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Inventory shrinkage is the difference between the inventory recorded in the books and the inventory actually on hand. In a lab or clinic the gap can come from loss, theft, damage or spoilage. Two federal rules decide what you must do about it: 2 CFR 200.313 for federally funded equipment and 21 CFR 1301.76 for controlled substances.
Definition and scope
A university accounting course defines shrinkage as “the difference between the inventory recorded in the accounting records and the actual inventory on hand” (Penn State, ACCTG 211). The same course lists causes such as damaged items that were never counted, spoiled merchandise that was thrown out and not counted, and items lost to theft, and it requires a physical count of inventory on hand at the end of the accounting period.
The term comes from merchandising, so the best-known figures are retail ones. The National Retail Federation’s National Retail Security Survey 2023 reported an average retail shrink rate of 1.6% for fiscal year 2022, up from 1.4% in fiscal year 2021. That is retail data and does not describe laboratories or clinics. Nobody should treat it as a benchmark for a supply room.
For a research or clinical organisation, “shrinkage” is a useful umbrella for any unexplained gap between a count and a record. The rules that apply to the gap depend on what went missing, not on the word used for it.
How shrinkage is detected and recorded in practice
Shrinkage shows up only when a physical count is compared with a record. The accounting course describes the adjusting entry that follows: the adjustment decreases (credits) the merchandise inventory account and increases (debits) cost of goods sold. That entry is a merchandising-accounting convention. It is not the same thing as the grant or regulatory obligations below.
The federal property rules add their own detection steps. Under 2 CFR 200.313(d), a recipient must conduct a physical inventory of equipment and reconcile the results with the property records at least once every two years. The property records must show, among other data, a description, serial or identification number, funding source, acquisition date, cost, location, use and condition, and disposition data (eCFR).
Which rules apply to equipment and to controlled substances
The obligations differ by the kind of item. This table lists only what the two regulations state.
| Item type | Rule | What it requires when something is missing |
|---|---|---|
| Equipment bought with federal award funds | 2 CFR 200.313(d) | A control system must be in place to safeguard against property loss, damage or theft. Any loss, damage or theft of equipment must be investigated. The recipient must notify the federal agency or pass-through entity of loss, damage or theft of equipment that will have an impact on the program. |
| Controlled substances held by a DEA registrant | 21 CFR 1301.76(b) | Written notice to the DEA Field Division Office within one business day of discovering a theft or significant loss, plus a complete and accurate DEA Form 106 submitted through the DEA Diversion Control Division secure network application within 45 days of discovery. |
Two points are easy to miss. First, 2 CFR 200.313 covers equipment, so it does not turn every missing box of consumables into a reportable event. The comparison of supplies and equipment under 2 CFR 200 explains where that line sits. Second, the controlled-substance clock starts at discovery, which means an unexplained count variance needs a documented review quickly. The controlled substance inventory guide and the diversion prevention program guide cover the surrounding practice.
A checklist that follows from the sources
- Keep an item-level record that includes location and condition for any federally funded equipment, as 2 CFR 200.313(d)(1) requires.
- Count and reconcile equipment against that record at least every two years.
- Investigate each loss, damage or theft of equipment, and notify the agency or pass-through entity when it will affect the program.
- For controlled substances, treat a theft or significant loss as a one-business-day written notification and a 45-day Form 106 matter.
- Record the physical count result and the adjustment separately from the investigation, because the accounting entry and the regulatory duty answer different questions.
For tracking approaches on the equipment side, see the guide to biomedical equipment inventory tracking, tagging and lifecycle.
Shrinkage versus obsolete stock
Shrinkage is a gap between the record and the count. Stock that is counted correctly but can no longer be used is a different problem. The guide to deadstock and obsolete medical supply inventory covers that case. One practical consequence is that expired items that are still on the shelf and still on the books are not shrinkage. They become a shrinkage question only when they are discarded without the record being updated, which is the “spoiled merchandise thrown out and not counted” cause in the accounting course.
Common misunderstandings
“Shrinkage means theft.”
The accounting source lists damage, spoilage and uncounted items alongside theft. A variance does not by itself show who or what caused it.
“Retail shrink rates apply to a lab.”
The 1.6% figure is a retail survey result for fiscal 2022. It says nothing about research or clinical stock.
“The two-year inventory covers consumables.”
2 CFR 200.313 addresses equipment. Consumables follow the organisation’s own accounting practice unless another rule applies, such as the controlled-substance regulation.
“A Form 106 replaces the one-day notice.”
The regulation states both: written notice within one business day of discovery, and Form 106 within 45 days of discovery.
Frequently asked questions
What is inventory shrinkage?
It is the difference between the inventory in the accounting records and the inventory actually on hand, found by comparing a physical count with the record.
How often must federally funded equipment be counted?
At least once every two years, with the results reconciled to the property records, under 2 CFR 200.313(d)(2).
When must a lost controlled substance be reported?
A registrant must notify the DEA Field Division Office in writing within one business day of discovering a theft or significant loss, and file a DEA Form 106 within 45 days of discovery (21 CFR 1301.76(b)).
Sources
- eCFR, 2 CFR 200.313 Equipment, ecfr.gov, date checked 2026-10-29.
- eCFR, 21 CFR 1301.76 Other security controls for practitioners, ecfr.gov, date checked 2026-10-29.
- Penn State, ACCTG 211, Merchandise Inventory Summary, oer.hax.psu.edu, date checked 2026-10-29.
- National Retail Federation, National Retail Security Survey 2023, nrf.com, date checked 2026-10-29.
