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Hiscox 2016 Small Business Embezzlement Study

July 12, 2016

As a small business owner, it can be easy to think of embezzlement as a crime that only occurs at major financial firms on Wall Street.  Yet, according to Hiscox’s newly released 2016 Embezzlement Study, white collar crime is a major problem on Main Street – and something all small business owners should be wary of. Take for example the fact that 4 out of every 5 organizations that are victims of embezzlement had fewer than 100 employees; just under half had fewer than 25 employees.  Additionally, the average loss was $807,443. That’s not exactly chump change.

Who’s stealing from Small Business?
So, who is stealing from small businesses and why?  The 2016 Embezzlement Report  (which builds on our 2015 Embezzlement Watchlist) dives deep into both the personal profile and the psychology behind the average small business fraudster and reveals some interesting findings.

Introducing Helen Helps-Herself

The ‘average’ embezzler is a 49-year-old woman who works as a bookkeeper or accountant in a company with fewer than 50 employees. She’s most likely to work in a company in the financial services or non-profit sector, although embezzlement occurs in every industry. She may be a long-time, trusted employee who has responsibility for the end-to-end accounts payable or payroll function in her company.

Download (PDF, 89KB)

While this profile describes a typical embezzler, it’s by no means the only one. Employees victimize companies in every industry, of every size, all across the country. As employers, we want to believe that our employees are as committed to our company as we are, but often that’s not the case.

The Psychology of An Embezzler
It’s equally important to understand why people embezzle from their employer. In some cases, the perpetrator has fallen on hard times and decides to take an unauthorized loan from the company until they get back on their feet. Other times, they feel they are not being paid what they are worth, so they help themselves to a raise. In either case, if they begin by stealing small amounts of money, they may become emboldened if they are not caught, and may continue to steal regularly, until they have pocketed hundreds of thousands of dollars.

How to Prevent Small Business Embezzlement
Understanding who embezzles and why they do it is one piece of the puzzle. Preventing this type of white collar crime is another. The 2016 Embezzlement Report offers several strategies for prevention, including implementing checks and balances, dividing up responsibility for the accounting function, and having bank statements mailed to the owner’s home rather than the business address.

Not all theft is conducted by employees. Some is perpetrated by outsiders with the help of an employee, who may not even know they are abetting criminal activity. Cyber deception is a new kind of fraud, by which employees may be scammed by a bogus email that appears to come from a manager or vendor. The employee, thinking they are helping out in what is often described as an emergency situation, transfers funds without realizing they are sending the money to a hacker.

Workplace Culture Counts
Whether your company is at risk from internal or external theft – or both – it’s important to know the warning signs, and to educate your management team and employees about this issue. Promoting a culture of honesty and transparency, while taking precautions to prevent being victimized, will go a long way toward preventing theft.

Protecting Yourself with Business Insurance
You can also protect your company with insurance against employee theft. From the moment you hire your first employee, coverage against theft should be part of your business insurance package. Since most embezzlement losses are never fully recovered, and prosecution can be costly, insurance against theft makes smart business sense.

To learn more about embezzlement and how you can prevent it in your company, download The 2016 Hiscox Embezzlement Study: A Report on White Collar Crime in America.