Billing Fraud Tops List of Employee Embezzlement Schemes
Thursday, December 6, 2018
The vast majority (79 percent) of embezzlement cases involved two or more people, according to the recently published 2018 Hiscox Embezzlement Study: An Insider's View of Employee Theft. The study also revealed that 70 percent of embezzlement schemes were carried out for more than one year.
The top forms of embezzlement, according to the study, are:
- Billing fraud (18 percent)
- Cash on hand theft (15 percent)
- Property theft and larceny (11 percent)
- Check and payment tampering (10 percent)
- Payroll fraud (10 percent)
- Credit card skimming (9 percent)
- Cash larceny (9 percent)
The Real Cost of Embezzlement
The study revealed that the average amount embezzled was $357,650. Unfortunately, those companies only recovered 39 percent of the embezzled funds, on average. Furthermore, 39 percent of those who experienced an embezzlement saw more than one case in their careers.
When an employee is on the take, a company has much more at risk than just the funds being stolen. Nearly one-third (29 percent) of companies were forced to lay off employees as a result of an embezzlement scheme, and over one-quarter (26 percent) lost customers.
Embezzlers Behind the Scenes
Embezzlement comes in all shapes and sizes and can be difficult to spot, even cropping up where businesses may least suspect it. While the majority of schemes are carried out by a team of more than one person, the average embezzler had been an employee at their company for eight years, and 85 percent of cases were perpetrated by someone at the manager level or above. One-third of embezzlers worked in the accounting or finance department, and the most common method of embezzlement was billing fraud, used in 18 percent of cases.
How Businesses Can Protect Themselves
While the survey confirmed that businesses of all sizes, and in all industries, are vulnerable to employee theft, three-quarters of respondents said the companies where they currently work do not have insurance to cover embezzlement. Businesses should take the following steps to ensure they are covered in the event they are victimized by embezzlement:
- Prevent embezzlement before it happens by instituting a system of checks and balances. Small businesses, for example, are more likely to give end-to-end responsibility for a money-centric function such as payroll to a single individual, making it easier to steal and cover their tracks.
- Detect fraud early to keep a small instance from becoming a larger incident; knowing what to look for is critical in spotting an embezzler. In 65 percent of cases, the embezzlement scheme was uncovered by an employee, rather than an external whistleblower, such as an auditor, bank or law enforcement.
- Mitigate the impact to your bottom line by insuring your business and pressing charges against the employee who steals from your business.