The Profit & Loss Statement Hides Actual Losses & Opportunities

Below is a standard form P&L statement for the hypothetical company Nuvo Widget. They did 20 million in revenues for the year and had a net profit of 6.5 million — or so they believed. In fact they earned more than that — 7.2 million, but $700,000 was stolen away in various forms. 

The notes “handwritten in pen” explain such hidden crime costs which comprise some part of the highlighted items. So, for example, the Maintenance Department may replace a window broken by vandals. But when Bookkeeping gets the invoice for a new window there is nothing identifying it as a cost related to vandalism. So it just goes under “Shop Expense” or “Materials – Misc.” Similarly a receipt for a new truck engine is assumed to be wear and tear, as opposed to intentional misuse or sabotage. A portion of the very cadmium and plastic from which Nuvo’s widgets are made was stolen but internal theft operation was not caught.

The owner of Nuvo, pleased with the 6.5 million in profits, having studied the P&L statement (without the handwritten notes) and asked if his company suffers any losses from crimes, happily reports that no, they don’t. He is losing around $700,000 of added profit per year in this way.

As a semi-humorous note we see that Nuvo spends only $450 per year on security — a security camera they bought at Sam’s Club — it records to a dvr which no one looks at.