As economy falters, employee theft on the rise

By Abigail Goldman

Friday, Nov. 6, 2009 | 2 a.m.

Robert Frimet is a self-proclaimed fraud expert, a businessman who audits other companies’ books, gives lectures on recognizing employee theft, and sits as a civilian member on the Nevada Fight Fraud Task Force.

Yet without a shred of embarrassment, Frimet admits he’s caught his own employees embezzling, sometimes long after the thieving began. It just goes to show, Frimet figures, how prevalent the problem is — particularly now.

As the economy has fallen, embezzlement and employee theft have increased, according to some experts, who suggest the rise is a reflection of fiscal strain and low morale. People not getting raises, Frimet said, are starting to take them.

“ ’Tis the season to steal,” he said.

In the past 18 months Frimet has seen a 25 percent increase in clients asking him to investigate employee embezzlement. Metro Police detectives in the department’s fraud detail are also seeing an uptick in cases, but don’t necessarily see it as an indication the crime is on the rise.

The increase may reflect an entirely different trend, Detective Ira Carter said — struggling business owners are monitoring their books more closely and finding fraud that goes back years.

“When times are good, people tend to overlook things,” he said. “Now that everything is coming down to the penny, employers are starting to notice.”

Tough to quantify

It’s hard to know which theory is correct. There’s no single national organization that tracks employee embezzlement and fraud specifically, or in much detail. There are, however, regular surveys of business owners and corporations, statistics on related crimes and anecdotal evidence from business owners across the board.

Nationally, the Association of Certified Fraud Examiners estimates that American businesses lose 7 percent of their annual revenue to internal fraud, a percentage that pencils out to hundreds of billions of dollars a year. Small businesses are especially vulnerable, as fewer employees mean fewer eyes on the books tracking how money comes in and goes out. And business owners have indicated in recent national surveys that they expect fraud will increase.

Still, employers are often hesitant to press charges, said David Hannuksela, an accountant and Las Vegas chapter president of the Association of Certified Fraud Examiners.

“For one thing, they’re embarrassed they just got zapped, and they don’t want to advertise the fact,” he said. For another, the most successful fraudsters are often considered star employees, until they get caught.

Seniority a factor

This is because the worst perpetrators are generally the most trusted employees — people with access to pre-signed checks, credit cards and internal fiscal information. Employees who do the most monetary damage, it turns out, aren’t cashiers manning tills or store managers with nightly deposits, but educated men in senior positions with spotless records — criminal corporate Americans, hiding in a sea of suits.

And because they’re under pressure to keep their fraud under wraps, the most successful perpetrators seldom take sick days or vacation days. They don’t ask for help, they work after hours and don’t mind taking work home — stellar employees or scam artists.

Studies show direct correlations between employees’ seniority, their education and their age — the greater any of those factors, the more money they steal, on average.

“The little old grandmother whose been there for 20 years, never takes a day off, works all the time,” Hannuksela said. “That’s the one that rips you off.”

Any increase in employer fraud is probably a combination of both economic factors: desperate employees and more critical employers, said Hannuksela, who also teaches fraud examination to accounting students at UNLV. Across the country, he said, forensic accountants are growing in numbers, a supply of specialists some observers note exists because of growing demand.

At the banks, grocery stores, pawn shops, casinos and check cashing companies that Frimet works with, check fraud is the most common scheme. This usually means stealing, forging or counterfeiting checks. Sometimes people will get relatives to pose as checks’ intended recipients, and then send them into casinos or check cashing companies — like the one Frimet runs where he’s caught employees stealing — to attempt to trade the bogus paper for cash. It’s a crime that generally tends to be seasonal, peaking when “people need to go Christmas shopping and don’t have the cash flow.”

“But the economy has changed the landscape, and employee embezzlement is on the rise,” he said.

Personal reasons

Resentment can fuel the theft, some studies suggest. Employees who don’t feel recognized or appreciated are more inclined, rationalizing that they’re owed the money or deserve a reward. At the same time, there’s depersonalization, employees who believe they’re stealing from the company, not the people who run it.

These justifications get a lot easier, Frimet said, when raises are reduced or denied, and bank accounts dwindle.

Things also get easier when companies, looking to reduce costs, eliminate positions and therefore, oversight. It’s exactly when businesses are spread most thin, he said, that they need to hire someone to put a second set of eyes on the operation.

“It comes down to never trusting anyone,” he said, “including trusted employees.”