Fraud Awareness: Know the Signs of Embezzlement

17 November 2012

First, some figures:

  • 5% of annual revenues
  • $3.5 trillion dollars lost worldwide
  • Median loss $140,000 per organization

These are startling numbers published in the 2012 Report to the Nations on Occupational Fraud and Abuse. The report is based on a global fraud survey of organizations in more than 100 countries conducted by the Association of Certified Fraud Examiners (ACFE). Fraud losses are currently exceeding the growth rate of GDP in the U.S. and in many countries around the world.

While fraud comes in many formsidentity theft, elder financial abuse, Ponzi schemes, bribery, and many othersthe ACFE survey is based solely on fraud in the workplace. Workplace fraud touches businesses, non-profits, local units of government, schools, and little leagues. No organization is immune. Knowing this and reading about publicized frauds causes board members and business owners to wring their hands and ask, “Can it happen here?” “How did they let it occur?” and “Can it be totally prevented?”

The answer to the last question may be “no”, but you can dramatically reduce the risk of an embezzlement by taking certain steps. In accounting-speak, these are known as internal controls. Organizations should ask their outside accountants for help in identifying weaknesses.

As a professional member of ACFE, I’d like to do my part in alerting organizations to just ten red flags that warrant further inquiry to detect embezzlements. One flag by itself is not necessarily an indicator, but multiple flags surely are cause for alarm.

  1. Does the employee’s lifestyle match the family income?
  2. Does the employee insist on being the only person to pick up the mail?
  3. Does the employee get irritated at reasonable questions about transactions?
  4. Does the employee refuse to take vacations?
  5. Does the employee explain away delinquency notices and past due bills?
  6. Does the employee resist offers of help from co-workers, or resist outsourcing bookkeeping tasks?
  7. Are large unexplained inventory write-offs appearing on your books?
  8. Are inventory items missing from your offices?
  9. Are checks clearing out of sequence?
  10. Are there unexplained receivable adjustments?

Be aware that “fraudsters” often appear to be the most dedicated and nicest of employees, and they often start their theft with every intention of paying it back. Things get out of control and pressures become so great that there is no hope of repayment. Sometimes fraudsters are relieved to be caught.

All organizations, large and small, for profit and not for profit, are urged to review their internal controls and be alert for signs of irregularities. Be sure your employees know where to report concerns, as the majority of frauds are discovered by tips from other employees.

Are red flags flying at your workplace?