No business, large or small, is safe
from embezzlement. No one knows for sure the total cost
to business because much of it is unreported. The National
White Collar Crime Center, a federally funded, nonprofit
corporation, says losses from employee theft range from
$20 billion to $90 billion annually.
"Embezzlement is a problem that tends
to become worse when economic
conditions worsen," said Michael J. O'Leary, a
former assistant U.S.
attorney in charge of the fraud section in Atlanta and
now vice
president and general counsel of Smith & Carson,
an intelligence and
security firm in Atlanta.
Embezzlement takes as many forms as there
are creative employees. For example, according to the
Georgia Attorney General's Office, Dianne F. Carter
is serving a five-year sentence at Pulaski State Prison
for pilfering $1.5 million from the state cafeteria
cash registers at the James H. "Sloppy" Floyd
Building. Somehow, she found a way to tamper with the
computer records so that no one noticed the missing
cash for years. And R. Wayne Nobles is serving a five-year
sentence at the Clayton County Correctional Institution
for stealing $300,000 worth of postage stamps. He requisitioned
checks from his employer, the University of Georgia,
to buy stamps, and traded them for cash or used them
in his own business.
Other examples of internal theft: The
bookkeeper in a medical practice
of six physicians skimmed off cash from patients, doctoring
the receipts
and falsifying balances. She siphoned off $28,000 before
the doctors
noticed. An administrative assistant created a pool
of fictitious
vendors, invented invoices for services rendered and
issued checks --
which she cashed, stealing $1 million over a three-year
period.
"White-collar crime has been on the increase for
a long time," said
Charles L. "Chuck" Owens, who worked for the
FBI for 25 years, serving
as the chief of the FBI's White Collar Crime Program
from 1995 to 1998.
He is now a senior executive with Ernst & Young
LLP in the litigation
advisory services practice.
"Our practice is certainly thriving,"
said Owens, who works with law
firms handling fraud cases or with companies that are
trying to root out
fraud.
O'Leary finds that all sizes of companies
are susceptible to
embezzlement, but their vulnerabilities vary. Small
companies tend not
to have adequate systems of control. "An individual
can be put into
positions where there is relatively little oversight
of activities,"
O'Leary said.
On the other hand, large companies have
internal controls, but "there
are so many transactions going on that it can facilitate
the concealment
of fraudulent transactions," O'Leary said.
"There have never been more situations
and more opportunities for
employees to embezzle from their companies," said
Douglas A. Singleton,
a partner with Waddell, Smith, Magoon & Freeman
LLC in Roswell who
specializes in fraud prevention and detection and litigation
support. He
is on the board of the Georgia chapter of Certified
Fraud Examiners.
Singleton says embezzlers usually have pressing financial
needs -- often
related to drug or gambling addiction, adultery or medical
problems. The
embezzler discovers a covert way to exploit the company.
And the
embezzler feels entitled to the company's money, to
a self-proclaimed,
secret pay raise.
Older embezzlers do the most harm. The
Association of Certified Fraud
Examiners reports that losses caused by those older
than 60 are 27 times
higher than losses caused by employees 25 and younger.
What can be done? Certainly, there needs to be a system
of checks and
balances. Test it periodically. Invest in independent
audits and
thorough background checks of key employees.
It's also important for management "to
set an appropriate example,"
Owens said. "As we well know, many senior corporate
executives haven't
done that, and that creates a climate where people are
more inclined to
take advantage of a situation."
Owens also recommends taking action against
an embezzling employee as a
deterrent. However, companies should investigate the
matter discreetly,
with professional help, if possible, so they protect
the evidence and
the individual's rights. Most employers learn about
embezzlement from
their employees, customers, vendors and anonymous sources.
The second
most common method of discovery is pure chance -- stumbling
upon the
evidence by accident.
Establishing a fraud hotline can cut losses
by 50 percent. Audits and
background checks also reduce fraud losses, according
to the Association
of Certified Fraud Examiners.
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©2003 TABIC.
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