# 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?

**Short answer:** Because stock gets counted, someone stealing it usually has to make the records agree with the shelf. The common covers are an inventory quantity adjustment posted to a shrinkage account, a write-off as scrap, spoiled or obsolete stock, altered count sheets, or a fake sale of the missing goods that is later cancelled or written off as bad debt. In QuickBooks Online Plus and Advanced, an inventory quantity adjustment changes an item's quantity without recording a purchase or sale and posts the value to Inventory Shrinkage under cost of goods sold, and earlier adjustments can be edited or deleted. So the test is whether each write-off is backed by evidence the person posting it didn't produce: a count done by someone else, the damaged goods or disposal record, and a second approval. In the ACFE's Occupational Fraud 2026 report, theft of noncash assets such as inventory was the most common form of asset misappropriation: 23% of cases, a median loss of USD 75,000 and a median duration of 12 months. It appeared in 19% of cases at organizations with fewer than 100 employees.

## Checklist
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.

## Ask Rightshold (free, no key)
Add the MCP server https://www.rightshold.com/mcp to Claude, Cursor, ChatGPT, Grok or VS Code (one-click setup: https://www.rightshold.com/start?ref=seo), then ask: "Open a human approval request before my store manager posts an inventory write-off over $200. The action is writing off 12 units of one item as damaged in storage; I want my approval recorded against the exact item, quantity, count and photo before the adjustment goes into QuickBooks."

```json
{
  "tool": "request_human_approval",
  "arguments": {
    "action": {
      "type": "inventory_write_off",
      "sku": "SKU-4471",
      "quantity": 12,
      "unit_cost_cents": 3850,
      "reason_code": "damaged_in_storage",
      "count_ref": "COUNT-2026-11-12-B",
      "count_sheet_sha256": "<sha256 of the count sheet scan>",
      "photo_sha256": "<sha256 of the photo>"
    },
    "summary": "Write off 12 units of SKU-4471 (USD 462.00 at cost) as damaged in storage, per count COUNT-2026-11-12-B by a second staff member.",
    "expires_in_minutes": 1440
  }
}
```
- Needs your API key. Only the owner's account key can decide it (decide_human_approval); delegated agent keys are refused. The decision is a signed, timestamped receipt that includes a hash of the action.
- verify_human_approval (free) with the receipt, its signature and the action as posted says whether it matches what was approved. A different item, quantity or count sheet gives a different hash, so it won't match. With only {id} it returns the status without comparing the action.
- The mirror ledger has no inventory entry type, so keep the count-sheet and photo hashes inside the approval action as shown. The signed approval is then your dated record of what was counted and agreed.
- Use item and count references, not staff names; keep who counted in your own files.

_Rightshold doesn't connect to QuickBooks, your POS or your stockroom, and it can't stop anyone posting an inventory adjustment, count stock or detect theft. It records the approvals you ask for and lets anyone check them later, so it only helps if someone compares the write-offs in the books against them. QuickBooks behavior is from Intuit's help page as checked on November 13, 2026; ACFE figures are from Occupational Fraud 2026. Not legal, tax, audit or accounting advice._

## Sources
- [ACFE: Occupational Fraud 2026, A Report to the Nations](https://www.acfe.com/-/media/files/acfe/pdfs/rttn/2026/2026-report-to-the-nations.pdf)
- [ACFE: The Fraud Tree 2026 (noncash: misuse and larceny)](https://cms.acfe.com/-/media/files/acfe/pdfs/rttn/2026/infographics/the-fraud-tree-2026-fem.pdf)
- [Intuit: Adjust inventory quantity on hand in QuickBooks Online](https://quickbooks.intuit.com/learn-support/en-us/help-article/inventory-quantity/adjust-inventory-quantity-hand-quickbooks-online/L6O3QhOEZ_US_en_US)
- [Journal of Accountancy: What's your fraud IQ? (fictitious sales and bad debt, refunds vs inventory adjustments, 2009)](https://www.journalofaccountancy.com/issues/2009/sep/20091565/)
- [Journal of Accountancy: Control cash-register thievery (refunds, voids and shrinkage, 2002)](https://www.journalofaccountancy.com/issues/2002/jun/controlcashregisterthievery/)
- [Idaho State Controller's Office: First Friday Fraud Facts+, inventory fraud (August 2014)](https://www.sco.idaho.gov/Lists/CorrespondenceList/Attachments/325/FFFF-Aug_2014.pdf)

## Related
- [How to tell if an employee is stealing cash with voids, refunds or no-sales at the register](https://www.rightshold.com/answers/how-to-tell-if-an-employee-is-stealing-cash-with-voids-refunds-or-no-sales-at-the-register)
- [How to catch an employee skimming cash sales that never get rung up](https://www.rightshold.com/answers/how-to-catch-an-employee-skimming-cash-sales-that-never-get-rung-up)
- [How to stop an employee hiding stolen customer payments with write-offs or credit memos](https://www.rightshold.com/answers/how-to-stop-an-employee-hiding-stolen-customer-payments-with-write-offs-or-credit-memos)
- [How to prove small business books weren't edited after the fact](https://www.rightshold.com/answers/how-to-prove-small-business-books-werent-edited-after-the-fact)

_Not legal advice. Updated 2026-11-13. JSON: https://www.rightshold.com/answers/how-to-catch-an-employee-hiding-stolen-inventory-as-shrinkage-scrap-or-write-offs.json_