Risk Insider: Greg Bangs

When Employees Go Rogue: 5 Strategies to Catch a Thief

By: | December 12, 2017 • 3 min read
Gregory W. Bangs is senior vice president, crime regional leader for North America at AXA XL, a division of AXA XL. Over the last 30 years, he’s been underwriting insurance and developing new products in the U.S., UK, Hong Kong and France. He can be reached at [email protected]

According to Statistic Brain, employee theft costs U.S. businesses about $50 billion a year, with approximately 7 percent of annual revenues lost to theft and fraud. Those are eye-opening stats to say the least.

Businesses of all sizes can be victims of embezzlement, although small businesses tend to run a higher risk. No one has to click far in the realm of online news sources to find examples:

  • A former Alabama stockbroker was recently accused of embezzling more than $200,000 from a regional bank.
  • An employee embezzled over $186,000 from a hospital’s nonprofit foundation.
  • A bookkeeper stole $272,000 from a California-based farming operation and to cover it up filed fraudulent tax returns and failed to file required employment tax returns, which all resulted in a $1.5 million tax lien on the operation.
  • The founder and chief financial officer of a Charlotte, North Carolina-based construction firm was accused of embezzling $100,000 withheld for state taxes since the firm was founded in 2010.
  • A former Bank of America executive and her husband were indicted for allegedly funneling $2.7 million illegally from the company in a five-year scheme involving various Boston- and Atlanta-area nonprofits.

The most cost-effective way to deal with fraud is to prevent it. Sharpening corporate controls and process, as well as enlisting employees’ watchful eyes, are key prevention measures. And having the right insurance doesn’t hurt either. To be proactive, here are five steps to consider:

1 – Establish Checks and Balances. Thirty percent of embezzlement activity happens because the right internal controls aren’t in place. Risk proof your operational procedures, accounting related activities, access to sensitive company information, and limit role responsibilities so different employees handle different aspects of a functional area.

2 – Institute cyber controls. Establish a computer/mobile device policy and malware software protection; set up individual logins; secure intellectual property; institute check and payment safeguards for your company, customers and donors; and make sure you have administration rights to all accounts.

3 – Know and invest in your employees, old and new. Prescreen and conduct reference and credit checks, particularly on those handling money. Since 28 percent of those who commit insider fraud are considered a trusted employee, note red flags in individuals’ work or lifestyles. Educate employees, vendors and donors about company ethics and code of conduct, penalties for violations, and policies and procedures for reporting concerns.

4 – Monitor activities. Since the buck stops with you, set the right tone. Be sure your business or your nonprofit’s board and executive level employees have oversight over all transactions. Have bank, credit statements and cancelled checks mailed directly to your home, where you can review and reconcile them regularly.

5 – Cover your assets. Be sure you have crime insurance coverage. Know what it provides for and requires of you should the unthinkable happen. And review it regularly to keep pace with your entity’s needs.

Suspect embezzlement activity? Consult counsel and an investigations/forensic accounting firm. Develop a strategy to safeguard your brand and manage relationships with your staff, stakeholders, and the media if yours is a high profile business or an organization that relies on investor, donor and volunteer support.

Then take the necessary action to convict. Protecting a business against commercial crimes requires showing that you mean business. Not acting can be detrimental, sending a signal that employees who dip into an organization’s bank account may just walk away with a slap on the wrist.

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The R&I Editorial Team can be reached at [email protected]