Category: Financial Crimes

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Business Fraud and Embezzlements

Recent headlines from the Eastern District of Missouri, U. S. Attorney’s Office:

DeSoto Woman Sentenced for Embezzling $1.6 Million from Grandview School District
October 13, 2017

Kinloch Official Sentenced for Stealing Money from the Kinloch Fire Protection District
October 25, 2017

Former Chief Financial Officer Sentenced for Stealing $2.8 million from Company
November 6, 2017

The 2016 American Association of Certified Fraud Examiners (ACFE) Report to the Nations found that the median loss to businesses due to fraud was $150,000.00.

Most of these frauds could have been prevented with proper internal controls and due diligence on the part of the businesses. Looking at the court cases of the above three crimes cited, all involved individuals who were trusted by the organization and were given carte blanche to handle the organization finances with little or no oversight.

As a business owner, prevention of fraud, waste, and abuse can be achieved with proper internal controls and appropriate oversight. The loss from fraud and embezzlement is not only monetary. To quote a business owner from one of the above cited cases:  we “thought we had a significant problem until we spent the next three months of our lives going through everything, including looking at the front and back of 44,000 checks…”

What can business owners do to protect themselves? Having strong internal controls are mandatory.  Businesses can also watch for behavioral red flags for fraud and embezzlement as noted from the 2016 ACFE Report to the Nations:

  • Living Beyond Means (45.8%)
  • Financial Difficulties (30%)
  • Unusually Close Association with Vendor/Customer (20.1%)
  • Wheeler –  Dealer Attitude (15.3%)
  • Control Issues, Unwillingness to Share Duties (15.3%)
  • Divorce / Family Problems (13.4%)
  • Irritability, Suspiciousness or Defensiveness (12.4%)
  • Addiction Problems (10%)

Businesses can be defrauded on many fronts: Internally by employees, managers, officers, or owners of the company, or externally by customers, vendors, and other parties.

Simpson Security and Investigative Advisory Group, LLC has trained fraud investigators, forensic accountants, and Certified Public Accountants (CPA’s) on staff to assist businesses in fraud prevention, fraud awareness, and fraud detection

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Your Company’s Biggest Thief Might Be the Most Loyal-Seeming Employee

From CBS News Money Watch by Rachel Layne August 23, 2017:

A new Hiscox study of employee theft in 2016 shows the most damaging schemes involved small amounts of money swiped over years or even decades. Twenty-nine percent of employee thefts took place over more than five years, with that percentage rising to 37 percent in financial services. Vendor fraud produced the largest losses, with the most common method being funds theft. The average embezzlement and loss stretching over five years or more was $2.2 million, while those who stole for more than a decade took an average of $5.4 million. The study also shows thieves do not fit the profile that most company managers expect. Thieves tend to be “egotistical risk-takers” who are curious, smart, and want detailed knowledge of how the company works. “We list diligent and ambitious, staying late, working through vacation, or never taking vacation” as common characteristics of employee thieves, says Doug Karpp, the national product head for crime and fidelity at Hiscox. “Some of those are counter-intuitive.”  Middle-aged employees in the accounting or finance area were the most likely to steal from any company — thieves have a median age of 48.

Signals someone might be stealing may come from those who “flaunt their wealth,” according to the report, showing off a lifestyle that is beyond what their salary can buy, such as new cars every few months or extravagant jewelry.