Falsifying invoices. Impersonating suppliers. Straight up stealing. Is there anything fraudsters won’t do when it comes to embezzling company funds? Internal fraud is unfortunately a common occurrence, and it happens to companies of all sizes. According to the 2018 Embezzlement Study from specialist insurer Hiscox, the five most common techniques employees use to embezzle money are:
Other resources you might find helpful:
- Billing fraud – 18% reported employees “inaccurately reporting spending, creating fictitious vendors, and overstating payments made.”
- Cash on hand – 15% reported “theft of cash the business keeps for day-to-day operations.”
- Theft and larceny – 11% reported employees “stealing company property or personal property of company owners or employees.”
- Check and payment tampering – 10% reported employees “diverting payments made to the company into personal accounts, writing company checks to personal accounts.”
- Payroll – 10% reported employees “inaccurately recording payroll, paying fictitious employees.”
According to Hiscox Crime and Fidelity Product Head Doug Karpp in an interview with PYMNTS.com, automated financial platforms are necessary in the fight against fraud. While it does remain a “people crime” – motivated employees will always find a way around any system – the use of automation and artificial intelligence-driven financial technologies provides a big advantage in uncovering fraudulent transactions.
“There is a lot of Big Data and artificial intelligence technologies that can be used to comb through the electronic payments to identify fraudulent, or red flag-type, transactions,” Karpp told PYMNTS. “I think a lot of that is coming.”
In December 2018, a former senior-level employee was sentenced to 56-80 months in prison and restitution that could exceed more than $1 million for an embezzling scheme that cost his company $1.8 million in losses.
His techniques included sending fraudulent invoices to a partner retailer that resulted in payments made directly to him. The retailer was unaware of the scheme and paid the bills as normal. The former employee then used the funds to support his “extravagant lifestyle” of international trips, luxury goods, spa treatments, and gifts until his actions were uncovered in a company investigation.
Wire Fraud and Identity Theft
In November 2018, a former manager was indicted for allegedly stealing $9.3 million and faces nine counts of wire fraud and one count of aggravated identity theft.
According to the indictment, the former employee impersonated a representative from a supplier in order to change payment and bank account information to a different, former supplier. He was able to successfully redirect funds to the fraudulent account. He allegedly also created false invoices and account documents.
In December 2018, a former accounts receivable clerk was sentenced to one year in prison and restitution of nearly $290,000 after pleading guilty to wire fraud.
The former employee falsified credits, refunds, and charges on customer accounts and used the information to transfer funds to her personal bank accounts. She covered her tracks by alleging that her colleagues were unable to learn the accounting processes in order to keep others away from her record books. She used the embezzled funds to purchase a car and pay personal expenses.
Does the thought of employee embezzlement scare your organization? Consider implementing automation to stay ahead of the game, keep current on audits, and be aware of possible fraud. Contact us.