Employee Embezzlement on the Rise – Are You Protected?

A typical organization will lose an estimated 5% of its revenues every year due to fraud, according to a study by the Association of Certified Fraud Examiners.

The median loss among organizations both large and small was $140,000 per occurrence, and more than 20% of embezzlement losses were more than $1 million, the association found.

With those staggering numbers in mind, if you have not already done so, you need to take steps to reduce the possibility of employee theft – and also make sure you are adequately covered if they do steal from you.

Small organizations are especially susceptible to losses from employee embezzlement. These problems are often seen in cash-heavy businesses, or those with large inventories, but employee embezzlement is most frequently experienced in organizations lacking owner oversight of financial processes, usually due to placing far too much trust in employees and having no internal controls.

The new study by the fraud examiners association was released as another study, this one by professional security firm Marquet International, found that arrests and indictments for embezzlements had reached a five-year high in 2012.

Embezzlers are most likely to be a company bookkeeper, accountant or treasurer, who is female, in her 40s, and without a criminal record. The reason it’s more often than not a woman is that they are typically in the three aforementioned jobs.

How do they do it?

Marquet International in its study found that the most common ways of embezzling are:

  • Bogus loan schemes, which include cases in which fraudulent loans are created or authorized by the perpetrator from which funds are taken for their own benefit.
  • Credit card/account fraud cases, which involve the fraudulent or unauthorized creation and/or use of company credit card or credit accounts.
  • Forged/unauthorized check cases, which are those in which company checks are forged or issued without authorization for the benefit of the perpetrator.
  • Fraudulent reimbursement schemes, which include expense report fraud and other cases in which a bogus submission for reimbursement is made by the perpetrator.
  • Inventory/equipment theft schemes, including those cases in which physical corporate assets were stolen and sold or used for the benefit of the employee.
  • Payroll shenanigan cases, including all forms of manipulation of the payroll systems in order for the perpetrator to draw additional income.
  • Theft/conversion of cash receipt cases, which involve the simple taking of cash or checks meant for company receipts and pocketing or converting them for one’s own benefit.
  • Unauthorized electronic funds transfers, including those cases in which wire transfers and other similar transfers of funds are the primary mode of theft.
  • Vendor fraud cases, which include those where either a bogus vendor is created by the perpetrator to misappropriate monies or a real vendor colludes with the perpetrator to siphon funds from the company.

Thwarting embezzlers

Liability insurer Camico suggests that educating employees on the detrimental effects of employee fraud on the organization can reduce the likelihood of embezzlement.

Also, if you implement a regular review of bank and credit card statements, you’ll have a better chance of catching a thief. Company owners should look at the cleared transactions to determine the legitimacy of payees, including examining actual cancelled checks.

Also, it’s easy for transactions to be changed in the accounting system after the fact. An ill-intentioned bookkeeper could use this tactic to cover up their tracks. If you feel you do not have the time or expertise to oversee you finance department, you should contract with a qualified CPA to perform these checks and balances.

There are also inexpensive physical barriers that should be used to deter criminal activity. To protect cash, you can buy a $200 drop-slot safe to securely keep the night’s deposit until it is taken to the bank.

Similarly, security cameras deter misbehavior and can be the source of valuable evidence in case an incident occurs.

Securing coverage

Finally, you should consider taking out a crime insurance policy.

Most business insurance policies either exclude or provide only nominal amounts of coverage for loss of money and securities as well as employee-dishonesty exposures.

But a crime insurance policy protects against loss of money, securities or inventory resulting from crime. Common crime insurance claims include employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire-transfer fraud, and counterfeiting.

Call us to discuss whether a crime policy is right for your company.

Do You Have an Emergency Action Plan?

Evacuation plan macro

How would you escape from your workplace in an emergency? Do you know where all the exits are in case your first choice is too crowded? Are you sure the doors will be unlocked and the exit access, such as a hallway, will not be blocked during a fire, explosion or other crisis?

Knowing the answers to these questions could keep you safe during an emergency. And the answers should be readily available to all of your staff in your organization’s emergency action plan (EAP).

Almost every business is required under Occupational Safety and Health Administration standards to have an EAP. The purpose these plans is to facilitate and organize employer and employee actions during workplace emergencies.

Well-developed emergency plans and proper employee training (that helps workers understand their roles and responsibilities when executing the plan) will result in fewer and less severe employee injuries and less structural damage to the facility during emergencies.

A poorly prepared plan likely will lead to a disorganized evacuation or emergency response, resulting in confusion, injury and property damage.

Putting together a comprehensive EAP that deals with issues specific to your worksite is not difficult. It involves taking what you learn from conducting a workplace evaluation and describing how employees will respond to different types of emergencies, taking into account your worksite layout, structural features and emergency systems.

If you have 10 or fewer employees, you may communicate your plan orally. For firms with more than 10 employees, the plan must be written, kept in the workplace and available for employee review.

Although employers are required to have an EAP only when the applicable OSHA standard requires it, OSHA strongly recommends that all employers have an EAP.

Important elements

A few of the important elements of an EAP include:

  • Procedures for reporting fires and other emergencies.
  • Procedures for emergency evacuation, including the type of evacuation and exit route assignments.
  • Procedures for employees who stay behind to continue critical plant operations.
  • Procedures to account for all employees after evacuation.
  • Names or titles of employees to contact for detailed plan information.
  • Alarm system to alert workers.

In addition, designate and train employees to assist in a safe and orderly evacuation of other employees.

Review the EAP with each employee covered when:

  • The plan is developed or an employee is assigned to a new job,
  • Employees’ responsibilities under the plan change, or
  • You change the EAP.