Employees Who Steal Are Playing the Long Game and the Impact Is More Severe Than You Think

Employee theft isn't a one-off act like once perceived; many employees stealing from their company have been with the institution for years — and they're not acting alone.

By: Elisa Ludwig | February 4, 2019

Embezzlement from a place of employment is not a lone-wolf act, said one 2018 Hiscox study.

It surveyed a “targeted group” of chief financial officers, accountants and controllers who worked in a setting where such crime took place, gaining insight on who, how and why employees steal.

Who’s Stealing

The study, “An Insider’s View of Employee Theft,” found that 79 percent of cases reviewed involved two or more people working in concert, and typically the number was as many as three. One example they gave was of the chief fiscal officer of a state agency and her son who worked together to steal over $1 million from the organization.

While billing fraud was the most common method, theft of cash, stealing company or employee property, check tampering, payroll schemes and skimming from credit cards are other widely used techniques.

Perhaps more worryingly, the crimes were not committed by new or unseasoned personnel. The study revealed that 70 percent of embezzlement schemes were conducted over a year or more by people who had been employed, on average, for eight years at the organization, most commonly at the manager level or above and typically in the accounting and finance departments.

Worse still, embezzlement is far from a rare occurrence — 39 percent of respondents said they’d seen more than one case in their careers.

What Embezzlement Is Costing Companies

The study also detailed the degree of losses associated with embezzlement, which are sizable: The average amount of money stolen was $357,650. Only half of companies that suffered a loss recovered funds, and those that did, only saw 39 percent of the total amount returned.

The full cost of this white-collar crime encompasses more than dollar amounts, however. Twenty-nine percent of respondents said that when the scheme was uncovered, the company had laid off the thieving employee and had to pay for increased auditing.

Many (26 percent) lost customers or had difficulty attracting new customers in the wake of the crime. Lost business partners and tarnish to the company’s reputation round out the negative side effects suffered.

Embezzlement is far from a rare occurrence — 39 percent of respondents said they’d seen more than one case in their careers.

“This is a pervasive issue for companies of all sizes, and the goal of our study is to underscore the importance of having a plan in place to protect a business, its employees and its customers from the far-reaching repercussions of embezzlement,” said Doug Karpp, the company’s Crime and Fidelity Product Head.

Other Key Insights

Familiarity – The study found that people tend to wait until they’ve worked long enough at a company to see how things work. Once they are familiar with the day-to-day operations, the embezzler can pin-point who may be willing/able to help and where to target the company.
Motive – An embezzler’s motive may vary, but often its linked to financial crisis or a need for money. Some justify their actions as a loan they intend to pay back, while others who are unhappy with the institution call the theft something they’re entitled to.
Encouragement – If stealing is easy, thieving employees are often encouraged to steal again. Which, in turn, leads to potential groups plotting and stealing together.
Exposure – In 65 percent of cases, someone in the company noticed something was amiss after about two years, according to the data. Often, an embezzler is exposed by a co-conspirator leaving the company or they’ve stolen too much on a regular basis.
Punishment – Depending on type and severity of punishment, embezzlers will likely start their schemes again with a new employer. However, 45 percent of cases do have charges brought against them.

Ways to Stop a Thief

The bottom line: Spotting employees on the take isn’t easy. However, there are some measures businesses can implement to minimize risk:

Assign financial responsibilities like payroll to more than one employee. Fellow employees are usually the first to ferret out embezzlement, and it’s worth training them to look for key signs of and motivations behind malfeasance.
Perform background checks as allowed by law on new employees. Especially the ones who handle money.
Keep an eye on employees who are living a lifestyle that’s out of proportion to their salary. The report notes that sudden changes to spending habits can be a sign as well.
In the event a thief is spotted, the study encourages companies to press charges. It sends a “message to other employees that you take embezzlement seriously, and you’re not giving anyone a free pass by letting them leave quietly.”

Finally, insurance can help protect against the financial losses associated with theft and help make the company whole again. Surprisingly, up to three-quarters of respondents said they don’t have insurance to cover embezzlement. &

Elisa Ludwig is a contract writer based outside Philadelphia. She has written extensively about cybersecurity issues for the Junto blog on the eRiskHub. She can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.