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Sara M. Costanzo / 14 August 2019

Thieves Among Us


United States businesses lose an average of seven percent of their annual revenues to employee theft each year, according to statistics from Statistic Brain Research Institute1. Estimates range from $20 to $50 billion, making it one of the most costly and widespread challenges faced in today's business world.
  
According to the Association of Certified Fraud Examiners (ACFE)2, approximately 95% of white collar criminals have no prior record. In fact, the higher the monetary value of the financial crime, the less likely it is that the perpetrator even has a prior criminal record. Consider this: 75% of employees have stolen from their employer at least once, according to the U.S. Chamber of Commerce3.
 
A few of the most commonly recognized types of fraud or theft by employees are: 
 
  • Larceny: taking cash or property from the business, such as taking cash out of the cash register or stealing inventory from the loading dock
  • Embezzlement: theft of cash or property by someone in a position of trust, such as a bookkeeper or senior executive
  • Time theft: using company time to conduct personal business
  • Invoice schemes: setting up a false vendor account and paying the vendor for nonexistent goods or services
  • Payroll schemes: falsifying time cards for a greater amount of hours than actually worked
  • Expense reimbursement schemes: padding expense reports by adding items that were never incurred or were not business-related
Embezzlement is slightly different from other forms of employee theft because it involves an employee who was entrusted by the organization to safeguard the very property that was stolen. The United States Department of Justicedefines embezzlement as “the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come.” 

To prove the crime of embezzlement, the prosecutor must establish:
 
  • There was a trust or fiduciary relationship between the defendant and the private organization or state/local government agency;
  • The property came into the possession or care of the defendant by virtue of his/her employment;
  • The defendant’s dealings with the property constituted a fraudulent conversion or appropriation of it to his/her own use; and
  • The defendant acted with the intent to deprive the owner the use of this property5.
Embezzlement can take many forms, and may vary depending on the position held by the employee in question. Employees may take checks meant for deposits, alter checks or payroll, misuse credit cards, take vendor kickbacks, or approve invoices otherwise unauthorized.  
 
The failure to proactively take steps to protect against employee fraud is like leaving the door to a vault unlocked and unguarded, with valuable assets exposed. Recognizing and understanding the red flags of employee embezzlement is the first step to avoiding losses. Some common behaviors to watch for are:
 
  • Never taking a vacation or sick time off from work
  • Requesting odd or unusual (off-peak) working hours 
  • Possessive of information at or around one’s work area
  • Lifestyle changes (expensive cars, jewelry, home, clothing)
  • Significant personal debt and credit problems
  • Lack of segregation of duties
  • Signs of an addiction problem
  • Irritability when questioned about work habits or work product
To proactively protect your organization against theft and fraud by employees, consider doing the following: 
 
  • Conduct a fraud risk assessment to understand the exposure. An accountant may be able to help with this.
  • Know the numbers. It’s essential to review financial statements regularly - quarterly at a minimum, but monthly is best. Watch for any unusual or unexpected changes and ask questions.
  • Segregate duties. No employee (or paid advisor) should have end-to-end control over a company’s finances.
  • Conduct an anti-fraud training for staff at least once a year. This will make employees aware of fraud schemes.
  • Cultivate a culture of integrity. Adopt a code of conduct and make sure that employees know that they are expected to behave ethically at all times.

 

1 https://fitsmallbusiness.com/employee-theft/
2 https://www.agacgfm.org/Tools-Resources/intergov/Fraud-Prevention/Fraud-Awareness-Mitigation/Fraud-Statistics.aspx
3 https://www.forbes.com/sites/ivywalker/2018/12/28/your-employees-are-probably-stealing-from-you-here-are-five-ways-to-put-an-end-to-it/#315ba8373386
4 Moore v. United States, 160 U.S. 268, 269 (1895)
5 United States v. Powell, 294 F. Supp. 1353, 1355 (E.D.Va. 1968), aff'd, 413 F.2d 1037 (4th Cir. 1968); United States v. Dupee, 569 F.2d 1061 (9th Cir. 1978)

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Sara M. Costanzo

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