Are Your Employees Embezzling From You?

Robert Capwell

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Embezzlement resized 600Employee embezzlement continues to be a key factor of shrinking profits for U.S. employers.  The fourth annual study conducted by Marquet International, an investigative, litigation support and due diligence firm, studied 473 employee theft schemes which totaled $100,000 or more per incident.  This was the fourth annual study conducted to analyze key factors of employee embezzlement.  The total loss from all incidents within the study totaled over $355 million in employee theft and fraud.  The report suggests that employee misconduct and internal corporate fraud will continue to be a factor as the U.S. economy continues to struggle; however, key drivers for employee embezzlement will continue to be an overwhelming factor in any economy. 

The following were notable statistics from the 2011 study:

  • The financial industry was the hardest hit by industry category
  • The average loss was $750,000
  • Over 72% of the incidents included perpetrators with positions in finance, bookkeeping and accounting
  • The average scheme lasted almost 5 years
  • The average embezzler stole $15,189 per month from their employer
  • The average age of an individual was 42 years old
  • Almost 90% of the cases involved an individual perpetrator 

The study analyzed each of the 473 employee theft schemes and broke them out by using standard industry classifications to further categorize victim organizations.  The financial services industry continues to be the hardest hit and is consistent with prior studies.  The following is a breakdown of total loss by industry from the 2011 study:

Financial services $86,792,000 
Healthcare  $24,679,000 
Non-profit   $24,650,000 
Food and agriculture  $20,228,000 
Manufacturing  $20,119,000 
Real Estate $19,887,000
Government  $18,832,000 
Apparel $16,000,000
Education $14,607,000
Automotive  $14,305,000 
Construction $13,943,000
Business Services $8,599,000


Motivating Factors of Embezzlers
The study revealed that there are several motivating factors used by perpetrators to rationalize their actions which included: belief of entitlement; financial need; lavish lifestyle; gambling issues; shopping addiction; substance abuse; or the need to support a personal business or significant other.  Of the cases studied, over 58% of embezzlers rationalized their actions by way of excessive greed or the desire to live a more lavish lifestyle.  Gambling was the second highest key factor as 21% of the cases studied were attributed to gambling issues.  Over 7% of embezzlers were motivated by the need to finance a personal business, and the fourth highest category was substance addiction which equated to over 5% of the cases studied. 

Methods of Embezzlement and Position Held
Employees continue to steal from their employers using several different methods of fraud.  Although some perpetrators used multiple methods and schemes, the study breaks down the following key categories and rates them as a percentage of total dollars lost.  The use of forged/unauthorized checks is certainly the number one method used for fraud as embezzlers cut unauthorized checks for the benefit of the perpetrator.  Theft of cash is a close second as a wide range of employees from each category may have access to cash.  The following is a breakdown by theft scheme:

Forged/unauthorized checks 38.4%
Theft/conversion of cash receipts 20.5%
Unauthorized electronic transfers 13.4%
Payroll shenanigans 8.7%
Credit card/account abuse 6.5%
Vendor fraud schemes  5.4%
Fraudulent reimbursement schemes  4.9% 
Bogus loan schemes 1.6%
Theft from tax or benefit accounts 0.4% 
Inventory/equipment theft/conversion  0.2%

Over the past four years, the study has analyzed the types of employee theft schemes and also the position of the perpetrator within the company.  Employees with fiduciary and accounting responsibilities, such as CFOs, bookkeepers and bank tellers, continue to have the biggest link to employee theft and fraud.  Of the study, over 72% of fraudulent acts came from employees with a position within the financial category.  The following is a breakdown of category types and their relationship to overall employee theft and fraud. 

Finance 72.3%
Management 14.4%
Executives 9.7%
Administration 1.9%
Human Resources 0.9%
Sales 0.4%
IT 0.2%
Vendor 0.2%



Embezzlers with Prior Criminal History
Of the 473 cases studied, 23 perpetrators or 5% had engaged in prior criminal activity or fraud.  According to Marquet International, this figure is consistent with prior studies; however, the report underscores that this figure is estimated to be between 5%-10% as information to prior criminal activity was not readily available and not all criminal matters were prosecuted. 

The following criminal statistics were derived from the information that was gathered from the 23 perpetrators as stated above: 

  • 78% of criminals held financial positions
  • 91% of criminals were solo embezzlers
  • 70% of prior criminals were female
  • 57% of prior criminals employed a forged/unauthorized check scheme

Curbing Embezzlement in Your Organization
Unfortunately, there is no simple antidote to eradicating employee theft and embezzlement; however, employers can take a proactive stance in curbing many of the methods used within their organization.  The use of duel signatures on checks; tighter access to cash receipts and credit cards; inventory audits; tighter security and risk management protocols can certainly help.  In addition, the knowledge of your employees’ criminal past or financial security can provide key warning signs for future risk.  By incorporating a comprehensive due diligent background screening program, a company can properly assess potential candidates and screen current employees on an ongoing basis to look for potential risk factors. 

Applicant Fraud May Be a Sign of Things to Come from a New Employee
Let’s face it, fraud and embezzlement can start even before your employee is part of your workforce.  Job applicants commit acts of fraud right on their resume or job application.  If a candidate is willing to commit fraud at this stage, how can they be trusted when they’re an employee?  All of an applicant’s information should be carefully scrutinized and verified before it’s taken at face value.  Here are few acts of fraud that every employer should be aware of: 

  • Listing fake companies as part of their resume or job application
  • Stretching dates of employment to cover-up negative job references
  • Inflating prior job titles, duties or responsibilities
  • Leaving unexplained gaps in employment
  • Lying about termination status or reason for leaving a previous employer
  • Lying about previous wage information to gain additional income
  • Lying about education history or degrees awarded 

Beyond verifying a candidate’s credentials, here are additional areas that employers need to consider as part of a comprehensive due diligence strategy to help detect and deter potential embezzlers:  

County/State/National Criminal Records Search
The use of a comprehensive criminal history search in all areas where a candidate has lived, worked or even attended school will help detect prior misdemeanor and/or felony criminal history of fraud, theft and embezzlement.  National criminal database information can be used to help fill in the gaps. 

County Civil Records
Civil records should be searched to help uncover prior county level civil proceedings as they relate to suits, judgments, liens, and can uncover prior fraudulent acts. 

Federal Criminal and Civil Records
Federal records include criminal complaints brought by the U.S. government against defendants for violation of federal criminal law.  Crimes such as bank robbery, embezzlement, drug trafficking, crimes committed across state-lines, or even tax evasions are examples of these offenses. 

Credit History
Credit reports can provide insight into a candidate’s stability and trustworthiness for a specific position.  Credit reports should be considered for employees with financial responsibilities, accounting functions, entrusted with corporate credit or debit or dealing with cash.  Credit reports may also divulge other public records information such as bankruptcy or other public records.  Credit reports should never be used to discriminate against a candidate or used in violation of state laws. 

Drug Testing
Pre-employment and on-going drug testing can help spot drug abusers and the potential for risks and liabilities they bring into the workplace.  As stated in this study, substance abusers have the potential to commit acts of fraud or theft to help finance their addictive habits. 

Ongoing Screening
Employers should also consider ongoing screening as personal, financial and criminal history information related to each employee changes on an on-going basis.  Negative or derogatory information obtained early could be warning signs for potential fraud or embezzlement.

By incorporating a solid screening program, employers can assess, screen and credential their applicants and employees and alleviate the overwhelming cost, risks and liabilities that theft and embezzlement bring into the workplace.  Employment Background Investigations (EBI) works with employers globally to provide a full range of comprehensive and legally compliant employment background checks, drug testing, occupational healthcare and electronic form I-9 solutions.  Our "Just One Solution" suite of services will help reduce the risks and liabilities of a bad hire!  EBI is committed to providing employers with valuable education and resources on changing legislation and cutting-edge and compliant solutions to meet federal, state, local and international mandatory requirements.  EBI is not providing legal advice or counsel and nothing provided on this document should be deemed as legal guidance or advice.  Readers should consult with their own legal counsel to determine their legal responsibilities or if they have questions on any information provided by EBI.

Background Checks

Robert Capwell

Posted By: Robert Capwell

EBI’s Chief Knowledge Officer, Mr. Robert E. Capwell, is considered one of the leading experts in the background screening industry with over 22 years of experience in the field. Mr. Capwell was a contributing author of the second edition of the ASIS Pre-employment Background Screening Guidelines and has written numerous articles and whitepapers for various publications including a periodic column on background screening for The Society for Human Resource Management (SHRM) Online. He has been quoted in The Wall Street Journal, Human Resource Executive Magazine, Entrepreneur Magazine, and several HR-related publications. Mr. Capwell speaks regularly to industry colleagues and HR Professionals both nationally and internationally.

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