“SHRINKAGE” is the Industry Term to Describe Theft or the Mysterious Disappearance of Assets from a Company is the industry term to describe theft or the mysterious disappearance of assets from a company.
Mysterious Inventory ShrinkageBased on the average of various knowledgeable authorities, 4.2% of the gross revenue of a company is stolen by employees. For example, if a companies’ annual gross revenue is one million dollars then employees are stealing $42,000. Or, if an American made automobile costs $20,000 to manufacture than 840 bucks is added to the price to cover employee theft. Theft by employees takes many forms: embezzlement by employee, outright stealing of inventory, raw materials, scrap, time-card cheating, phony disability claims or worker’s compensation claims, phony FMLA excuses, embezzlement of cash or receivables, purchasing agent kickbacks, theft from shipping docks, fraudulent expense reports by marketing staff, use of company time for personal purposes or using company service vehicles and parts to perform outside work and many other ways. This does not include shoplifting or burglaries by outsiders. In retail, theft in the workplace out-steal shoplifters 4 to1, Banks, employees out-steal bank robbers 9 to 1.
We’ve had many business owners and/or executives contact us to investigate inventory shortages but one of the most bizarre cases involved a multi-million dollar manufacturing company whose raw material inventory was missing over $12 million of a valuable key manufacturing component to an end product. They ran three shifts, seven days a week. No suspects and the stolen components could be easily fenced. An employee theft investigation was the only way to determine what was occurring, so we placed undercover investigators as production employees through a “temp agency” in the 2nd and 3rd shifts. We conducted discreet surveillance of the shipping docks and located all the scrap yards within a fifty-mile range to see if any of the companies’ components were there. After two months we finally found the culprit: a fairly new production engineer overlapping the 2nd and 3rd shifts who would direct the subordinate forklift drivers to load a 28-foot rental van two or three times a week with the components. The company didn’t bother to conduct a background investigation on this “engineer” who had a phony engineering degree and had spent two terms in Federal prison for employee theft due to the fact they were desperate to find qualified staff. And like most con-men, he was very articulate in his interview and they hired him on the spot. He had been promoted twice in less than a year because he was so bright and dedicated. He is now in prison again. They recovered about half of the stolen components and filed civil suits against two of the scrap dealers who obviously knew the components they purchased were stolen.
-C. Tim Wilcox, CEO, International Investigators, Inc.