8/10 Cases of Employee Fraud are Internal

When Loyalty Bites: 8/10Fraud & Embezzlement Cases are an Inside Job

Fraud, Theft & Embezzlement are Perpetrated by Your Employees

White-collar crime can have serious financial consequences, even threatening a private company’s survival. These frauds can go on for years and, when discovered, the ultimate impact can be enormous.

It is the long term, loyal and trusted employee whose dishonesty can put you out of business: the accountant who never takes a vacation, the IT employee who is never sick, the long term employee who is “just like family.” Employees like this really have the opportunity to steal over a long period of time and can take enough to jeopardize the financial survival of your firm.

3 Categories of Employee Fraud

These schemes involve every possible angle and fall into three categories:

  1. Corruption
  2. Asset misappropriation
  3. Financial statement fraud

From fictitious employees, dummy accounts payable, non-existent suppliers to outright theft of money, securities and property, anything is possible. Employees of the company carry out Eight out of ten incidents of crime.

Unfortunately, fraud and embezzlement in the workplace are on the rise, occurring in even the best work environments. In its 2014 Report to the Nations on Occupational Fraud & Abuse, the Association of Certified Fraud Examiners reported:

The Survey participants estimated that the typical organization loses 5% of revenues each year to fraud. If applied to the 2013 estimated Gross World Product, this translates to a potential projected global fraud loss of nearly $3.7 trillion.

5 Ways to Prevent Employee Theft

  1. Develop a list of approved suppliers and conduct regular reviews to ensure they exist
  2. Implement appropriate internal controls over purchasing, inventory receiving, etc.
  3. Confirm goods are received before payment is authorized
  4. Segregate duties to prevent one person from handling a transaction from beginning to end
  5. Perform ‘spot’ audits

Planning for Employee Fraud, Just in Case

As a rule of thumb, we recommend insurance limits of 10%-20% of business revenues.  A company that has $10 million in gross revenues should carry at least a $1 million limit of Fidelity Insurance.  Insurance companies see this exposure to risk as one of the most under-insured areas of many insurance buyers’ programs.

How Can We Help?

Fidelity/Crime Insurance protects organizations from loss of money, securities, or inventory resulting from crime. An assessment of your organizational practices will help you better understand where you may be exposed to risk in this area. From there, our team can assist you in placing adequate and appropriate insurance protection in this space.