Earlier this month, a former executive at a Wisconsin-based architectural firm was charged with embezzling more than $168,000 from the company. According to a criminal complaint, the suspect allegedly incorporated businesses to submit false billings and bonds to the company shortly after he was hired in 2012. This is just one example of major embezzlement schemes that continue to pop up with increasing frequency around the country. According to the 2013 Marquet Report on Embezzlement, the number of major embezzlement cases, defined as incidents that involve more than $100,000 in reported losses, increased five percent over 2012.
In fact, the report, which is conducted annually by boutique investigations and security consulting firm Marquet International, recorded its highest rate of employee theft in its’ six-year history. The average loss was about $1.1 million for major embezzlement cases in 2013, which added up to about $595 million overall. According to Christopher T. Marquet, CEO and founder of Marquet International, the reason behind the rise in these major embezzlement cases could be due to several factors. First, because many of these schemes fly under the radar for a substantial period of time before they are discovered, the economic crash in 2008 may have been the impetus for some of the alleged perpetrators to begin stealing.
“We know that some of these embezzlement cases are driven by economic factors. There are some people who start stealing because they think they need to, but then it grows into a lifestyle that they come to enjoy and want to sustain,” explained Marquet. “It may start out that they are trying to pay college tuition or something else with the thought that they are going to pay it back, but they never do and they see how easy it is and they keep stealing. These cases last, on average, over four-and-a-half years, so if the economy crashed in 2008, some of these cases are just beginning to come through the (criminal justice) system.”
Marquet said other factors include how effective enforcement is when it comes to prosecuting those that have been caught in a scheme, as well as awareness and education about the issue on the part of businesses. There is even a geographic component to these incidents as certain states tend to see more of these large-scale embezzlement schemes than others. According to the report, Vermont topped the list of states with the highest risk for loss due to embezzlement in 2013, which is the third time in six years the state has ranked at the top of this list. Vermont was followed by the District of Columbia, West Virginia, Montana, South Dakota, Virginia, Idaho, Oklahoma, Texas, and Missouri.
“Some states seem to be having more a problem than others like Vermont, for example. But I think with the attention that has been all over the press in Vermont that maybe business owners are going to pay a little bit more attention. The government and municipalities are definitely paying more attention, so hopefully that will mean that the cases will be caught sooner so they won’t get as large and necessarily reach the $100,000 threshold we use. I think these (large cases) are just the tip of the iceberg of what goes on and either a) never gets reported, b) doesn’t get prosecuted, c) are never found out, or d) are too small to bring to prosecution.”
While the financial services industry sees the highest losses from embezzlement cases, government entities and non-profits are among the most the frequently targeted organizations. Marquet said that non-profits tend to be a high-risk for embezzlement because, as a general rule, they usually have weaker control structures in place compared to other organizations. Non-profit board members, while they are certainly dedicated to the causes supported by the organization, don’t necessarily pay close attention to the finances. Rural municipalities that are sparsely populated and may have only a single treasurer responsible for overseeing financial records are also highly prone to embezzlement schemes.
Additionally, while there have been slight variations over the years in the characteristics of the fraudulent tactics people use to skim from organizations, Marquet said that, by and large, they have remained relatively the same across the board.
“I am confident in the findings that they are becoming more and more standardized. There are really only a number of basic schemes that get employed with the most common one being forged checks,” he said. “It’s not a high-tech scheme, it is just taking checks and writing checks to yourself or to personal vendors or an entity you control or whatever. Those types of schemes, they are not changing a lot – payroll shenanigans, unauthorized electronic fund transfers, credit account fraud, fraudulent reimbursement schemes – we see these things all of the time.”
Among some of the report’s other findings include:
- More than two-thirds of the incidents (71 percent) were committed by employees who held finance/bookkeeping & accounting position;
- The average scheme lasted 4.6 years;
- Nearly 24 percent of the cases in which a motivating factor was known involve perpetrators who reportedly had gambling issues;
- Nearly seven percent of the cases involved perpetrators who had a prior criminal/fraud history;
- The average embezzler in this study stole more than $19,000 per month from their employer;
- Nearly three-fifths (57 percent) of the incidents involved female perpetrators;
- Male perpetrators, on average, embezzled about two-and-a-half times as much as females;
- Eighty-one percent of the cases involved individual perpetrators;
- The average adjusted age of perpetrators at the commencement of their embezzlement
- was just over 43 years;
- 40 – 49 year olds were the most frequent culprits;
- Most major embezzlers appear to have been motivated by a desire to live a relatively more lavish lifestyle, rather than driven by financial woes; and,
- The average prison sentence was less than 4 years (44 months) for convicted major embezzlers.
To better crack down on these major embezzlement schemes, Marquet said that the main thing organizations need to do is adhere to standardized financial controls that are sound and prudent to provide the level of oversight that is required.
“Following that, I think it is a matter of where organizations end up where someone has been there for so long, a trust factor has been built up, things are taken for granted… and they take the bookkeepers information at face value and don’t really examine the underlying information,” said Marquet. “When you’re not doing surprise audits, when you’re not picking up your own mail and looking at it first before you hand it over to the bookkeeper, or when you’re not looking at the checks you’re signing… these are all sloppy actions on the part of a business owner that has grown too comfortable with the person that they’ve brought in to handle finances.”
Marquet said that business owners, once they catch someone siphoning money out of their organization, also need to refer them for prosecution.
“In the old days – 20, 30 or 40 years ago – people understandably didn’t want negative attention brought on the business, admitting that they were robbed in a sense, and many of these cases were swept under the rug,” added Marquet. “They need to make sure that there is a public record and send a public message that they are not standing for this type of fraudulent behavior.”
