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Shrink Your Company's Shrinkage

July 29, 2016

If a significant portion of your company's balance sheet consists of inventory, you may find that "shrinkage" — the variance between physical inventory counts and amounts recorded in your company books — is the culprit behind declining profits. A little digging, especially if you're in a retail business, may uncover an unsettling reason for numbers that don't add up: employee theft. Studies have shown that, on average, retail workers steal more inventory than shoplifters.

What steps can your company take to mitigate this risk?

  • Use security cameras. If you suspect inventory theft may be an issue, consider installing cameras in employee and customer areas, including stock and break rooms. Periodically review video footage. Let employees know that the cameras are active and being monitored.


  • Monitor trash bins. Dishonest workers sometimes throw inventory items in dumpsters and return later to pick up the goods. Quash this scheme by requiring all to-be-trashed cartons and boxes be flattened. Use transparent garbage bags. Randomly check trash containers. Let employees know that trash receptacles aren't exempt from monitoring.


  • Restrict access. Ensure that only authorized individuals are allowed to handle inventory. Keep high-value products and tools in a cage within the warehouse and provide keys to supervisors only. Consider locked cabinets for expensive items.


  • Make it plain. Establish and communicate written control policies. Guidelines might include prohibitions against taking backpacks into merchandise areas or duplication of access keys. Use time clocks to record when employees are present in warehouse and retail spaces. Require unique login IDs for inventory control systems so you can track transactions by user.


  • Detach departments. Keep receiving, warehousing, and shipping functions independent. Separate the purchasing department from accounts receivable and the receipt of merchandise. By maintaining a discrete distance between accounting and inventory-handling functions, you'll reduce the risk of theft. When warranted, take swift disciplinary action against employees found to be stealing and/or falsifying records.


  • Check and recheck. In addition to performing an annual inventory count, spot check merchandise throughout the year against purchase orders, shipping receipts, packing lists, and online inventory records. If you suspect widespread thievery or embezzlement, consider hiring an independent firm to conduct forensic audit procedures

As always, please call us with any questions or concerns

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