Smaller Companies More Vulnerable to Employee Theft

It stands to reason that larger organizations would be more at risk of embezzlement by employees, but the reverse has been shown to be the case. Organizations with fewer than 150 employees are particularly at risk, accounting for 82% of all embezzlement cases, HiscoxHiscox2 found in its new report, Embezzlement Study: A report on White Collar Crime in America. Smaller organizations with tight-knit workforces are particularly vulnerable because of the trust and empowerment given to employees.

Incorporating employee theft cases active in the U.S. federal court system in 2015, the study found that 69% represented companies with less than 500 employees. Perpetrators are often “regular people who are smart, well-liked, and those you’d least expect to steal,” according to Hiscox. How does a trusted employee become a criminal? Motivations can range from financial pressure to a belief that they are underpaid by the company.

Employees with more tenure, access and control over finances are found to take the largest amounts. While the type of fraud can vary by industry, what is consistent is access to funds. In fact, managers were found more likely to steal than other employees.

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For the second year in a row, the greatest number of cases, 17%, was in the financial services industry and second was nonprofits at 16%. Labor unions ranked third, followed by real estate/construction. The largest scheme was a $16.7 million loss in Texas; followed by ones in Connecticut at $9 million, Ohio at $8.7 million and Utah at $4 million.

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Schemes include taking cash or bank deposits, forging checks, fraudulent credit card use, fake invoices and false billing of vendors and payroll fraud.

Companies can protect themselves in a number of ways, including putting checks and balances in place, performing background checks on employees who handle money and teaching employees how to detect fraud, according to Hiscox.

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The study findings also include:

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Smaller Companies At Higher Risk of Employee Theft

While every organization is at risk of employee theft–with the typical company losing 5% of revenue to fraud each year–smaller organizations with less than 500 employees (72%) were the most targeted.

According to The 2015 Hiscox Embezzlement Watchlist: A Snapshot of Employee Theft in the U.S., of the smaller companies targeted, four out of five had less than 100 employees and more than half had fewer than 25 employees. Smaller organizations also had the largest losses, according to the survey. Financial services companies were most at risk (21%), followed by non-profits, labor unions and municipalities.

Hiscox noted steps organizations can take to minimize employee theft, adding that this is most important for small- to medium-sized businesses, which can be more impacted by theft. In fact, the survey found that 58% showed no recovery of their losses.

Perpetrators of crime include tellers, bookkeepers and office managers. There is also a wide variety of schemes that have been used. 

Small Businesses Hit Hardest By Employee Theft

The typical organization loses 5% of revenue each year to fraud – a potential projected global fraud loss of $3.7 trillion annually, according to the ACFE 2014 Report to the Nations on Occupational Fraud and Abuse.

In its new Embezzlement Watchlist, Hiscox examines employee theft cases that were active in United States federal courts in 2014, with a specific focus on businesses with fewer than 500 employees to get a better sense of the range of employee theft risks these businesses face. While sizes and types of thefts vary across industries, smaller organizations saw higher incidences of embezzlement overall.

According to the report, “When we looked at the totality of federal actions involving employee theft over the calendar year, nearly 72% involved organizations with fewer than 500 employees. Within that data set, we found that four of every five victim organizations had fewer than 100 employees; more than half had fewer than 25 employees.”

Overall, they found:

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It is particularly interesting to note that women orchestrate the majority of these thefts (61%) – a rarity in many kinds of crime. Yet the wage gap extends even to ill-gotten gains, Hiscox found: While they were responsible for more of these actions, women made nearly 30% less from these schemes than men.

Drilling down into specific industries, Hiscox found that financial services companies were at the greatest risk, with over 21% of employee thefts – the largest industry segment – targeting an organization in this field, including banks, credit unions and insurance companies. Other organizations frequently struck by employee theft include non-profits (11%), municipalities (10%) and labor unions (9%). Groups in the financial services, real estate and construction, and non-profit sectors had the greatest total number of cases in the Hiscox study, while retail entities and the healthcare industry suffered the largest median losses.

For more of the report’s insight on specific industries, check out the infographic below:

Hiscox Embezzlement Watchlist Targeted Industries