Fighting Embezzlement: How to Save Your Business from the Enemies Within

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It is hard to comprehend what would make an employee, whose livelihood is sustained by his or her employer, turn on the company in such a way, particularly when there is great likelihood of eventually being caught.

Even so, many experts in corporate security estimate that 25 to 40 percent of all employees steal from their employers.

The U.S. Department of Commerce (DOC) estimates that thefts of cash, property and merchandise cost as much as $50 billion annually.

The DOC further estimates that such thievery is the cause of one out of five business failures.

Related Article: Who Are You Hiring? The Shocking Cost of Résumé Fraud

For those who own businesses or are charged with protecting their assets, such serious threats to economic growth and stability are major concerns. As with other serious threats, forewarned is forearmed — knowledge of who may be committing the crimes, and under what circumstances, is the best tool in preparing a defense strategy.

Scoping Out the Enemy

Research has shown that embezzlers tend to be the people least expected to commit the crime. The new hire, of whom employers may be suspicious, or the individual whom everyone has always thought to be “odd” is not the most likely perpetrator. Statistics compiled by the Association of Certified Fraud Examiners (ACFE) and other research teams show that the employee who embezzles is:

  • Often well-liked, even charismatic
  • More likely a woman than a man
  • Most often between 31 and 45 years of age
  • Most likely a trusted employee
  • Usually someone who has been with the company for at least three years
  • More likely to be employed by a small private business than a large or nonprofit one
  • Most likely highly educated, well-dressed
  • Most probably affiliated with a religious group
  • Likely to have a complaint with the company
  • Likely to be considering quitting

Although more than half of employees who steal from their employers are between the ages of 31 and 45 years of age, older employees who do steal have been found to steal more substantive amounts. According to many experts, there is truth to the old 10-10-80 rule. The rule states that 10 percent of people will never steal, 10 percent will steal at any opportunity, and 80 percent may steal, depending upon how they can rationalize a particular opportunity.

Reasons for the Crime

The reasons for embezzlement have been determined to be threefold:

  • Financial need, particularly one the employee feels must be kept secret, e. g. a gambling debt or an addiction
  • Perceived opportunity to steal without getting caught
  • Ability to rationalize the theft
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Common rationalizations for embezzlement include perceptions by the perpetrator that he or she has not been properly compensated, or has even been victimized, by the company, or that the company can well afford the “small” depletion of funds.

Related Article: Why Trust is Key for Entrepreneurial Success

Signs of Employee Theft

There are several red flags small business owners should be aware of in order to detect embezzlement and protect their businesses. Some signs of financial abuse include:

  • Missing records and receipts
  • Company checks that bounce
  • Customer complaints of late or missing deliveries
  •  Large payments marked “miscellaneous expenses”
  • Managers who volunteer to, or insist on, performing clerical duties

Employers should also be aware of alterations in employee behavior, such as mood swings, signs of substance abuse, and argumentative interactions with other staff.  Also, of course, evidence of unexplained excessive spending may indicate that the employee is engaging in criminal behavior.

 It is important, however, to speak to an employee you suspect of being troubled or of being a danger to your business. Jumping to conclusions can put you and your business at risk of bad workplace morale or even retaliation.

Protecting Your Business from Embezzlement

Screening employees prior to hiring them can be one means of protecting your company from embezzlement. It is particularly important to note any past criminal record and reasons for leaving their last place of employment. Credit checks may also be needed since employees with serious financial burdens may be more prone to stealing. It should be noted that checking an individual’s credit requires written consent.

One research team suggests that you talk about embezzlement with all employees so they know you are aware of the problem and ask them to help you if they see something suspicious. Since most embezzlement discoveries come from employee tips, this may be an effective tool.

Another protective practice is for the owner to have all bank statements mailed directly home where the owner, hopefully, will open them and spend a few minutes looking for anything unusual. This is easy to do. Because most small company embezzlements involve the cash account, the evidence is likely to be quite visible.

Some business owners misunderstand that the accountants they hire are paid to prepare financial statements and tax returns, but CPAs do not get paid for looking for fraud and embezzlement. Nevertheless, asking your CPA about ways to spot embezzlement may be very helpful. Simple measures, like stamping all incoming checks “for deposit only,” can be a deterrent to temptation, as can having periodic surprise audits.

Dividing financial duties improves your company’s security level. When one person takes care of all financial matters — checking ID, writing invoices, cashing checks, issuing receipts — there is more possibility not only of error, but of deliberate fraud.

Because employees who think they are more likely to get caught are far less likely to steal, it is important to have well-established rules for employee behavior relative to finances, including that each employee carry an appropriate workload, not take sick days when they aren’t ill, and arrive and leave the workplace at the designated times.

Related Article: 12 Best Tools for Screening Potential Hires

Encouraging employee loyalty and promoting a cooperative work environment help to ensure that employees who see evidence of embezzlement will report it. Your company should make clear that it has zero tolerance for criminal behavior, not to instill workers with a sense of paranoia, but to make them more likely to protect their place of employment as an integral member of the team.

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