Four characteristic principles of shrinkage


As a police officer I arrested a young adult female who was working as an office assistant for a dentist office. The dentist had pre-signed blank checks. The office assistant wrote a check out to herself in the amount of $5,000 and deposited the check into her bank. The bank informed the police and we contacted the dentist. The result was a young female with no record going to jail for embezzlement and due to the amount, a felony. This is only one example of employee theft. According to the Association of Certified Fraud Examiners (ACFE) employee theft is said to cost businesses $50 billion annually. This theft can constitute check fraud, embezzlement, internal theft of merchandise, etc. Employee theft is also termed shrinkage. Many times it takes a company on average two years before the shrinkage is discovered. The term shrinkage refers to the loss of inventory or assets to the company. Internal theft can prove costly for company or corporate cultures. Research has shown that employee theft can also be prevented with minimal effort by implementing basic internal controls.


Let's talk about four characteristic principles involved in internal theft:


1. Diversion- Simply put, this is diverting the attention away from the thief. Examples would be causing a distraction, having the possible witness look away, changing the subject in a theft related discussion, passing blame on someone else, to name a few.


2. Conversion- This refers to your counterfeiter or gambler. Replacing something of value with something of no value to throw off any investigation into a theft. Counterfeiting, making something fake to get something real. Gambling to spend money that's not yours to get more money.


3. Disguise- Concealing the identity of the thief. The old inside job. The false robbery report that's an internal theft. The mugging that never truly occurred in hopes that the thief is portrayed as a victim while getting away with the crime.


4. Divergence- This constitutes a lot of fraud cases. Doctoring inventories and invoices to steal from the company. False representation to gain a monetary reward.


John Clark and Richard Hollinger were researchers in sociology from the University of Minnesota. They defined employee theft as "the unauthorized taking, control, or transfer of money and/or property of the formal work organization that is perpetrated by an employee during the course of occupational activity." The causes of employee theft can be economic pressures (unable to pay bills), Immaturity (usually youth), Opportunity (took a chance), Job dissatisfaction (blames management), or Social control (where they live). The research indicated that the more a company can do to remove one or more of the above principles, the less likely they are to have internal theft.


It's hard to have employees you trust commit a theft to your business. Set up an honest and ethical work culture. Conduct thorough hiring processes and have those internal controls where you can keep your employees satisfied without your business falling victim to shrinkage.







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