When you talk with store managers, whether from a local shop or a Wal- Mart, the conversation may turn to something they call shrinkage--a euphemism for harsher phrases like "employee theft" or "shoplifting." Retailers may prefer the fuzzier terms: It's easier to acknowledge that there's a certain amount of "permissible shrinkage" than "acceptable theft." As any storekeeper knows, a certain amount of merchandise is going to walk out of the front door in customers' pockets or out the back door in employees' cars. They also know that it's not economically feasible to eliminate it entirely. They'd wind up spending far more on security than they'd save in reducing theft.

The same phenomenon holds true with state and local governments. They're committed to assuring the public that they have controls in place to eliminate fraud and theft, and not merely to reduce it to an acceptable level. When there is a problem, of course, you can be sure that the local press will turn it into headlines. But in reality, attempts to catch and punish every last instance of dishonesty can result in something David Smith, county administrator for Maricopa County, Arizona, calls "spending a dime to chase a nickel."

Smith points out that "there's a trade-off between adding more bureaucratic processes to detect fraud and losing the amount of efficiency with which your organization can respond." He says he doesn't want to sacrifice the efficiency, which the county needs to have to respond to its customers, "just to have double- and triple- plated controls."

Don't misunderstand. Smith doesn't think that Maricopa County is riddled with "acceptable" fraud. In fact, he's confident that reasonable checks and balances, an ethos of integrity and a solid audit system do the trick. But forcing 10 people to sign off on a simple requisition to check and double check and check again that everything is on the up and up just doesn't make sense to him.

Unfortunately, there can be potent pressure in the opposite direction. According to Mary Reavely, a plain-talking member of Iowa's strategic planning and accountability team, "what you see--not just in Iowa but a lot of places--is when times are tough and there's more scrutiny on the government employees, people become afraid to make a mistake. And when they're afraid to make a mistake, they get more signoffs. People are hesitant to take the responsibility to have their name be the only name on the line."

Fortunately, governments sometimes catch on to the truth behind the old cliche that the "perfect is the enemy of the good," and move from a philosophy of risk avoidance to one of risk management. After a series of much-publicized corruption scandals in San Bernardino County, California, a number of procurement reforms took place. Many were thoroughly sensible. But some went overboard. For example, the Board of Supervisors required that no department could spend more than $25,000 with any one vendor without the board's approval. No distinction was made for the varying size of departments--and in a county with a $2.5 billion annual budget, some agencies reached that threshold pretty quickly. Result: The Board was regularly passing on tiny deals--in one instance having to review a $35 transaction, because it exceeded the overall limit. "The board realized this wasn't what they wanted to be doing," says Gerry Newcombe, deputy administrative officer. The regulations have now been loosened up somewhat.

Maine has similarly moved away from its tight-control orientation. A few years ago, any financial order that was greater than $500 had to be signed by the governor. In 2001, the legislature sensibly lofted that figure to $45,000.

The Ohio legislature is now considering giving permission to counties to distribute purchasing cards--credit cards that can be used by employees for relatively low-price items. Right now, the state forbids their use in counties. Adrian Maldonado, director of procurement and diversity in Cuyahoga County, believes one reason has been fear-- hearing about employees in other governments "spending money on these cards for trips or home repairs."

Election reform is another area in which nobody wants to hear about any fraud. "But making sure that every voter on the rolls is actually legitimate would require visiting them all in person," says Doug Lewis, executive director of the Election Center, a nonprofit, nonpartisan organization that works to improve the election process.

Sometimes the cure is not only more expensive than the disease, it also can be deadlier. Back in 1996, when there was an election scandal in Miami-Dade County, officials reacted with passion. One of the measures they took was to try to expel the names of felons from voting lists. Unfortunately, when election 2000 rolled around, it was found that some unfortunate citizens shared names with those inappropriately listed felons, and they weren't allowed to vote, either.

You may have heard about the mess that followed.