6 things to know about white collar crime

On the following pages, from the types of industries most afflicted by employee fraud to mitigation tips, here's what you need to know about employee embezzlement: 

Embezzlers often have financial pressures they think can only be relieved by a "loan" from their employer. (Photo: Shutterstock)

Why good employees go bad

Perpetrators are often smart, well-liked, and those whom you would least expect, Hiscox says.

The company sources Jack Thurston, who identifies how embezzlers justify their crimes:

• Pressure: An employee thinks he or she is in a dire financial situation that can only be relieved by additional funds. This could be from gambling, bad investments or business losses, medical expenses or debt.
• Opportunity: Senior employees are more likely to have access to secure files, which offers opportunity to "fix the books" and cover up crimes.
• Capability: Perpetrators must have the skill and knowledge to do so.
• Rationalization: The theft often begins as a "loan," which the employee intends to pay back Embezzlers convince themselves that they are taking care of their families, feel underpaid or say they are not treated well.

Related: Employee fraud: 6 steps to substantiating your claim and recovering losses 

Controllers/comptrollers represent just 5 percent of embezzlers, but are the only employee group with a median loss higher than $1 million.(Photo: iStock)

The criminal next door

Embezzlers are most likely to be middle-age women who work in senior bookkeeper positions, according to Hiscox.

The study says the median age of perpetrators is 49 years old, and females represent 56% of those that commit this type of crime. Bookkeepers, the most common job by those who commit theft, represent 11 percent of all cases, followed by managers at 10 percent. 

(Graphic: Hiscox's "2016 Embezzlement Study: A Report on White Collar Crime in America.") 

Four out of five theft cases occured at companies with less than 150 employees (Photo: iStock)

Does size matter?

More than 80 percent of thefts occurred at companies with less than 150 employees, Hiscox says, with just under half of these crimes committed at organizations with less than 25 employees.

"Though it may seem counter-intuitive, smaller organizations with tight-knit workforces are particularly vulnerable precisely because employees are trusted and empowered," the study reports.

U.S. companies with as many as 500 employees experienced a median loss of $341,710 per year because of employee theft.

Related: 5 ways to reduce employee theft

Managers are more likely to commit embezzlement than employees. (Photo: Shutterstock)

Who's watching the managers?

In 75 percent of the studied industries, Hiscox says managers are more likely than rank-and-file employees to embezzle.

For the second year in a row, the financial services industry has the highest number of fraud cases (17 percent). However, it is also one of two industries (the other is professional services) where more employees than managers committed theft.

The median loss is the highest in the professional services industry, at $615,101, although fraud cases only occurred 5 percent of the time in this industry. The second highest loss ($600,000) is found in the healthcare industry, where 65 percent of the fraud cases are committed by managers. Hiscox found that all healthcare embezzlement occurred at companies with less than 250 employees.

The real estate and construction industry was the only one studied where owners committed fraud multiple times. Owners are responsible for 11 percent of the cases in this industry with a median loss of nearly $350,000. Overall, the median loss in real estate and construction is $416,000.

(Graphic: Hiscox's "2016 Embezzlement Study: A Report on White Collar Crime in America.")

In fraud cases, employees steal money outright more than a third of the time. (Photo: iStock)

5 most common embezzlement schemes

1. Outright funds theft (36 percent of cases): Occurs when an employee takes cash or bank deposits, or when an employee transfers money into their own account.
2. Check fraud (26 percent): When an employee alters or forges checks, making the checks payable to themselves.
3. Credit card fraud (12 percent): Occurs when an employee fraudulently uses, authorizes or creates an employer credit or debit card.
4. Vendor invoicing and false billing (10 percent): Occurs when an employee creates fictitious invoices from made-up companies or inflates invoices from actual vendors.
5. Payroll fraud (7 percent): When an employee uses the payroll system to divert funds to themselves or family members.

Of the five schemes, vendor fraud, by far, has the highest median loss at $1.33 million. Coming in second is check fraud, with a median loss of $361,000.

Related: How to insure against employee dishonesty

Don't give end-to-end responsibilities for accounting. (Photo: iStock)

Hiscox's best practices to prevent fraud

1. Never give a single employee end-to-end responsibility for accounting or accounts payable. Implement checks and balances.
2. Pay attention to employee lifestyles, especially any extreme changes.
3. Conduct lawful background checks on employees who handle money.
4. Educate employees about fraud detection and have them sign a code of ethics.
5. Promote a culture of trustworthiness and integrity.
6. Send bank statements to the home address of the business owner, who should also review any cancelled checks that come directly from the bank

Related: 8 tips to mitigate employee theft risks