What You Need to Know (and Do) about Embezzlement

by Suzanne Kearns on August 20, 2012
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If you’ve ever talked to business owners who’ve dealt with embezzlement, you likely detected their astonishment that the perpetrator was someone they trusted. That’s what makes the crime so heinous. Yet it’s a real threat that few entrepreneurs know much about — until it happens to them.

What do you need to know about this crime?

First: Embezzlement is on the rise. In a report by the Association of Certified Fraud Examiners, “Occupational Fraud: A Study of the Impact of an Economic Recession” (PDF), 54 percent of the certified fraud examiners surveyed said that fraud has increased in the past year (and about half of this group believe it’s due to increased financial pressure). Some 48 percent of survey participants said that embezzlement in particular was on the rise. Ninety percent expect that fraud, especially embezzlement, will continue to increase.

Embezzlement doesn’t just happen at large corporations. A separate report conducted by the ACFE, “2012 Report to the Nations,” states that smaller organizations suffered the largest median losses between 2010 and 2012, mainly because they had fewer anti-fraud controls in place. The report concluded that occupational fraud is a “significant threat to small businesses.”

Tips for Preventing Embezzlement

1. Set up a fraud prevention system. According to the ACFE, employee fraud goes on for an average of 18 months before detection, and when it finally comes to light, it’s usually thanks to an insider’s tip. Make sure you have an anti-fraud system in place in which employees feel comfortable reporting suspicious activity without the fear of retaliation

2. Keep tabs on vulnerable areas. Typically, embezzlement and other types of financial fraud occur in one of six areas of a business: operations, sales, accounting, customer service, purchasing, or executive and upper-management positions. The higher level of authority that an embezzler has, the higher the typical loss a business will experience.

3. Look for warning signs. In 81 percent of fraud cases, the guilty party displayed at least one of these signs: living beyond their means, close relationships with vendors or customers, financial problems, and excessive control issues. If you notice your employees exhibiting any of these behaviors, pay attention — and if you find evidence of foul play, call the police.

The last thing a small-business owner needs is a loss of capital due to employee theft. Now that you know what to look for, pay attention to the signs and implement a plan that will help your employees call attention to potential problems.

Suzanne has been a full-time freelance writer for 20 years. She’s written for numerous business and financial publications such as Entrepreneur, Reason Magazine, Home Business Magazine, and Money Crashers.

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