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Employee Theft: Legal Aspects - Estimates Of Cost

billion security percent retail

Each year millions of workers pilfer billions of dollars worth of goods and services from the places where they work. Approximations of the cost, while expected by the business community and security system providers, are not of much value to the social science community because they are only crude guesses. Consider the range of estimates cited in 1999 on the Internet: The American Management Association reports that U.S. businesses lose more than $10 billion annually to employee theft and commercial bribery; the U.S. Department of Commerce estimates that employee theft costs about $50 billion annually; the American Society for Industrial Security reports that employee theft currently costs U.S. businesses $100 billion annually; and the Federal Bureau of Investigation estimates that shrinkage due to employee theft, error, and shoplifting range from $10 billion to $150 billion. Other estimates are as high as $200 billion annually. Recently, several efforts to provide benchmark data have been initiated, but only for selected industries. Jack Hayes International, a security business, provides an annual retail theft survey representing twenty-two retail companies and ten thousand stores; summaries of these reports are available on the Internet. Richard Hollinger of the Security Research Project at the University of Florida provides an annual report entitled "The National Retail Security Survey." Hollinger's 1998 report indicated that the annual cost of inventory shrinkage in selected segments of the retail industry was $26 billion, an inventory shrinkage of 1.7 percent of total sales. Of that, employee theft represents 43 percent of the total, shoplifting 34 percent, administrative error 18 percent, and vendor fraud 6 percent. The report indicates that retailers lost an average of $212 per shoplifting incident and $1,058 per employee theft incident. Evident in these statistics are many of the problems inherent in studies estimating the costs of employee theft. Note first that the total figures for estimated loss are for all inventory shrinkage, of which employee theft is only a part. Note secondly that the value of the employee theft per incident does not represent the pilfering of most employees, that is, petty theft on an irregular basis. Finally, note that these figures are inventory based and do not include many employee activities that could be included in a more comprehensive definition of theft such as time theft, or the unauthorized use of facilities or services. According to the U.S. Department of Commerce approximately one-third of all business failures each year can be traced to employee theft and other employee crimes. It should be noted, however, that an employee does not need to steal large quantities of expensive items to have a significant cumulative effect. If a worker in a supermarket takes a can of soda and a deli sandwich and a small bag of potato chips for lunch every day, at a retail value of $3.50, for one work year (240 days) the cost of that "job benefit" is $840. Most studies of employee theft do not include losses of this type nor do they include other so-called job benefit losses such as the value of employee phone calls to family and friends or the cost of the time used for those calls (e.g., a five-minute call by a $12 an hour employee equals $1 for each call, or $240 per work year).

It can be seen from the above why estimates of the amount of pilfering vary so much. The lower estimates focus primarily on major acts of theft, while those at the upper end are more inclusive of all theft. Like other forms of crime, employee theft can be only crudely estimated; like other forms of crime it too is subject to the dark figure of crime concept, that is, that there is a large amount of it that cannot be determined (Hollinger; Hayes).

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