The newsLINK Group -Embezzlement and Employee Theft - At the Bank

Editorial Library Category: Banking & Finance Topics: Embezzlement, HR Title: Embezzlement and Employee Theft – At the Bank Author: newsLINK Staff Synopsis: Embezzlement is a bigger problem for U.S. businesses than you might realize, and it can go on at a small bank, undetected, for a long time. Interestingly enough, small banks are particularly vulnerable. Editorial: Embezzlement and Employee Theft (Community Bank) 4064 South Highland Drive, Millcreek, Utah 84124 │ │ (v) 801.676.9722 │ (tf) 855.747.4003 │ (f) 801.742.5803 Editorial Library | © The newsLINK Group LLC 1 The Scope of the Problem Embezzlement is a bigger problem for U.S. businesses than you might realize, and it can go on at a small bank, undetected, for a long time. Small banks are particularly vulnerable for a number of reasons: Embezzlement is a crime of opportunity. It can’t occur anywhere that doesn’t have a lot of money. That makes banks a natural target. People increasingly expect online access to their banks through the Internet, opening the door to cybercrime. In turn, sophisticated new methods for stealing money make it easier for criminals to succeed in robbing a bank, and harder for the banks to stop them. Small banks don’t have the same resources as larger banks when it comes to the latest tools for Internet security. In addition, state and federal laws have not yet caught up with this rapidly changing area. When an employee embezzles funds from a bank, this is a crime that is more harmful than it would be in other areas because it affects the reputation of the bank. Banks are subject to regulations that affect what they can do after a big problem surfaces. More so than in other industries, banks have less control over what happens. As an example of how embezzlement can ruin a small bank, consider the case of Utah’s Bank of Ephraim. Two men embezzled almost $5 million from the bank for 24 years without anyone realizing what was happening. In 2004, when regulators shut down the 99-year-old bank over the protests of the local community, the bank also had bad loans totaling $18 million, or 90 percent of the entire loan portfolio. That combination — a discovery of the embezzlement just when the bank was trying to clean up the bad loans — allowed regulators to take control and shut the bank down completely, at a heavy cost to the surrounding community. But that was back in 2004. How about something more recent? According to Christopher T. Marquet, the author of a 2011 report on embezzlement, 2010 was a bad year because there was a 17 percent increase in embezzlement crime when compared to the year before. Marquet International, Ltd. is a business located in Boston, Massachusetts that was founded at the beginning of 2006 and specializes in investigations. The company publishes an annual embezzlement report that focuses on new cases where approximately $100,000 or more has been embezzled. The results of the study were published in January 2011 and reported o n . The study analyzed 485 specific cases and offered the following conclusions: The average loss was almost $1 million. Most of the embezzlers took the money by either forging checks or writing unauthorized checks. People whose jobs included finance and accounting responsibilities were the most likely to embezzle funds; they accounted for two-thirds of the cases. Women were more likely to embezzle than men. Again, they were the instigator in two-thirds of the cases. Most embezzlement schemes went on for 4.5 years before anyone noticed that the money was gone, and shouldn’t have been. Almost 20 percent of the businesses that were victimized were financial ones. Prevention Is the Best Remedy Ruth S. Crane, President of Auditors Inc., has a rule about embezzlement called the 10-10-80 rule: ten percent of the people who work for you will never steal; ten percent will always steal; and 80 percent will only steal under specific circumstances. Banks are often more cautious about hiring people than other businesses and often perform civil, criminal, and credit checks; some banks also have their employees bonded. But these steps only tell you what someone has done in the past.