Recent Trends In Employee Theft

The following article I wrote was published in KYC360 - The Online AML Community:


As the economy continues to bump along five years after the 2008 economic crash in the U.S., major embezzlement cases have never been more prevalent. Our statistics, based upon Marquet International data compiled over the past five years of U.S. embezzlement cases of more than $100,000, reveal that 2012 was a banner year for employee theft with 2013 running apace of last year. Since our data also shows that the average case spans nearly five years, we believe that the current pace of major embezzlements will not decline any time soon. The frauds that began for economic purposes immediately after the downturn are now just surfacing.

Anecdotal evidence suggests that many embezzlers steal from their employer with the initial view of their action as "just a loan" and that they "intend to pay it back". However, we have learned that most employee thefts typically start out small and grow in magnitude over time as the fraudster becomes emboldened for having not been caught, and realizing the ease with which the scheme(s) worked. What started out as a "one time" $5,000 payroll fraud scheme ends up being half a million dollar fraud six years later. Likewise what began as a $1,500 credit card abuse becomes a $150,000 embezzlement several years down the road.

 

Another noteworthy finding from the data is that the apparent motivation for many embezzlers who steal significant amounts from their employer is not to alleviate personal economic problems, but rather to maintain a lifestyle far beyond what they would otherwise enjoy. Many of the schemes may have begun for economic purposes, but the motivation factor quickly morphs into greed or entitlement and somehow the perpetrators are able to justify their actions.

 

Major embezzlement schemes are not complex, as 2012 Marquet Report on Embezzlement demonstrates. Indeed, our five year analysis showed that the most common scheme employed was the forgery or issuance of fraudulent checks (35.5%), followed by theft of conversion of cash receipts (21.2%) and then unauthorized electronic transfers (12.2%). Not surprisingly, at the height of their misappropriations (usually at the time they are discovered), major embezzlers typically employ more than one scheme in order to fleece their employer.

 

Contrary to conventional wisdom, our data consistently shows that most perpetrators in large-scale employee theft cases are women. This could be explained by the predominance of females working within finance departments, which is where most of these cases occur. Our five year data, which includes more than 2,000 major embezzlement cases in the US, reveals that over 62% of the perpetrators were women however, interestingly, the men in the data stole at more than double the rate of women.

 

One surprising result of our analysis is the fact that less than 5% of the perpetrators of these major frauds had prior criminal fraud backgrounds. Therefore background screening, while helpful for many reasons, will only weed out a small segment of potential embezzlers.

 

Another motivating factor for perpetrators is the clear link we have found between employee theft and gambling. In the cases where an embezzler's motivating factor was known, nearly one third of the cases involved a gambling issue. Not surprisingly, the vast majority of the cases occurred in states where gambling is broadly legalized and casinos are prevalent.

 

Finally, we have consistently found that the victim organizations are most commonly financial services entities, followed by government entities and then non-profits or religious organizations. We can understand why most major embezzlement cases involve financial firms since, “that is where the money is,” as Willy Sutton, the career bank robber from the 1930's supposedly told a reporter in response to being asked why he robbed banks. Non-profits and religious organizations are also understandable due to their typical weak financial controls and lack of financial oversight. Perhaps governmental bodies simply breed waste, fraud and abuse, accounting for why these are such common victims of employee theft.

 

We know that there will always be fraud and theft in organizations large and small. However, with proper controls and oversight, these cases can be minimized or stopped short or otherwise mitigated.