Our business customers are increasingly becoming targets of various types of fraud including embezzlement by trusted employees. As their financial institution, we feel a responsibility to our customers in providing helpful information to better protect their company’s assets.
Embezzlement is one of the most common types of fraud and is defined by the FBI as “the misappropriation or misapplication of money or property entrusted to one’s care, custody, or control.” The statistics* from a study performed in 2017 are alarming:
• The median loss due to embezzlement was $319,350;
• 37% of cases were committed by someone in the finance or accounting function;
• 55% of cases occurred at companies with fewer than 100 employees; and
• 28.7% of the schemes lasted for more than five years.
What often allows employees to commit embezzlement is a lack of proper internal controls and sometimes insufficient background checks and verification through references during the hiring process. Some signs to watch for might include employees who:
• Live beyond their means;
• Are having financial difficulties;
• Have a close association with customers or vendors;
• Demonstrate excessive control issues; and
• Show other behavioral warning signs.
There are some easy steps you can take to avoid becoming a victim of embezzlement:
• Implement simple internal controls which include proper segregation of duties (i.e. handling
cash, reconciling bank accounts, vendor invoice approval and paying vendors, etc.);
• Watch for first-time vendors, and purchases not requiring purchase orders or purchasing processes;
• Obtain the ability to access new employee candidate background checks; and
• Call references and check around for information and recommendations on new employees.
*Statistics obtained from the 2017 Hiscox Embezzlement Study.