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Dealing with Shrinkage

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In the HVACR industry, equipment is handled by a number of people during the normal course of operations. And even in the most diligent operations, with employee and contractors of impeccable integrity, inevitably equipment and supplies may go missing.

On the other hand, misappropriation or theft may also occur. How are employers and business owners to know how much shrinkage, or disappearance of supplies and equipment can be attributed to accident, oversight or other innocuous causes? Are there red flags to indicate nefarious activity? There are no “one size fits all” answers; however, there are indications that may provide insight, as well as suggested strategies to handle problematic shrinkage issues.

Keeping Track of Inventory and Equipment

While it’s true that honest employees have nothing to hide, this does not give an automatic green light to invasive tactics to limit shrinkage. While some companies have established policies of routinely searching employees and contractors as they enter and leave the premises, such extreme tactics serve to alienate employees and may drive .good workers away.

A smarter strategy is for business owners and entrepreneurs is to benchmark normal shrinkage levels. This is accomplished by establishing and maintaining a log for a significant amount of time – at least six months – for every transaction involving inventory and equipment. Once benchmarks have been established, it’s possible to note circumstances that vary from the norm – and determine whether further investigation is necessary.

Along with benchmarking, tagging company equipment and inventory makes keeping track a much easier task. Tagged equipment can be permanently matched with particular trucks, and tagged inventory checked out when technicians or contractors go out on a job. Remaining inventory can be checked in when they technicians and contractors return, along with logs of inventory used for particular jobs that are submitted along with returned inventory.

Establishing “Normal” Shrinkage Levels

The concept of shrinkage has been commonly associated with the retail industry. While shrinkage is also relevant to HVACR, there are significant differences. First, in retail, shrinkage levels must account for customer shoplifting along with accidents, incidental shrinkage and deliberate employee theft. Furthermore, retail deals with much larger amounts of inventory than the HVACR industry does. Finally, depending on the particular retail vertical, much of the inventory is more portable than heavy, bulky HVACR equipment.

One potential target for shrinkage within the HVACR space is refrigerant. However, refrigerant is the lifeblood of the HVACR industry. Skimping on supplying refrigerant to technicians and contractors is not an option. In addition, refrigerant usage varies according to the project – and, depending on the circumstances of the project, the amount of refrigerant needed can vary significantly from a previous estimate.

However, the benchmark, label and log system can work to determine which trucks seem to consistently use an excessive amount of refrigerant. If technicians or contractors cannot provide reasonable explanations for excessive shrinkage of refrigerant or other essential equipment from their trucks, that should send up red flags.

Dealing with Potential Shrinkage

If you have gathered significant evidence of potential wrongdoing, confront the employee or technician with the evidence. Even if wrongdoing appears to be obvious, there may be a legitimate explanation. The employee in question deserves the opportunity to present his or her side of the story before disciplinary action is taken.

In the absence of exposing red-handed appropriation on the spot, inquiries concerning potential shrinkage incidents should be conducted strictly in private. Humiliating workers in public is not only uncalled for, doing so could land you or your company in legal hot water if the allegations prove to be false.

On the other hand, if an investigation or inquiry of a suspected employee proves that misconduct has occurred, employers have a number of options at their disposal, including dismissal for cause. Other options include suspension, demotion, mandatory restitution, pressing criminal charges or some combination of any or all of them.

However, if by some unfortunate circumstance your company has previously experienced shrinkage related misconduct, prior disciplinary actions should be a guide. Of course, varying circumstances may call for different approaches. However, if you suspend John for a week because cause he could not provide a satisfactory explanation for excessive refrigerant use, but you fire Jim for a similar offence, Jim could take legal action against your company. This is especially true if Jim belongs to one or more protected classes – and John does not. It’s wise to obtain legal counsel to determine the proper course of action.

Following the establishment of deliberate employee or contractor misappropriation, contact your company’s insurance agent to determine if financial recovery is possible. If your company does not carry such insurance, consider purchasing a policy to protect against future losses.

Disclaimer: This article is a general discussion of shrinkage in the HVACR industry. It is not intended to represent legal advice. Please consult with an attorney in your jurisdiction specializing in employment or labor related issues with specific questions regarding shrinkage related to your company and its workers.

Audrey Henderson

Posted In: Money

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