Embezzlement Statistics Show Patterns

Embezzlement Statistics Show Patterns

On April 8, 2013, the Milwaukee Journal Sentinel reported that the human resources manager for a major Milwaukee scrap recycling company had been charged with embezzling more than $1 million from the company over the past 6 years. Eight days later, on April 16, 2013, the Milwaukee Journal Sentinel reported that a former secretary at the Shorewood School District had pled guilty to embezzling approximately $310,000 while serving as a secretary in the Special Education Department.

The circumstances surrounding these embezzlements1 seem consistent with conclusions and statistics reported in recent research regarding embezzlement and occupational fraud.

    1. Association of Certified Fraud Examiners 2012 Study

The Association of Certified Fraud Examiners 2012 Report to the Nations on Occupational Fraud and Abuse (the “ACFE 2012 Report”) was based on data compiled from a study of 1,388 cases of fraud that occurred in the workplace between January 2010 and December 2011. The ACFE 2012 Report included the following statistics:

      • The median loss caused by occupational fraud was $140,000 with more than one-fifth of the losses totaling at least $1 million.
      • Small businesses suffered the largest median losses.
      • Nearly half (49%) of the victim organizations do not recover any of the fraud-related losses.
      • The size of the fraud loss is often related to the position that the fraud perpetrator holds. The median loss committed by owner/executives was $573,000, the median loss caused by managers was $180,000 and the median loss caused by employees was $60,000.
      • Most occupational fraud perpetrators are first-time offenders with clean employment histories. Approximately 84% had never been charged with a crime or terminated by previous employers.
      • Occupational fraud generally lasted approximately 18 months before being detected. Fraud is most commonly detected through employee tips (almost three times as common as any other method of detection).
      • The vast majority (81%) of fraud perpetrators displayed behavioral red flags that are often associated with fraudulent conduct such as:
        1. living beyond means;
        2. financial difficulties;
        3. unusually close association with vendors or customers; and
        4. excessive control issues.

The ACFE 2012 study concluded that organizations that have anti-fraud training programs for employees, managers, and executives experience less costly losses and shorter occurrences of fraud. In particular, providing individuals with a means to report suspicious activity is a critical part of fraud prevention. General internal controls, screening new employees, division of responsibilities, appropriate oversight, physical controls and computer-based controls can also assist in preventing fraud.

    1. The 2011 Marquet Report on Embezzlement

The 2011 Marquet Report on Embezzlement aggregated data from 1,583 major ($100,000 or more) embezzlements between 2008 and 2011 and came to the following conclusions regarding characteristics of the perpetrators:

      • Major embezzlers begin their schemes in their early 40s.2
      • The average embezzlement spans approximately 4.7 years.
      • Women are more likely to embezzle than men (64% vs. 36% overall).
      • Men embezzle significantly more than women ($1.7million vs. $800,000 on average).
      • Gambling is a clear motivating factor driving some perpetrators (22%).
    1. Accounting 101

In both of the above from the Milwaukee Journal Sentinel and all of the embezzlement / fraud cases we have been involved in at The BERO Group, the common thread is something every accountant should have learned in accounting 101– when there is money flowing out of an entity, duties should be segregated.

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1Embezzlement is defined in most states as the theft of assets (money or property) by a person in a position of trust or responsibility over those assets.

2 In 2011, the average age of the perpetrator was 47.9 years. The average adjusted age (the average age minus the average duration) was 42.9 years.

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