On January 17, 2012, Marquet International announced the release of “The 2011 Marquet Report On Embezzlement”. This report summarizes hundreds of 2011 US embezzlement cases to understand the profile of the embezzler and type of institutions involved. Most of the embezzlers were women (nearly two thirds of the cases), with an average age of 47.9, and almost three quarters are in the finance and accounting function. The leading institution types were non-profits (including religious organizations) and financial institutions. The most frequent means of embezzling was through the unauthorized payment and outright forgery of organization checks. The average embezzlement size was $750,000 and lasted for five years. Many of the embezzlers had gambling problems.
While one would think that background checks would catch embezzlers before they raid an organization, only 5% of the embezzlers in this study had a crime record. Background checks are still important, as they would have weeded out the 5%. However, it isn’t the most impactful way to address this problem. The most important way to stop embezzlers is having systemic and cultural factors to reduce the likelihood and impact of embezzlement.
To catch embezzlers, organizations need a strong system of checks and balances. Different people should be involved in purchasing, setting up vendors in the system, issuing invoices and taking payments. If this isn’t possible, a thorough system of review and sign-off should be established. Conducting unscheduled audits, frequently checking bank statements, being aware of changes in employee lifestyles, and having automated accounting software all have an impact.
The organization needs a strong culture of ethics, with demonstrated ethics leadership at the top. Everyone should have access to an anonymous employee hotline. Having vendors set up with access to the hotline can uncover impropriety, too. For several years, the ACFE annual reports have shown that having an anonymous third party hotline has the most impact in reducing the length and size of fraud, including embezzlement.
In addition to preventing and detecting embezzlement, organizations should plan for remedial action. Organizations that take remedial action, through purchasing criminal insurance, prosecuting, firing, and reaching settlements, are less likely to be a victim and more likely to withstand the impact of embezzlement.