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The Fiscal Cliff And Employee Fraud

Posted on 12/10/12 10:30 AM

It has always been assumed that economic hard times create an atmosphere where employee theft is more prevalent.  This very simple theory considers that when our country is going through hard times people need more money to make ends meet and some will turn to stealing from their employer. However, one person’s hard times are not necessarily another’s.

Tough economic indicators across the country don’t necessarily change the hourly wage of a retail associate or the salary of store management. Granted, there may be a reduction in store payroll hours and stores may close shop – but for the people consistently working open to close in a store that is open 80 hours per week there will not be an actual shortage in their paycheck. Furthermore, there is some indication that after the 2009 financial crash concerns about continued employment and the constant high unemployment rates across the country may have reduced employee theft. Record low shrink results posted over the last couple of years may indicate that store associates and managers do not want to do anything stupid that would cause them to lose their job.

Cliff signPersonal economic hard times are a different story. It is an all too familiar story of an employee who rationalized the theft of money or product because they needed money to pay rent, make a car payment, or buy food for their family. This employee has a financial shortfall and they do not feel they have the ability to resolve it. The rationalization is simple, “if I don’t steal this I will be worse off”.

So what does this mean if we go over the ‘fiscal cliff’? The economic indicators will probably tank – but will that affect the individual employee? Can these new taxes – taxes that we have not seen since President Clinton was in office – create a personal economic crisis?

We in loss prevention like to coach our store teams to think about shrink as ‘dollars lost’ per day. We do this because we believe it is easier for our store teams to appreciate the actual dollars ‘walking out the door’ on a daily basis, as opposed to an annual shrink percentage based on losses divided by revenue.  So how, exactly, will the fiscal cliff affect our store associates? CreditCards.com has devised a fiscal cliff calculator they say will tell us. Users of the calculator type in their income, then select their exemptions and filing status. The calculator computes their combined federal income and Social Security taxes under current rates, and the larger, "post-cliff" tax bill using rates scheduled to go into effect Jan. 1, 2013.

Let’s take a hypothetical Assistant Store Manager, who is single and making $32,000 per year. Currently they pay $4,214 in taxes per year but after going over the cliff their tax bill would be $5,299. Assuming 26 paychecks per year, that's $41.73 less per paycheck. Or if they use the dollar per day skills we teach, they will be losing $2.97 per day, 365 days a year. How about the sales associates working in the store that is making less than management? Let’s say they make $18,000 per year and pay $1,566 in taxes. Going over the ‘fiscal cliff’ they are now paying $2,331 in taxes or $2.09 per day, 365 days per year.

Not huge numbers? With an average of $2.50 less in every store employee’s pocket every day of the year I suspect that these small dollar losses – if they come to be – will have a more personal and more immediate impact than the billions and trillions of dollars in ‘economic indicators’ that we seen on the news every day.  When it comes to an employee rationalizing a decision to steal - not having as much lunch money as they used to have may be just the recipe to push us over a ‘shrink cliff’.

Written by John Fice, Chief Operating Officer

Topics: Loss Prevention program and development

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