Embezzlement Cases Cost Companies an Average of $1.13 Million

February 1, 2018  •   embezzlement, Embezzlement and Internal Fraud, Uncategorized  •   0 comment

Be forewarned that embezzlement crimes are happening to every kind of organization imaginable! As shocking as it may seem, according to a 2017 study by global specialty insurer Hiscox, last year workplace embezzlement cases cost companies an average of $1.13 million.

Even as you read this, an embezzler or another internal fraudster may be ripping off your organization. I mean right this minute! But how would you know? That is the question, is it not?

Learn from the mistakes of others

The 2017 Hiscox survey of approximately 400 cases reported the following:
55% — Percent of cases occurred at companies with fewer than 100 employees
37% — Percent were committed by someone in finance or accounting function
48 — Median age of perpetrators
51% — Percent of perpetrators were women
29% — Percent of cases lasted more than 5 years
41 years — Longest-running scheme identified by the study

To further make my point about the severity of the toll being taken on a variety of organizations — proving that no group is immune to the crime of embezzlement or internal fraud — take note of a few excerpts from an article recently published by the Detroit Free Press: “federal records [U.S. Department of Labor documents] show that embezzling from union offices is endemic around the country. The article cited that while records show embezzlement occurred in hundreds of union offices nationwide over the past decade, in just the past two years, more than 300 union locations have discovered theft, often resulting in more than one person charged in each instance.

No group is immune to embezzlement cases

Cases involved unions representing nurses, aerospace engineers, firefighters, teachers, film and TV artists, air traffic controllers, musicians, bus inspectors, bakery workers, roofers, postal workers, machinists, ironworkers, steelworkers, dairy workers, plasterers, train operators, plumbers, stagehands, engineers, electricians, heat insulators, missile range workers and bricklayers. Individual cases compiled by the Office of Labor-Management Standards last year cite theft and fraud ranging from $1,051 to nearly $6.5 million.”

Labor Department records show that union theft happens in big cities and tiny towns in all corners of the country. Usually, the crimes are committed by the union local’s bookkeeper, president or treasurer. Gambling addiction is an issue at times. Frequently, money goes to buy luxury items.

“Unions are not unique,” said Peter Henning, a former federal prosecutor who teaches law at Wayne State University. “Another group hit hard by embezzlement are churches. You can’t train people to be ethical. It’s just access to money.” Prosecutors say theft is common from nonprofits and small businesses, and often goes undetected for years. Thieves often are beloved colleagues who leave a profound sense of betrayal.

Embezzlement: Impossible to Measure- but Enormous

Given that embezzlement is prevalent and ongoing – almost certainly happening in hundreds, if not thousands, of businesses throughout the United States every year, the number of people seriously affected or ruined has to be gigantic. ‘Google’ the words “embezzlement cases 2017” on the Internet and you will likely find over 2 million hits; next, try “bookkeeper arrested for embezzlement in 2017” and do not be surprised to find 177,000 hits related to this position alone.

Unreported Offenses

We cannot ignore the fact that a substantial number of embezzlement cases or offenses actually go undetected, and of those schemes discovered, many go unreported because business owners do not want bad publicity, feel sorry for the fraudster, or reach a restitution agreement. In other instances, the operation’s executive declines to pursue criminal prosecution because he/she is aware of the large amount of time required being present in court while knowing that percentage-wise, only a small number of these thieves actually receive substantial prison sentences.

Cost of Embezzlement Cases and Internal Fraud

The precise costs directly associated with business crime are impossible to measure. However, one very creditable survey (ACFE.com) estimates that U.S. businesses and other organizations lose in the neighborhood of five (5%) percent of revenues annually to embezzlement and internal fraud. On a global scale, this translates to losses of approximately $3.7 TRILLION DOLLARS a year.

What Went Wrong?

Whether the actual dollars lost to embezzlement and internal fraud are in the low or high billions, it is inexcusable to find in case study after case study that virtually all of the schemes exposed in a wide range of businesses were preventable. It is equally troublesome to discover that just a few financial control breakdowns and management failures allowed the majority of those criminal exploits to continue for several years beyond the fraudster’s initial unlawful act.

Prevention is Key

I was recently asked to provide no more than two tips that would help any type of organization to minimize their risk of embezzlement. This is a tough assignment as there are several common-sense actions that can be taken. Well, so as not to deviate from my assignment, below are my two most critical anti-theft strategies:

1. Recognize the fact that embezzlement/internal fraud can happen within your organization. The title of my latest book, Embezzlement: The Ultimate Betrayal, came to me quite easily. I believe that no embezzlement or internal fraud can take place within any organization without the fraudster: 1) holding a position of trust, 2) having little or no supervision or oversight, and 3) being perceived as honest and trustworthy. Together, these three elements foster acts of dishonesty and betrayal.

I am in no way suggesting here that you simply distrust your employees. In fact, it’s been my experience that most people are honest. Unfortunately, as we all know, it is extremely difficult, if not impossible, to determine the honesty of any individual. Sadly, even those individuals with higher moral standards may resort to committing acts of dishonesty when confronted with intense personal pressures. Ronald Regan said it best, “Trust, but verify.” Your goal should not be to detect embezzlement/fraud, but to prevent it. In future posts I shall use a step-by-step process to explain what I have learned over four decades of dealing with business-related crimes.

2. Financial controls are a must. This means that no single employee should be allowed to perform a series of high–risk tasks without adequate supervision or oversight.

Spread the Word about Embezzlement Cases

If you haven’t already done so, please forward my website (https://jacklhayes.com/blog/) to your business friends and associates. In addition, I particularly encourage any college student taking courses in business management, accounting, and/or entrepreneurial studies to also join in. This is a lesson that must not be ignored.