How much do your employees really steal from you? As the New Year begins, you may be beginning the process of analyzing last year’s statistics; theft apprehensions, average admissions and other tallies to determine how effective your loss prevention team was throughout the year. For many, benchmarking against the figures from annual surveys or studies provide an idea on how well they are doing compared to the industry. However, what if the surveys themselves are not entirely comparable?
As loss prevention professionals we all agree employee theft is the largest contributor to shrink. According to the 2010 Retail Security Survey, conducted by the University of Florida, employee theft represents $15.9 billion in estimated employee theft. The survey also provides the following facts.
53.2 employees are terminated for theft for every $100 million in sales
The average theft admission was $996 per dishonest employee
With $2,374.49 billion in sales represented in the survey that comes out to roughly 1.26 million people terminated for theft. If we then multiply the average employee theft admission of $996 from the survey with the number of estimated employee terminations we have a number that rounds to $1.3 billion in losses.
Right away we have a dilemma. The survey states that $15.9 billion is estimated to be lost from employee theft. Using our figures, there is $14.6 billion in employee theft loss unaccounted for. The question becomes how many people are actually stealing within the retail labor force and how much are they actually stealing?
We understand that the National Retail Security Survey results do go through rigorous review and are based on the results given to them by retailers. For our purpose, we are looking at determining more likely statistics, so for argument’s sake, let us continue to use the $15.9 billion reported in the University of Florida survey.
If the 1.26 million people terminated for theft represented 100% of the potential for theft related terminations they would each need to average $12,619 in theft to account for the $15.9 billion in employee theft related losses ($12,619 X $1.26 million = $15.9 billion).
However, we know there are a lot of ingredients that go into the ‘recipe’ for employee theft including access to funds or product, add the technical knowhow, and mix it with some rationalizing. Since the point of stealing is to get something for nothing without getting caught, the most rational reason for believing their own impunity is that they are getting away with it. The bottom line is there are more people stealing than we are catching and they are stealing more than they would tell us.
Let’s say we only apprehend (and terminate) 50% of all the employees stealing from our company. Taking our figures from above, we now have 2.52 million dishonest employees, representing 106.4 dishonest employees terminated for theft for every $100 million in sales. To account for that $15.9 million lost, each dishonest employee admission would now average $6,309 ($15.9 billion divided by 2.52 million = $6,309).
So, how much do your employee’s steal?
If you base your answer on some wrangling of the U.S. Retail industry averages from the University of Florida survey, you can come up with an actual formula to check.
First, you need to estimate your ‘capture rate’ or the percentage you assume you are apprehending and terminating for employee theft. For example, let’s average out the two figures we have used in this article (100% capture rate and 50% capture rate). This gives us a more reasonable average apprehension rate of 75%. This percentage represents that we are catching and terminating 75% of the people that steal (which means we assume there is a dishonest employee population of 25% still out there stealing from us). Taking this figure of 75%, we come up with 79.8 dishonest employees for every $100 million in annual sales revenue.
For our example, taking the annual sales revenue from the University of Florida survey, we now have a pool of 1,894,843 dishonest employees, each stealing an average of $8,391 for a single year (1,894,843 x $8,391 = $15.9billion). The formula we used looks like this:Sum (Sales/100 million)*79.8*$8,391 = estimated employee theft related shrink
Want to estimate your numbers? Use the above formula to predict what to expect for shrink due to employee theft next year or compare this number to shrink due to employee theft to the industry average of 45% to this year’s actual shrink and decide how well you are doing compared to the 138 survey respondents of 2010.
Written by John Fice, CFI, COO of LP Innovations, Inc.
We would be more interested in hearing your thoughts on your calculation, our approach to looking at these calculations or other related thoughts about the NRSS or loss prevention surveys in general.
Have you found other calculations helpful that you would like to share?