Workplace Thieves Hit Small Businesses the Hardest

Recent findings from the Association of Certified Fraud Examiners sheds insight into internal theft

When a bar manager noticed more than $800 missing from a locked safe last month at the Rosemount American Legion, suspicion turned toward the post's popular young commander, a Persian Gulf War veteran. In November, Jeffrey Matthew Kaczmarek, 36, was arrested and charged with felony theft.

Post members soon discovered the financial damage was far worse than a few hundred dollars.

Rosemount police learned Kaczmarek had not paid the post's property taxes for two years, leaving it $24,000 in arrears. Its checking account was also low. Several checks had been written out to him and deposited into his personal bank account.

"A commander in a post is kind of like the CEO of the community," said Chris Jones, the post's bar manager. "He betrayed our trust. … I've got a lot of hurt and disappointed people down here who still can't believe it happened."

Disbelief is a common reaction when a trusted employee, manager or owner embezzles from a small business. But experts say the trust level in smaller businesses and organizations makes them ripe targets for internal thievery. And the impact there — both financial and emotional — is often disproportionately greater.

While multimillion-dollar corporate embezzlements make headlines, it's churches, schools, clubs and mom-and-pop shops that have the hardest time recovering their financial footing.

"For the typical small business, it's not common. But it's traumatic when it happens. And it can happen," said Neal T. Buethe, a Minneapolis employment lawyer with Briggs & Morgan.

Some recent findings from a study by the Association of Certified Fraud Examiners, a national group that looked at 508 occupational fraud cases from across the country:

• Companies with fewer than 100 employees suffered the greatest losses, second only to businesses with more than 10,000 employees. Small companies accounted for 46 percent of all cases, with a median loss of $98,000.

• More than a third of frauds were committed by managers, while 12 percent were done by owners or executives.

• Most occupational fraud perpetrators are first-time offenders. Criminal background checks won't weed out all the crooks "because most frauds are committed by apparently honest employees."

• Most frauds came to light through tips from other employees or internal audits. But more were caught by accident — say, an employee noticing surprising bank statements while filling in for a co-worker — than through day-to-day, internal controls. And that's especially true for smaller businesses.

• The most common frauds included skimming revenue before it's recorded, stealing inventory, billing schemes, doctored invoices and payroll tampering.


When investigating embezzlement, forensic accountants often consider what they call a "fraud triangle" — motive, opportunity and rationalization.

As for typical motives, "it could be greed, it could be that the person wants a big lifestyle that their income would not support. It could be some sort of an addiction to drugs or gambling," said Diane Matson, an assistant professor at the University of St. Thomas, whose research specializes in forensic accounting. "It could be that the person feels resentful against the company, perhaps because they were passed over for a promotion."

Then there's opportunity. One reason that small businesses may be especially vulnerable is because there are fewer workers, increasing the likelihood that the same person who handles the money can also doctor the ledger.

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