better known as "shrink"—due to employee theft.

The National Retail Federation estimates employee theft at retail establishments at approximately $15 billion annually. That figure soars to about $40 billion per year for all companies combined, according to the U.S. Chamber of Commerce.

The top three most cited reasons behind employee theft are anger at management, employees' financial problems, and job insecurity, resulting in employees adopting a "nothing-to-lose" attitude toward stealing. Plus, fraud hurts small businesses disproportionately because they have fewer resources to adopt fraud controls and to cushion the blow financially.

Retail businesses with seasonal hiring needs may think thorough background checks are impractical, but they're a critical part of sound management practices and loss-prevention measures that could save you money and hassles in the long run, while protecting your inventory during your biggest quarter.

To reduce the threat of an inside job, consider these additional tips:

Define what constitutes theft and communicate your zero-tolerance policy for anyone caught stealing money or goods from your business. Screen employees by thoroughly checking references and backgrounds before hiring.
Offer rewards for reporting theft and allow employees to provide anonymous tips. The value of the rewards can pale in comparison to the inventory you're at risk of losing.
Review the layout of your facilities and install security controls, such as alarms and key locks and, if necessary, security cameras in public areas. If you choose to use surveillance cameras, always inform employees upon hire that the workplace is under video surveillance, do not place cameras in private areas such as restrooms, and never use cameras that pick up audio signals to avoid violating federal and state wiretap laws.

The cheapest solution? Informing employees regularly that inventory is checked, cash registers are monitored and your business enforces a zero tolerance policy for theft of any kind.

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