When embezzlement hits, many companies are taken by surprise.
And four out of five cases involve more than one perpetrator, making the crime harder for companies to uncover, a recently released study finds.
A whopping 79 percent of cases include more than one person, according to the study by Hiscox, a specialty insurer based in Manhattan. Its study polled 200 financial officers at embezzled companies large and small nationwide.
Conducting a calculated and methodical investigation can be key in recovering lost funds. And with the average loss ringing up at $357,650, according to Hiscox, it’s critical for firms to have plans in place to deal with a theft.
“Companies should be prepared for the eventuality that they discover an employee is stealing and know what their initial action will be,” says Doug Karpp, Hiscox senior vice president for crime and fidelity products.
It’s important to stop it in its tracks because embezzlement can also cause ancillary damages beyond just the dollar loss, such as layoffs and lost customers, he says.
Some of the top methods used to embezzle include billing fraud (18 percent); theft of cash (15 percent); and theft of property (11 percent), according to the Hiscox survey.
It’s good to have checks and balances in place to help detect these types of fraud early on, but when it happens you need to take a methodical approach, Karpp says.
First, if you notice a discrepancy, make sure it wasn’t an internal error first, says Steve Linker, managing member at Dix Hills-based Linker LLC, a forensic accounting and business valuation services firm.
For example, if there’s a discrepancy of funds, make sure your original budgeting was correct, he says.
If it appears to be embezzlement, then you want to be discreet and follow a set procedure, says Linker, who is brought in by companies to do an embezzlement probe to identify internal weaknesses.
When investigating, he likes to learn about the employees’ lifestye and behaviors (i.e. are they living a lifestyle outside of their means?). He may even suggest a suspected employee take some time off, giving investigators a chance to check their computer and desk.
“The perpetrator often keeps a record of the embezzlement,” Linker says.
Document your investigation through the entire process and try to keep it as quiet as possible, he says, noting most companies don’t want news of the embezzlement to get out.
Create a team early on of parties that will be involved in the investigation, bringing in outside experts such as legal counsel, a forensic accountant and private investigator if necessary, says Domenique Camacho Moran, a law partner who heads the employment group at Farrell Fritz in Uniondale.
“You want to make sure the data is preserved,” she says.
Also don’t rush to accuse someone without being able to back it up, she says.
Often the first thing the owner wants to do is confront the suspect, she says, but that could compromise the investigation.
You need to gather facts, talk to witnesses, she says.
When interviewing witnesses ask questions you think you know the answers to based on evidence you’ve collected like :Who do you think is responsible?” or “Who has access to XYZ?” without pointing the finger, Moran says.
When it’s time to approach the perpetrator, choose your words carefully and avoid making accusations that the perpetrator is a criminal, she says.
Instead, state facts such as, “We believe you took X dollars, and we want you to make restitution,” she says.
On average, 39 percent of embezzled funds were recovered by companies in the Hiscox study. Three-fourths of the companies had no insurance for embezzlement.
You may decide early on to bring in law enforcement.
“At some point you have to think about filing charges,” says John Diviney, a law partner in the employment group at Rivkin Radler in Uniondale.
In many cases that’s a viable alternative because the police and prosecutors may have better tools to handle the investigation than a company does, he says.
Your approach depends on the amount of evidence you have, he says, noting employers sometimes have very strong evidence and can pursue criminal charges.
Regardless, you need to figure out what happened so you can stop it and prevent it from happening again, Diviney says. “Put in place procedures to minimize risk going forward,” he says.
Percent of embezzlement cases that go undetected for more than a year; 31% of crimes went on for three years or longer.
Source: 2018 Hiscox Embezzlement Study