The economy is down. Businesses large and small are losing money. But sometimes the losses just don’t make sense.
“A lot of times (employers) think it’s from a bookkeeping error,” said Sam Nigro, president of Vancouver-based Loss Prevention Group. “They trust their employees far too much.”
In his 20 years as a loss prevention consultant, Nigro has worked about 2,000 cases including bookkeepers who pocket company deposits for drugs, convenience store clerks who ring up $500 per shift in fake returns and managers who lift thousands of dollars from company safes. The list goes on.
“Employees know what’s happening, who’s stealing, but no one wants to say anything,” Nigro said.
The Association of Certified Fraud Examiners estimates businesses, government organizations and nonprofits lose 7 percent of their annual revenues to fraud in the United States. That translates to about $994 billion each year.
The association published a study of data from 2006 to 2008 on nearly 1,000 cases of occupational theft and fraud. Fifteen percent of the cases came from the banking and financial services industry, followed by government services at 12 percent and health care at 8 percent.
In the study, the losses per case increased directly with a perpetrator’s annual income. Twenty-nine schemes involving employees who earned more than $500,000 a year had a median loss of $50 million.
The overall median loss was $175,000, but more than 25 percent of the cases involved losses of at least $1 million.
Perpetrators acting alone in most of the cases, cause a median loss of $115,000. But schemes involving two or more people caused median losses at least four times as large.
Tiffany Couch, a forensic accountant and principal of Vancouver-based Acuity Group, said occupational fraud and theft cases drove 75 percent of her work in the last year. Most of those cases involved losses of more than $100,000.
“I meet clients in their worst moment, when they wonder if they can trust anybody,” Couch said.
Most of those clients come from small businesses, which the ACFE said have the highest median loss rate per case at $200,000.
“It’s the small businesses that suffer the most and generally see the greatest impact,” Couch said. “Small business owners are so grateful to have a good bookkeeper that they give too much control to them.”
Most people wouldn’t steal from an employer, Nigro said, unless a need presented itself with an opportunity and a rationalization for the crime.
Perpetrators’ rationalizations can range from needing to pay major medical bills or feeling cheated by an employer to simply believing they will put the money back.
“Some say it’s almost like a drug,” Couch said. “Maybe they have a ‘real’ reason for stealing the first time, but they don’t get caught.”
And the pattern continues.
Thieves can be hard to spot because they can look like dedicated employees, Couch and Nigro said. They often appear helpful and are likely to arrive early, stay late and avoid vacations. But they also tend to live obviously beyond their means and keep tight controls on their work.
Once a thief is spotted, confession tends to come quickly in interviews with trained investigators.
Nigro and part of his eight-person staff are trained to spot deception in body language and speech patterns and, without coercion, obtain written and videotaped confessions that can be used in prosecution.
“We’ve had people confess to stealing $50,000 to $100,000 and hug me when they’re done,” Nigro said. “It’s much easier to confess than to continue lying.”
Nigro and his general manager, Brent Larson, recommended contacting private investigators in cases of business theft and fraud because the time police can spend on such cases is often limited.
“Close loopholes that give people the opportunity to steal.” Larson said. “The gray area is where theft comes in.”
Employee red flags
• Living beyond apparent means
• Personal financial difficulties
• “Wheeler-dealer” attitude
• Close relationship to vendor or customer
• Rarely absent from work
Source: Association of Certified Fraud Examiners, The Acuity Group
Minimize your risk
• Have your company’s bank statements and canceled checks mailed to you directly for regular review.
• Assign more than one person to handle cash receipts and credits to your accounting system
• Avoid letting a check preparer sign company checks
• Never use a signature stamp
• Do background checks on new hires and credit checks on new accounting staff
Source: The Acuity Group
Charity Thompson can be reached at firstname.lastname@example.org.