Employee Embezzlement Just Got a Whole Lot Easier Now that We’re Working Remotely

A work-from-home environment coupled with fear of the unknown has opened the door for employee theft — so long as businesses are not proactive.
By: | October 12, 2020

There’s a hidden risk facing many businesses across the country — one that oftentimes might go unnoticed for months.

That risk? Employee embezzlement.


“The average embezzlement loss is discovered usually 14 months to 18 months after it starts,” explained Doug Karpp, senior vice president, head of executive risks & cyber, Hiscox USA.

He added that, in one of the company’s most recent studies on embezzlement, 70% of cases went on for more than a year before they were discovered.

“Because of that, we tend to have a lag in the timing of losses,” he said.

The average embezzlement scheme could cost a company hundreds of thousands of dollars. The Association of Certified Fraud Examiners reported an estimated 5% of revenue is lost to fraud and embezzlement each year — that’s about $730 billion in the U.S. alone.

Small organizations tend to see the hardest hits, with median losses for companies with less than 100 employees averaging $150,000. Larger businesses see an average of $80,000.

While many employee embezzlement schemes are conducted in the office setting, right under the noses of upper management, the COVID-19 global pandemic has given way to bigger opportunities for fraudulent activity.

That’s because remote employee behavior isn’t quite as easy to monitor as it is in an office setting: “With a work-from-home environment, there is a lack of oversight,” Karpp said. “Managers are used to having their employees at the office or on a job site and can monitor activity. They can’t do that with work from home.”

A lag in case discovery coupled with a pandemic-induced work-from-home environment could very well lead many companies toward a hard 2021 and beyond as employee embezzlement schemes start to unearth.

Why the Pandemic Might Lead to Embezzlement

There are many factors at play as to why an employee might embezzle money from their company. The COVID-19 pandemic has only exacerbated these factors.

Doug Karpp, senior vice president, head of executive risks & cyber, Hiscox USA

“The key thing to look at is motivation,” Karpp said. Typically, employees cross the line from good worker to fraudulent embezzler when they feel they are at the precipice of a personal financial crisis.

“Think of the high health care costs they fear they might be facing if they or a loved one falls sick,” Karpp explained. “The other part, and I believe it is a unique factor for this pandemic, is the fear that the employee or their spouse might lose their job.”

The latter is a significant factor. Research from the U.S. Bureau of Labor Statistics shows unemployment rates shot up from 3.8% in February of this year to 13% by May. Data from the Economic Policy Institute repors that by July, the number of unemployed U.S. citizens nearly hit 16%.

That number is higher than at any point since the Great Depression.

With the loss of a job less abstract a concept than ever before, it is no surprise as to why an employee might turn to embezzling.

And Still, Opportunity Lurks

Motivation is the deciding factor, for sure, but as mentioned before, opportunity is just as important for an employee to shoot their shot.

“Without the in-office supervision, it becomes a lot easier for an employee to cover up their fraud scheme,” Karpp explained.

Losses often involve an employee either creating false documents or falsifying existing documents to cover up that loss.

“That kind of activity becomes a lot easier when they’re in a work-from-home environment, where the employee can log-on to a personal laptop outside the company’s watch and conduct that activity.”


Whereas, in an office setting, a manager could walk around and be a potential witness to a crime in progress, now fraudulent activity can happen in the blink of an eye with management none the wiser.

Additionally, Karpp said, the current COVID environment has many in managerial positions hyper-focused on the subsequent risks stemming from the virus: “They’re distracted. And distracted business leaders may not be able to key in on this exposure, because they have to focus on and figure out how to remain operational throughout the pandemic,” he said.

What to Watch Out For

In an office, employers can watch for key behaviors to catch an embezzlement scheme before it’s too late.

“Is an employee’s lifestyle out of proportion to their salary?” Karpp gave as an example. “Did they show up to work in a new, expensive car? Before the pandemic, lavish travel could be a red flag. Any sudden change to spending habits could point to fraud.”

Further, Karpp said, in-office embezzlement could be spotted through observation of an employee’s work habits: “They’re often very smart. These are the employees who come in first thing each morning, leave late and rarely, if ever, take a vacation.”

They do this, Karpp explained, to put on a façade of dedication that ultimately covers up their fraudulent activity. Further, “the employees who come in early, stay late and don’t take vacation are actively covering up their scheme by making sure no one else touches their work. They want to be sure that when the bank statement comes in, they’re the one who first sees it.”

Unfortunately, observing an employee’s behavior in the office is not an option during the pandemic. Work from home adds challenge for employers. Visual cues like an early or late start or the addition of expensive, new things can’t as easily be spotted in remote spaces.

How to Prevent Fraud

So, in order to combat the risk of increased embezzlement during the pandemic, employers need to act now.

“The main thing employers can do is continue business as usual,” Karpp said.


Keep internal controls the same and commit to continued, rigorous oversight.

“Make sure that you find a way to continue to do the things that would have prevented losses previously,” Karpp said. “So, if you previously had more than one signature on an outgoing check, make sure that you’re still doing that. Don’t let the same individual process a transaction and then also reconcile that transaction later, no matter how tempting it might be during a work-from-home situation.

“Now more than ever, it needs to be about focusing on making sure that you still have those controls in place,” he said. &

Autumn Heisler is the content strategist at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.


Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.


As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.


Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &


Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]