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Photo of Joshua Nielsen
Photo of Joshua Nielsen
Photo of Joshua Nielsen

Why embezzlement is more frequent at small businesses

by | Feb 13, 2019 | criminal defense, White Collar Crimes

Embezzlement can rock a company to its core. Often, the largest sums of money stolen from companies are taken by those in positions of authority. When a company loses money at the hands of its leaders, not only are investors and board members affected but rank-and-file employees quickly lose faith in the company as well.

The effect can be much more traumatizing at a small company. That’s why a recent study was so shocking: It found that more than 80 percent of embezzlement thefts occurred at companies with fewer than 150 employees, and nearly 50 percent occurred at companies with fewer than 25 employees.

Portrait of an embezzler

The report, offered by Hiscox Business Insurance, found that bookkeepers accounted for 11 percent of all embezzlement cases. Senior-level employees conducted about 25 percent of the scams. Women made up 56 percent of the thieves, the average age of an embezzler is 49 and 40 percent work for the accounting or finance department.

The company pointed out four factors that could drive someone to embezzle:

  • Pressure – they need more money often through increased medical expenses, business losses or gambling debts
  • Opportunity – often through having access to company funds from end-to-end without any checks and balances
  • Capability – they have the skills and knowledge about how and where to hide money
  • Rationalization – they tell themselves they are doing it for their family, or they are underpaid, or that others are also stealing

Appropriate oversight

The employee who writes the checks should never be the one who signs the checks, and vice-versa. This can remove the most basic temptation: writing a check to yourself.

Accounting department employees should be under checks and balances: Human resources should watch for ghost employees or checks to workers who are no longer employed by the firm, while an executive should see all the mail from banks, the state or IRS before the accounting department sees it.

Watch for intellectual property theft; take out fraud insurance to protect your company.

Before you confront an employee you suspect of embezzlement, contact your attorney who will likely advise you to hire a forensic accountant to examine your books. With proper facts behind your suspicion, you can take your books to the police or the FBI and not only send the embezzler to jail but begin to claw back any money you have lost.