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Employee theft impact 2nd only to tax evasion

November 17, 2010
By Barry Webne, Webne Consulting Group

Editor’s note: The author will speak at an Oct. 12 CATA seminar about controlling employee theft. See the insert in this publication.


Business owners and executives need a "wake-up" call. Occupational Fraud, employee theft and embezzlement schemes are everywhere. These owners and executives, especially those of small-to medium-sized businesses and organizations, must learn to pay special attention to their policies, procedures and especially their employees. 

Almost one in three U.S. businesses has been or will be victimized by this type of fraud. Worse, only 41 percent of these business executives will ever know they were victimized. And worse still, prosecution is a viable alternative in only 21 percent of these cases.


It’s a growing problem and has been exploding out of control for the past decade. This type of crime now impacts the U.S. economy to the tune of $660 billion annually, ranking second as an economic impact only to tax evasion. Businesses with less than 100 employees are the hardest hit. 

This type of crime usually centers itself on the accounting staff in a particular organization, and the perpetrator can be anyone from an Accounting Clerk to the Chief Financial Officer. Businesses have no way of controlling the actions of a perpetrator, but they can control the "opportunity" factor that presents itself within the business or organization. This "opportunity" factor exists wherever there is a lack of accounting and internal financial controls. Business owners and executives must be aware of this opportunity factor and know how to shut it down.


"Trust" is just an excuse. Any business owner or executive can "trust" his employees, and there’s absolutely nothing wrong with this attitude. But in today’s business world, this "trust" must be followed by "verification." Business owners and executives also must learn how to verify the data, reports and information that their employees—especially their accounting personnel—provide them. 

For the majority of business owners and executives, it’s easier to trust employees than to understand and get involved in the sometimes simple day-to-day functions. Trust alone can be detrimental to the business or organization. Without verification, the business owner or business executive will move further and further from reality, each and every time the "trust" crutch is used. 


Not only must a business owner or executive completely understand his business’s operations, but in today’s world, he also must fully understand the accounting and financial policies and procedures within the business or organization as well. "Trust" just doesn’t cut it in today’s business world. 

A good rule of thumb for executives is to step back and put themselves in the position of their most "trusted" accounting persons—Accounting Manager, CFO or Controller. With our nation’s economy in its current state, it’s easy to see how individuals get themselves in financial predicaments. 


Couple this individual financial pressure with a lack of internal controls within your business; the Controller that issues Accounts Payable checks and reconciles the bank statement each month.  It’s a recipe for disaster, and statistics have shown that at least 65 percent of the time, under the right circumstances and pressure, that individual, that "trusted" employee, will cross the line and commit fraud. 

This type of crime can easily be thwarted, but few business owners will take the time necessary, or spend the minimal resources required, to address and fix the problem. Most business owners continue to bury their heads in the sand, ignore their internal control deficiencies, and operate their businesses in a risky manner.


It’s common to hear business owners say, "I’ll never be a victim, so why should I fix something that isn’t broken?" All businesses and organizations are vulnerable, and the problem needs to be addressed beforehand; at least 10 times the resources and attention are needed after a company or organization is victimized.