Hiscox survey finds median employee theft loss of $280,000 for US organizations Small and mid-size organizations most likely to be impacted by embezzlement

Small and mid-size organizations most likely to be impacted by embezzlement

NEW YORK, May 13, 2015 – Hiscox, the international specialist insurer, today released the 2015 Hiscox Embezzlement Watchlist: A Snapshot of Employee Theft in the US, a comprehensive study of employee theft in the United States. US Organizations with less than 500 employees experienced a median loss of $280,000 per year due to employee theft across a wide range of industries.

The 2015 Hiscox Embezzlement Watchlist examines employee theft cases that were active in the US federal courts during the previous calendar year. The study found that embezzlement is not just a problem for large organizations or the financial services industry; 80 percent of victim organizations had fewer than 100 employees, and losses were suffered across a wide variety of industries, with an average total loss of $842,403.

Profile of an Embezzler

With a comprehensive view of the employee fraud landscape, organizations can better protect themselves by understanding the characteristics of a typical embezzler. According to the report, most instances of employee theft involve employees with long tenure. Women represented more than 60 percent of employee perpetrators, while the median age of wrongdoers was 50. The embezzlers were also not confined to the finance operations of an organization. In fact, more than 50 percent of actions were committed by employees not in the finance or accounting function.  

Just over half of all employee theft schemes (53 percent) were perpetrated by employees in senior roles within the organization, with those stakeholders engaging in schemes with a median loss of $313,939. Non-management employees, who perpetrated 43 percent of the schemes surveyed, still left a punishing mark on their organizations, orchestrating schemes with a median loss of $234,641.

Industries at Risk

Over 21 percent of employee thefts in organizations with less than 500 employees involved entities in the financial services category, which includes banks, credit unions and insurance companies. The median loss for financial services organizations was $271,000.

But, financial services companies are not the only ones at risk. Retail entities and the healthcare industry had the largest median losses, at $606,012 and $446,000,respectively. Other organizations with a high concentration of employee theft were non-profits (median loss of $202,775), municipalities (median loss of $293,717) and labor unions (median loss of $41,599).

Outright funds theft, which includes the direct theft of cash or misuse of bank deposits or transfers, resulted in nearly three-fourths of total losses. The single largest loss from outright funds theft in 2014 was a staggering $21 million loss from a bank in the South. Check fraud and credit card fraud were found to be pervasive among small businesses. Eighty one percent of check fraud and 80 percent of credit card fraud occurred in companies with fewer than 50 employees.

“Although risk mitigation strategies such as background checks will add a layer of protection, no organization can completely insulate itself from employee theft. Organizations can, however, take proactive measures to minimize the likelihood of theft and the impact of losses,” said Doug Karpp, National Underwriting Leader for Crime& Fidelity at Hiscox. “Even basic controls may have prevented many of the criminal actions seen in our study by creating a ‘perception of detection,’ which is the most powerful deterrent to employee wrongdoing.”

For small business owners, Hiscox recommends three steps to protect against employee theft: 1) send bank statements directly to your home for a review to ensure they can’t be falsified prior to reconciling accounts; 2) periodically review payroll reports to look for anomalies; and 3) sign all of the checks yourself or keep the signature stamp under lock and key.

In the US, Hiscox offers employment liability insurance alongside a diverse portfolio of professional liability and other specialty insurance products, such as crime protection, and has offices in New York, NY; Atlanta, GA; Chicago, IL; Los Angeles, CA; San Francisco, CA and White Plains, NY.

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About the Report:

All information for The 2015 Hiscox Embezzlement Watchlist was derived from publicly available data on US federal court activity related to employee fraud in more than 350 cases pending during calendar year 2014. Sources included public announcements from the Department of Justice, Federal Bureau of Investigations, the Internal Revenue Service, company websites and common news aggregators. Analysis is based exclusively on entities with fewer than 500 employees. Representing 72 percent of all federal actions related to employee theft. For the purposes of calculating various percentages, we have occasionally excluded those cases for which the relevant information was not available or elected to exclude results where the findings were deemed insignificant due to the limited number (<10) of cases. Where available, in calculating total loss to the organization we included any legal, accounting or other costs incurred by the organization to uncover the fraud. In several instances, perpetrators utilized more than one scheme to defraud employers. In cases of multiple schemes, we listed as primary the scheme that resulted in the greatest loss to the organization or the scheme most often used by the perpetrator.

Additional information can be found at www.hiscoxbroker.com.

Follow Hiscox USA on Twitter @Hiscox_USA.

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For further information please contact:

Hunter Hoffmann

[email protected]

Kate Dillon

212-279-3115 x115
[email protected]