Economic Downturn Opens the Door for Employee Embezzlement

A recent ACFE report shows that the sluggish economy motivates more employees to commit occupational fraud.

In the current economic downturn, employees have seen a surge of incentives and opportunities to defraud their employers, and an increased number have reportedly yielded to temptation, according to the Association of Certified Fraud Examiners’ (ACFEs’) report, “Occupational Fraud: A Study of the Impact of an Economic Recession.” The report, which was based on a March 2009 survey of 507 U.S. certified fraud examiners (CFEs), shows that more than half of the CFEs indicated that the number of frauds has increased during the past year. Additionally, 49 percent observed an increase in the dollar amount lost to fraud during the same period.

Of the types of fraud mentioned in the report — employee embezzlement, frauds by unrelated third parties, frauds by vendors, financial statement fraud, and corruption — more than 48 percent of the CFEs surveyed indicated that employee embezzlement has been on the rise, making it the most commonly cited category. Furthermore, 70 percent of participants believe the incidence of employee theft will rise in the coming year as more and more employees struggle under mounting financial pressure.

To protect an organization’s assets from would-be fraudsters, management needs to make a comprehensive system of anti-fraud controls a top strategic priority, according to the ACFE. Although the economic downturn is affecting organizations’ bottom line, it has not stopped them from investing in preventive controls. For example, 59 percent of ACFE survey respondents indicated that their organizations have maintained their current level of spending. Another 17 percent have increased their spending on preventive controls, and 22 percent have increased their spending on detective controls.

“The Two-timing Traveler,” featured in the December 2005 issue of Internal Auditor magazine, offers a real-life example of employee embezzlement involving a geologist who double books air travel in an effort to cheat on his expense report.

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