By Blake DuBose and Mike DuBose
It’s all over the news: almost a half-million dollars is missing from the South Carolina Hospitality Association, most likely due to embezzlement. The scandal has raised many questions, like “How could that amount have disappeared without being noticed? How often do things like this happen?” The answer: more easily and more often than you’d think! According to FBI statistics, there are 726 pending fraud investigations from 2011, and the rate of such crimes has increased steadily since 2003.
South Carolina is no exception to this disturbing national trend. A former Allendale County Bank employee recently pled guilty to stealing $323,000 from the bank. She faces 30 years in prison for the embezzlement, and up to another 20 years for setting fire to the building in an attempt to hide her crime.
Despite these incidents, few business leaders realize the danger embezzlement poses to them. Many simply can’t believe that their employees would ever betray their trust. However, it can happen to you! Case in point: a colleague recently shared a true story about a well-paid bookkeeper who had worked many years for a local company. The bookkeeper was very spiritual, a good friend, a trusted counselor to many…and also a thief, covertly taking large amounts of money from the business to cover personal credit card bills. When the news broke, other employees were in a state of disbelief. However, when speaking about the incident with other business owners, we were amazed at the number of similar horror stories they shared. In most cases, the thefts went unreported and the embezzlers were simply fired or allowed to repay the money.
There are many motivations behind theft. People do it to pay debts, feed gambling or drug problems, satisfy greed, fund lifestyles of excess, or cover unexpected expenses. Some tell themselves that it is just a temporary loan or that the company deserves it for mistreating them. Others just love the thrill of getting away with something. To make matters worse, many embezzlers avoid suspicion because they hold positions of responsibility in their organizations.
In a 2010 global fraud study, the Association of Certified Fraud Examiners (ACFE) determined that a typical organization loses 5% of its annual revenue to fraud and theft. Most fraud went undiscovered for around 18 months, and the median amount loss was $160,000—a hefty amount, particularly for small businesses, who were disproportionately likely to suffer (30% of companies in the study had 100 or fewer employees).
As a defensive maneuver, consider insuring your business against embezzlement. Scott Moseley of Irmo Insurance Agency recommends liability and comprehensive insurance policies covering fraud, embezzlement, and theft (note: there is often a limit of $10,000 per incident). Financial officers can also be insured against fraud. According to Moseley, a $100,000 employee dishonesty bond will cost a business about $300 per year.
Of course, as the saying goes, “An ounce of prevention is worth a pound of cure.” Based on research and conversations with our CPA, Frank Thomas, we recommend the following strategies:
If, despite these precautions, embezzlement still occurs in your organization, you have several options:
Choose your path carefully, being sure to speak to a variety of spiritual leaders, lawyers, financial experts, law enforcement officers, and others who may be able to offer helpful advice.
The bottom line: Embezzlement is one of the most financially and emotionally devastating threats a business may face in its lifetime. Although there is no foolproof way to avoid everyone who may try to steal from you, proactively protecting your business can make it harder for them!