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The Surprising Peril of Embezzlement

The threat of employee theft is bigger than most companies realize. Recognizing the clues and implementing risk management protocols can avoid costly losses.
By: | April 1, 2019 • 6 min read

If you were to ask a group of business owners about the biggest risks they face, you’d probably get a lot of different answers. Some might say external risks, like competitive challenges or economic uncertainty. Others might say physical risks like damage to their building or a computer system failure. But there’s one risk that no one is likely to mention — one that’s very real and that every business is vulnerable to: embezzlement.

Business owners often think of their employees like family, and would never suspect them of committing crimes like embezzlement or employee theft. Yet theft is far more common — and results in far larger losses — than many business owners realize.

The 2018 Hiscox Embezzlement Study: An Insider’s View of Employee Theft surveyed CFOs, controllers and accounting managers who worked at companies where embezzlement had occurred. The survey shows that the average cost of a single embezzlement scheme is $357,650, involves multiple perpetrators at all levels of the organization, and could last for years.

The Financial Cost of Employee Theft

Of the more than $350,000 that is embezzled in the average scheme, just 39 percent of funds are recovered when the thief is caught. Recovery can come from restitution, legal settlements and insurance payments, but it doesn’t come close to replacing all that was stolen.

The cost of embezzlement goes far beyond the amount of money stolen from the company. Twenty-nine percent of survey respondents said their company had to lay off employees because of embezzlement. More than a quarter of respondents said their company lost customers and had to increase their spending on security and auditing.

It’s More Than Just a Hand in the Till

In 79 percent of embezzlement cases, more than one person was involved in the theft. The average number of people involved in a single scheme was three.

Most schemes went on for over a year. In 31 percent of cases, employees were stealing from their employer for three years or more before the theft was discovered. The average embezzler was employed at the company for eight years before they were caught.

One indication of the prevalence of embezzlement is that, of the executives surveyed, 39 percent had seen more than one case of embezzlement during their career.

Who Are the Embezzlers?

Anyone can be an embezzler, regardless of age, gender, department or position in the company. Even owners and directors have stolen from their companies. More embezzlers work in the accounting or finance department (33 percent) than any other, but every department is at risk.

More telling than their position at the company are some common character traits that make people more likely to steal. These include:

  • Intelligence and curiosity. These people pick things up quickly and ask a lot of questions about how things are done. Then they exploit the process for their own gain.
  • Embezzlers often lead a lifestyle that is out of proportion to their salary. Part of the thrill they get from stealing is the ability to show off to others.
  • A propensity to take risks. An embezzler may be a rule-breaker in other areas of their life, too. They may over-use sick time or get a lot of speeding tickets, for example.
  • Ambition and diligence. Embezzlers often have the appearance of being hard workers – coming in early, staying late, and not taking vacations. What they actually have is the fear of being caught.
  • In some cases, embezzlers are taking out their dissatisfaction with the company by stealing. They may feel they are ‘entitled’ to more money than they’re making, so they decide to help themselves.

How Do They Do It?

There are many different ways employees can steal, some complex and others shockingly simple. Billing fraud, which includes creating fictitious vendors and overstating payments made, is the most common. Also popular are theft of cash and company property, check tampering, payroll fraud and skimming of credit cards.

Why Good Employees Go Bad

The path from trustworthy employee to thief can vary, but generally three characteristics are common to every crime: means, motive and opportunity. In many cases, the scenario looks something like this: An employee is hired and starts to learn the processes of the company. They may work for the company for several years without incident.

Next, the employee may have a financial crisis of some kind. They may be overwhelmed with bills or their spouse or partner loses their job. They convince themselves that they are justified in taking a ‘loan’ from the company which they’ll promptly pay back when their financial situation improves.

When their first crime goes undetected, they are emboldened to try again. The more times they get away with stealing, the more likely they are to continue. Soon they are regularly embezzling company funds to maintain their new standard of living.

How Can Companies Protect Themselves?

A three-step approach can help companies protect themselves from employee theft.

  1. Prevent embezzlement in the first place. This means having procedures in place that make it more difficult for employees to steal. No single person should have end-to-end responsibility for any accounting function, like payroll or accounts payable. Business owners may want to have bank statements sent to their home for review before they are reconciled at the office. Perform background checks to the extent allowed by law.
  2. Detecting embezzlement early is critical to limiting losses. Be aware of employees who live a lifestyle out of proportion to their salary, or who come in early, stay late, and don’t take time off. Encourage employees to speak up if they see something amiss.
  3. Mitigate the impact on your bottom line by pressing charges against any employee who steals. This sends a message to other employees that you won’t tolerate theft, and it prevents the miscreant from plying their trade at another unsuspecting company. Consider crime insurance, which can make the company whole again after a theft.

A crime and fidelity policy protects against embezzlement, including theft, fraud, and tech fraud of money (including virtual currencies) and property. It also covers employee theft of an executive’s property, including extortion; fraud committed against customers’ accounts; accidental or intentional erroneous transfer of funds, cyber deception, and more.

Employee theft is a risk for every business, of every size, in every industry. It puts the company’s finances at risk and affects its morale and reputation. Being on the lookout for the warning signs and taking steps to mitigate the likelihood of theft can help keep a company safe from embezzlement.

Hiscox is a global specialist insurer, headquartered in Bermuda and listed on the London Stock Exchange (LSE:HSX). Through its retail businesses in the UK, Europe, and the US, Hiscox offers a range of specialist insurance for professionals and business customers. For more information please visit www.hiscox.com.



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

Hiscox is a leading specialist insurance company with origins dating back to 1901. We are not a traditional insurer. We target specific types of insurance in which we develop expertise, often focusing on areas other insurers find too complex to insure. By challenging convention in each specific market we offer market leading products and services to businesses. We offer general liability, professional liability, and property insurance through brokers and directly online to small businesses.

More from Risk & Insurance

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4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]