2017 Hiscox Embezzlement Study: How to prevent employee theft
Embezzlement: A Problem for Every Business
The relationship that an employer has with his or her employees is a sacred one. Employees trust that their employer will pay them fairly for their time while the employer trusts that his or her employees will complete the tasks required to keep the business operating. Stealing breaks this shared trust. Not only does stealing shatter trust, but it can also have a devastating effect on a company. This is especially true at small businesses, where teams tend to be small and tight-knit. You might imagine that embezzlement – employee theft – is only a problem for large businesses in the world’s financial headquarters. However, Hiscox’s 2017 Embezzlement Study reveals that 55% of employee fraud cases in the United States occur on Main Street –at businesses with fewer than 500 employees. To make matters worse, the average business can stand to lose $1.13 million to embezzlement.
Who’s Stealing from Small Businesses?
To find out who’s stealing from small businesses, Hiscox examined publicly available data on US federal court activity related to employee fraud. Perhaps surprisingly, it turns out that women embezzle more frequently than men do (though only by a small percentage). The median age of this kind of criminal is 48 years old, and they most likely work in a finance or accounting role. Another surprising fact is that instances of embezzlement at companies of all sizes may last longer than you might think: Statistics showed that more than a quarter of embezzlements take place for longer than five years.
One factor that makes embezzlement challenging for small businesses is that employees who steal tend to be those who are the most trusted. Hiscox looked at several key warning signs. Thieves tend to share these characteristics:
- Intelligent and Curious
- Egotistical Risk-taker
- Diligent and Ambitious
How to Uncover Embezzlers
Those in management positions for small companies are the ones most likely to embezzle. To undercover a thief before he or she fleeces you, keep an eye out for a few things. For instance, embezzlers might ask you how the office operates. This type of individual usually picks up tasks quickly and will use what he or she learns to steal from the company. Employees who embezzle often live extravagantly. If someone who works for you is obviously enjoying a lifestyle beyond what his or her salary can bear, then take a closer look at this person’s work activities.People who take risks in other areas of their lives may be inclined to take them at work as well, so if you hear an employee brag about a speeding ticket or an illegal base jump, then pay attention to this person when he or she is at work. Especially unhappy employees may be more likely to steal from you, but you should also be aware of people who are notably ambitious. Someone who is embezzling from you may come into the office early and stay longer than you expect. This person may even give up vacations to gain your appreciation and trust, allowing him or her to avoid detection. Embezzlement impacts more than just profits. It can decrease worker productivity and give your company a bad reputation for its culture. With preparation, you should be able to prevent embezzlers. For instance, don’t put just one person in charge of your finances. Also, it’s advised to spring for employee background checks. You’ll want to make sure that you have business insurance and review your company’s bank statements.
Why is Embezzling a Big Problem for Small Businesses?
While all companies face the risk of embezzlement, those that are smaller in size report the crime’s occurrence more frequently. Small businesses cope with unique struggles. For instance, a small company is more likely to hire one person to handle its money-based operations like accounting or payroll because it really doesn’t need several people for this position. However, if this one person decides to embezzle from the company, it’s much easier for him or her to hide it. To fly under the security that many companies have in place to prevent financial loss, many embezzlers engage in long-running schemes. Employee theft schemes often go on for five years or more with the longest one reported spanning 41 years. Embezzlers get away with long-running financial schemes like these by stealing small amounts, making it tough for companies to spot them. Small losses add up, however. The average loss for long-running scams that lasted for five years or longer came to $2.2 million. In schemes that lasted 10 years or more, the average amount lost to embezzlers was $5.4 million. While financial theft happens more often in small companies, large businesses suffer higher median losses.
Preparation Is Key
As the most common crime that occurs in the business world, embezzling is something that all companies must be ready to handle. Not only can businesses take a big financial hit when embezzling happens, but the crime also erodes the trust between employers and employees. By knowing what to look for, you’ll be able to stop the crime before it puts your company at risk of going under.