Taking the Store: A Loss Prevention Perspective

In this column, Christopher Shell, an internal auditor, describes his experiences in the loss prevention area. He shows that inventory misappropriation in the retail industry is a difficult and challenging fraud environment to investigate. Shell is in the master’s of accounting program at the University of Alabama at Birmingham.

FRAUD AND LOSS PREVENTION 

Inventory shrinkage is the difference between a company’s adjusted book inventory level and the physical amount of inventory. The four main components of inventory shrinkage are employee theft, shoplifting, clerical errors, and vendor fraud. According to the University of Florida’s 2004 National Retail Security Survey, employee theft accounted for $17.6 billion, or 47 percent, of the year’s total inventory loss. This astounding figure is an unnecessary expense that directly impacts store profitability.

During the fraud examination course at the University of Alabama at Birmingham, I learned ways to prevent and detect various fraud schemes. The course work gave me relevant training for my current internal auditor position and increased my understanding of the services I provided when I was a loss prevention (LP) associate for a large retailer during my undergraduate studies.