Employee Theft Costs Retailers Billions

By Roy Maurer July 29, 2015

Retailers are losing billions of dollars to employee and vendor theft every year.

New research from the National Retail Federation (NRF) found that retail outlets lost $44 billion in 2014—from shoplifting, employee and vendor theft, and administrative errors—to what the industry refers to as “inventory shrinkage.”

Just over a third of that loss (34.5 percent)—$15 billion—is attributed to employee theft, and another 6.8 percent to vendor fraud. The largest chunk of the reported shrinkage comes from shoplifting at 38 percent. The remaining loss is attributed to administrative errors or unknown factors.

“The truth is that the industry loses billions of dollars each year at the hands of callous criminals that could be put towards human capital, promotions and other necessary business operations,” said Bob Moraca, vice president of loss prevention at the NRF.

About 40 percent of companies surveyed said their loss prevention budgets for 2015 increased from the prior year, and another third said their budgets had remained the same.

Apprehensions of dishonest employees and awards of recovery dollars for worker theft increased in 2014, according to the 27th Annual Retail Theft Survey conducted by Jack L. Hayes International, a loss prevention and risk management consulting firm.

Survey participants from 25 large retail companies with 23,250 stores reported apprehending 80,366 employees for theft in 2014, up 1.7 percent from 2013. Respondents recovered over $66 million from employee apprehensions in 2014, an increase of 18.1 percent from 2013, according to survey results. That means that “one out of every 38 employees [was] apprehended for theft from their employer in 2014 based on comparison data,” said Mark R. Doyle, president of Jack L. Hayes International. Further, the survey showed that while there are many more instances of shoplifting and more items stolen overall by shoplifters, on a per-case average, employees actually steal more than six times the dollar amount stolen by shoplifters.

About half of the respondents (52 percent) reported an increase in employee theft apprehensions while the other half (48 percent) reported a decrease.

When asked why they thought employee theft had increased in 2014, respondents cited ineffective pre-employment screening, reduced supervision of the workforce, a stagnant economy and a “general decline in honesty.”

“Some retailers, in an effort to reduce their costs, have lowered their pre-screening requirements,” Doyle said. He added that “with less supervision over associates, due to reduced staffing levels, there are more opportunities for dishonest associates to commit acts of theft, and the growing workforce of part-time associates typically have less loyalty to their employer and are more apt to take advantage of opportune circumstances.”

When survey participants were asked what contributed to the rise in apprehensions, respondents pointed to enhanced point-of-sale exception-reporting software and a renewed focus on asset protection and loss prevention programs.

Roy Maurer is an online editor/manager for SHRM.

Follow him @SHRMRoy

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