How can a small business owner or their accountant tell whether an employee is stealing stock and covering it by recording the missing goods as shrinkage, scrap, spoiled or obsolete stock, or by adjusting the inventory counts?

What should I check, step by step?

1. Pull every inventory adjustment and write-off for the last 12 months, with who posted it, the date, the reason and the value. Sort by person, location, item and reason code. Clusters matter more than totals.

2. Look hardest at write-offs of small, valuable, easy-to-resell items, and at adjustments posted just before or just after a physical count.
3. Separate the jobs: the person who handles or receives stock shouldn't also post adjustments or write-offs, and shouldn't count their own area alone.
4. Require evidence for every write-off over a set value: a count by someone else, a photo or the damaged goods themselves, a supplier return or a disposal receipt, and a second person's approval before it is posted.
5. Do scheduled and unscheduled counts, and tell staff that unscheduled counts happen. Count sealed boxes, not just the labels on them.
6. Compare inventory adjustments with refunds by employee, and list everyone who can post both. A refund with no goods back plus a later shrinkage entry is one theft recorded twice.
7. Watch bad debt. A rise in written-off receivables can mean stock was shipped on a fake sale that was never going to be paid.
8. Keep a dated copy of each count and its approval somewhere the stock staff can't edit, so a count sheet can't be rewritten after the adjustment is posted.
9. If you suspect theft, talk to your accountant or a fraud examiner before confronting anyone, and keep the counts and records as they are.

How do employees hide inventory theft as shrinkage, scrap or write-offs?

The ACFE's 2026 fraud tree splits noncash theft into misuse (using company assets without taking them) and larceny (taking them). Simple larceny is carrying stock out; the harder part for the thief is that a count will eventually show the gap, so the records have to be made to agree.

• The usual ways are posting the missing quantity as shrinkage, writing it off as scrap, spoiled or obsolete stock, changing the count sheets, or recording a fake sale. A Journal of Accountancy fraud quiz written by the ACFE's research manager notes that some people cover warehouse theft by recording fictitious sales of the missing goods, then cancel those sales or write them off as bad debts, which is why an unexplained rise in bad debt expense can point to inventory theft.
• The same quiz lists tests for refund schemes that also catch stock being explained away: compare inventory adjustments with refund transactions by employee, and list every employee who can post both refunds and inventory adjustments. An older Journal of Accountancy note on cash-register schemes adds that fake refunds and voids push inventory shrinkage to abnormally high levels, because cash leaves with no goods coming back.
• Across all schemes, the ACFE's 2026 report found the most common concealment was creating fraudulent physical documents (39% of cases), followed by altering physical documents (33%). A count sheet or a damage report is exactly that kind of document.

Can someone change inventory quantities in QuickBooks Online without a sale or purchase?

Intuit's help page says that if you track inventory in QuickBooks Online Plus or Advanced you can manually adjust an item's quantity without recording a purchase or sale, to match what you have in stock. You choose an inventory adjustment account, enter a new quantity or a change, add a memo and save; QuickBooks then adjusts the Inventory Asset account and cost of goods sold under Inventory Shrinkage.

• The same page explains how to find an earlier adjustment through Advanced search and then add to it, edit previous adjustments or delete it. That's useful for fixing mistakes, but it also means the adjustment you see today may not be the one that was posted after the count, so compare against a copy kept outside the books.
• A shrinkage line in cost of goods sold looks like an ordinary cost of doing business. A growing one deserves a closer look, because the adjustment records that the stock is gone; it doesn't record why.

What does the ACFE 2026 report say about inventory and noncash asset theft?

Occupational Fraud 2026: A Report to the Nations covers 2,402 cases. Theft of noncash assets was the most common of the nine asset misappropriation sub-schemes it tracks: 549 cases (23%), with a median loss of USD 75,000 and a median duration of 12 months. The report places it, with billing and check and payment tampering, among the sub-schemes posing the greatest combined risk of frequency and loss.

• Noncash theft appeared in 19% of cases at organizations with fewer than 100 employees and 21% at larger ones, one of only two scheme types that weren't more common at small organizations. Its median velocity was about USD 6,300 of loss per month.
• Perpetrators working in warehousing or inventory accounted for 70 cases (3%), with a median loss of USD 117,000. The report's controls tables show surprise audits in only 16% of organizations with fewer than 100 employees, against 52% of larger ones.