Employee theft can devastate a company.
Although embezzlement schemes come in all shapes and sizes, most perpetrators are often smart, well liked and those you’d least expect to steal. Health care leaders should take notice – it’s often your managers.
Although health care has a low incident rate – roughly 6 percent of industry type – this sector leads the way for management theft at a staggering 65 percent. The financial services industry continues to have the highest number of cases of all industries, about 17 percent, with more employees than managers as perpetrators of the thefts. The nonprofit sector had the second highest number of cases, 16 percent, with about half coming from management.
The financial impact is evident, but it also can deplete trust and morale. A 2016 embezzlement study, recently released by Hiscox Ltd., provides some interesting insights about the schemes often used and how to prevent and detect this practice.
The overwhelming majority of employee thefts occur in organizations with 150 employees or less. Smaller organizations with tight-knit workforces are particularly vulnerable because employees are trusted and empowered.
Some common attributes of embezzlers include intelligence and being inquisitive about how the business operates. Most are hard workers, coming to work early, staying late and rarely taking vacations. Other attributes often include being a risk taker, from speeding tickets to living beyond their means. Also becoming disgruntled or unable to relax with changes in behavior can be a signal that someone might be a perpetrator.
Embezzlement is all about access, making the accounting functions in a business especially susceptible. Common schemes include taking cash, bank deposits or transferring funds, which together make up 36 percent of cases. Check fraud, which involves altering or forging checks or making checks payable to an embezzler, make up 26 percent of cases.
The good news is the risk of embezzlement can be reduced with proper controls. Here are eight best practices:
1. Separate the duties of making payments and reconciling accounts between two or more employees.
2. Send bank statements to the business owner’s home for review before reconciliation.
3. Complete background and credit checks on employees with access to funds and continue to run them after the hire date.
4. Review payroll records and make sure the functions of issuing checks are handled separately from reconciling deposits.
5. Enlist the help of your banker, accounting firm and insurance adviser to make recommendations and watch for any irregularities.
6. Promote a culture of trust, ethics and integrity.
7. Educate all employees about theft, fraud and how to report suspicious activity.
8. Even with proper controls and early detection, insurance should be considered and can provide financial protection. Fidelity insurance, commonly called employee dishonesty coverage, kicks in for employee theft of money, securities or property. This type of insurance policy also can protect pension plans and fulfill compliance of the Employee Retirement Income Security Act. Computer fraud and funds transfer fraud usually can be added to the fidelity policy to protect against theft via computers.
Richard Ollis is CEO of Ollis/Akers/Arney, an employee-owned consulting and insurance advisory firm. He can be reached at richard.ollis@ollisaa.com.
