Employee theft is a significant issue in retail, contributing to a large portion of shrinkage. Employees know the company’s policies and procedures, and will bide their time waiting for a convenient opportunity to commit their thefts. In the U.S. alone, on average employee theft accounts for approximately 33-35% of total retail shrinkage, however by company that figure could be much higher. While external theft (such as shoplifting) also plays a role, internal theft is particularly damaging because it erodes trust and the climate of honesty within a company.
. Employee theft accounts for roughly one-third of total shrinkage, costing U.S. retailers billions annually.
. On a per case basis, the average dollar amount stolen by employees is significantly higher than that of shoplifters, often exceeding $1,000 per incident.
. High-value items such as electronics, jewelry, and branded clothing along with highly pilferable and high demand items such as OTC drugs, infant formula and razor blades are frequently targeted, along with cash and gift cards.
Common Methods of Employee Theft
Cash Theft: This includes skimming from the register, voiding sales after a customer has left, or not ringing up transactions and pocketing the cash. Cash register manipulation is one of the easiest and most common forms of employee theft.
Refund and Return Fraud: Employees may process false refunds or returns and keep the money or goods. They could issue refunds to themselves or accomplices without an actual sale taking place.
Inventory Theft: Employees may directly steal merchandise, either by hiding items on their person or using accomplices. They might also manipulate stock counts to disguise the theft or falsify inventory records.
Discount Abuse: Employees may abuse their access to discounts, providing unauthorized discounts to friends or family members. This can also include “sweethearting,” where an employee doesn’t charge a customer for all items in a transaction.
Gift Card Fraud: Employees may issue fraudulent gift cards or manipulate legitimate gift card balances to steal money without raising immediate suspicion.
Time Theft: While not as financially damaging as other forms of theft, time theft occurs when employees falsify their time records, clock in for others, or take extended breaks, leading to higher payroll costs.
Preventative Methods for Retailers
Surveillance Systems: Installing visible and hidden cameras around registers, stockrooms, and high-value inventory areas is crucial. Regularly reviewing footage can deter potential theft and identify suspicious activity.
POS System Monitoring: Advanced point-of-sale (POS) systems can track anomalies in transactions, such as unusually high numbers of voids, returns, or discounts by specific employees. Implementing robust POS monitoring systems with alerts for suspicious activity can help catch theft early.
Random Audits: Conducting random cash register and inventory audits makes it difficult for employees to predict when their actions will be scrutinized. Spot checks can uncover discrepancies and deter theft.
Segregation of Duties: Ensure no single employee has complete control over high-risk tasks, such as handling cash, processing refunds, or managing inventory. By dividing responsibilities, you reduce the opportunity for theft.
Employee Background Checks: Before hiring, conduct thorough background checks to identify candidates with past records of theft or fraud. While not foolproof, this helps reduce the risk of hiring employees with malicious intent.
Clear Policies and Communication: Establish a clear theft policy that outlines the consequences of dishonest behavior. Make sure all employees understand the policy and feel that they are being treated fairly to prevent grievances that could lead to theft.
Employee Awareness and Training: Regularly train employees on loss prevention measures and the importance of honesty in the workplace. Encouraging employees to report suspicious activity through anonymous tip lines or reward programs can foster a culture of accountability.
Controlled Access: Limit access to certain areas (such as stockrooms and cash handling areas) to only authorized employees. Utilizing secure entry systems can reduce the risk of inventory theft.
