Major embezzlement cases on the rise

According to a report recently published by Marquet International, a boutique investigations and security consulting firm, incidents of major embezzlement in the U.S., which is defined by cases in which at least $100,000 was misappropriated, increased 11 percent in 2012 when compared to the number of cases analyzed a year prior. In fact, the 528 cases analyzed in “The 2012 Marquet Report on Embezzlement,” are the most ever recorded in the report’s five-year history.

The average amount of money lost by businesses in the cases analyzed in the report was about $1.4 million. According to Christopher T. Marquet, CEO and founder of Marquet International, businesses in all of the cases analyzed lost a total of about $737 million.

Although the economy has been slowly recovering over the last several years, Marquet said what they found in the report is that a lot of embezzlement schemes that were hatched during the recession are now finally starting to see the light of day. However, while many people who were allegedly involved in these thefts did so out of financial need, others merely stole to create and maintain an extravagant lifestyle.

“What they end up doing is establishing a lifestyle for themselves to maintain and enjoy and so it goes on and on and on,” explained Marquet. “It usually starts out small and gets bigger over time to the point where it cannot be hidden anymore, it gets found out. So, while I think the economy is a factor, it’s definitely not the only factor as a lot of these folks go on fancy trips, they buy all kinds of consumables, electronics, jewelry, cars, vacation homes, etc. – they do all kinds of things establishing a lifestyle and living a lifestyle that they would have perhaps not otherwise enjoyed.”

While the motivating factor among perpetrators was hard to ascertain in a majority of the cases examined in the study, those that were discovered varied widely, ranging from supporting gambling addictions to problems with substance abuse, a floundering family business or even providing for a loved one. Marquet said the average duration for one of these major embezzlement schemes is nearly five years and some have even lasted as long as 20 years before they are uncovered.

“It’s shocking to me that if we identified 528 cases from 2012… those are the ones we can identify, there are probably a lot of others that weren’t reported and 528 cases means every week there are 10 of these things in the United States popping up,” said Marquet. “That is astounding that this goes on every single day. That frequency of employee theft is shocking to me and that’s just what we see, not the lower level stuff that never gets prosecuted where people just get quietly pushed out the door or never even get found out. What we see is the tip of the iceberg, there’s a huge amount underneath the water that’s hard to quantify that goes on every single day.”

Marquet said those organizations that are the most susceptible to these schemes are ones that do not have a division of labor when it comes to their finances or a multitude of people monitoring money coming in and out of the organization. He advises that organizations conduct spot audits to look at and verify bank statements, as well as have multiple signatories on checks over certain amounts. Most importantly, businesses need to make sure there are proper checks and balances in place and that one or two people are not in sole control of an organization’s financial department.  

“When we looked at industry sectors and who were the common victims - non-profits, religious organizations and small businesses – those enterprises had relatively weak controls and a finance department of one individual, a single bookkeeper, for example, that might handle the finances for a non-profit organization and they’re doing it as a ‘volunteer.’ Those organizations were at a high risk because there are no checks and balances or relatively few,” said Marquet. “Even organizations like banks that use multiple controls, people are still stealing. Some good news is that these people are getting arrested and prosecuted.”

Some of the other findings of the study included:

  • More than two-thirds of the incidents (68 percent) were committed by employees who held finance/bookkeeping and accounting positions
  • The most common embezzlement scheme involved the issuance of forged or unauthorized company checks
  • Only four percent of the cases involved perpetrators who had a prior criminal/fraud history
  • The average embezzler in the study stole nearly $25,000 per month from their employer
  • The financial services industry suffered the greatest losses due to major embezzlements
  • Non-profits and religious organizations combined accounted for about one-eighth of all the major embezzlement incidents in the 2012 study
  • Nearly three-fifths (58 percent) of the incidents involved female perpetrators
  • Male perpetrators, on average, embezzled nearly three times as much as females
  • 84 percent of the cases involved individual perpetrators
  • The average adjusted age of perpetrators at the commencement of their embezzlement was just under 43 years
  • 40 – 49-year-olds were the most frequent culprits
  • The average prison sentence was just over 4 years (49 months) for convicted major embezzlers

Though he believes the poor state of the economy was a factor that helped drive some embezzlement schemes, Marquet said that the problem isn’t going to stop just because the markets are rebounding.

“I think no matter what the economy is there is always going to be a certain amount of fraud, waste and abuse. Employee theft is always going to be going on at a certain ambient level,” Marquet said.