Last week The Sheet took a look back at twelve cases of embezzlement in Inyo and Mono Counties which took place over the last 6 years along with one other—the worst case of embezzlement in Inyo County history—which took place almost 90 years ago in 1927—causing the collapse of the Inyo County Bank, bankrupted the entire county, and effectively destroyed the local resistance movement against the City of Los Angeles. This week James explains the motives behind embezzlement.
While the crime of embezzlement is neither new nor rare, it seems that in the past few years, at least to those living in the Eastern Sierra, that the area has had more its share of them. Interestingly, the crimes often share common traits according to studies going back decades by the people that study such things, i.e. criminologists.
In a study done by the Boston consulting firm Marquet International, the typical embezzler was someone in their late 40s with no prior criminal record. More often than not, the thief was a woman. One study found that women represented almost two-thirds of those charged with major embezzlement (over $100,000) during 2010.
What are the causes that lead someone to commit fraud in the workplace? There seem to be three major factors: pressure, opportunity and rationalization.
The criminologist Dr. Donald Cressey is considered the founder of the modern study of organized crime. He began asking the question and looking for the answers in his 1950 dissertation for his PhD in criminology. Fascinated by embezzlers, he wondered why most people that committed fraud were “good people” and not criminals. So what, he wondered, happens to them that turns them into criminals?
After interviewing hundreds of criminals that violated the trust of others, he published a research study titled, “People’s Money: A Study in Social Psychology of Embezzlement” in 1953, which established the model still used today to explain why people commit fraud in the workplace. His theory would become known as the Fraud Triangle. It established the three factors:
Pressure/Incentive—The embezzler has to be under some type of financial pressure or incentive. It could be gambling, a drug or shopping addiction, or simply having taken on too much debt. It could also be that they are living a lifestyle beyond their means and accumulating material goods that they cannot afford. And then there are the employees seeking payback or an employer is not treating them with respect or fairly.
Opportunity—The embezzler sees what they perceive to be an opportunity and one that they can exploit and keep secret. The key is to circumvent internal controls and develop a scheme to exploit them. Using others’ identities without their knowledge on Electronic Banking Cards was how one local county employee allegedly managed to steal up to $1.5 million. But the most common schemes involve creating false invoices or transaction, forgery or unauthorized issuance of company checks.
Rationalization—Cressey found that most people who commit fraud in the workplace have no criminal past and are first-time offenders. Despite stealing from their companies, they still believe themselves to be “honest and decent people,” i.e. “good people.” As part of their denial, they find ways to justify (rationalize) their crimes to themselves. Much like the French peasant Jean Valjean in Victor Hugo’s 1862 novel, “Les Misérables”, who stole a loaf of bread to save his sister’s starving child, embezzlers rationalize by telling themselves that they are stealing “to provide for their family.” Other justifications include that they are “underpaid for their work” and that they “deserve the money.” Almost all say that they “planned to pay it back” or that “everyone else at work steals things and no one seems to care, so why not me?” At least in the 19th Century novel, the “thief” Valjean would eventually redeem himself.
Studies have shown that women’s reasons for stealing are markedly different from those of men who embezzle.
The motivation for men who embezzle seems to be that they typically needed money as a result of individual problems brought on by their own behavior, often money spent on women, cars, and attempts to impress others. According to Cressey, here again, male subjects often rationalized their crimes by telling themselves that they “were only borrowing” the money. Women on the other hand were more likely to justify their conduct in terms of the needs of their children or spouse. One study in 2008 that focused on motivational differences between male and female embezzlers referred to this as the woman embezzler’s “appeal to higher loyalties,” specifically the needs of their families, to justify their behavior or they steal at the direct request or indirect pressure from a male partner, spouse or boyfriend in order to preserve that relationship. The men in these coercive relationships are almost never indicted; it is the woman that takes the fall.
Gambling plays a role in why people embezzle as does the “need to buy stuff.” In several of the local embezzlement cases, gambling has been cited as a factor…or at least the money ended up at the casino. Women buying stuff (a.k.a. “shopping addiction”) seems to be a way for some women to distract themselves from emotional or relationship problems or to please a partner or child.
What are some of the characteristics of an embezzler? Most likely female. They are typically thought to be loyal, long-term, trusted employees. They can, according to many authorities, skim extraordinary amounts of money from their employers’ coffers over time.
According to one expert, Dana Turner, a former cop who runs a research, consulting and training firm near San Antonio, “Women may do 80 percent of the crimes, but they only get about 20 percent of the money. Men do 20 percent of the crimes and get 80 percent of the money.”
“For men, it’s about power and sex. They steal for power, and they steal a lot.”
“Men,” Turner goes on to say, “use the money they embezzle to make themselves look good while women who embezzle use the money to make themselves feel good.”
Turner noted that women who embezzle are more likely to occupy mid-level management or accounting positions such as office managers and bookkeepers, while men are often at or near the top of the hierarchy of the company.
Another difference between men and women who embezzle is that women usually get fired, while men in higher level positions such as CEOs may have stolen millions, are less likely to be reported and charged with a crime. Some companies, fearing damage to their business reputation, make “arrangements” for the embezzler to leave. Most embezzlement is simply never discovered and but when it is, it often not prosecuted.
As much as three-quarters of all employee theft goes undetected.
Embezzlers, experts say, usually hide behind a smile, show a willingness to work long hours and a trust built up over years of employment. In his 2011 book titled “Biting the Hand That Feeds: The Employee Theft Epidemic,” author Terry Shulman wrote “If employees seem too good to be true, often they are, because often it is the star employee who is led out in handcuffs.”
What advice can business owners take in preventing employee theft? Experts say that it is crucial that business owners understand that the person who is in charge of the money has to have a check and balance not controlled by them and that sole control of cash flow and banking should never be in the hands of one person.
Experts also recommend bringing in someone to look for fraud at least once. And not just an accountant, but one trained as a forensic CPA that knows how to look for fraud. Several local embezzlement cases have taken several years to bring to court.
The Sheet spoke to local business owners who have experienced embezzlement by employees. Aside from the financial loss, the crime was personally devastating. The embezzlers were people that they had genuinely cared about and trusted; often a person that had been in their homes and was considered almost a member of the family. “It was incredibly painful,” said one business owner, “to have our trust betrayed.”
What do experts suggest a business owner do when fraud is discovered? Their advice is to “always prosecute embezzlers…and sue them” to put them under pressure to pay back the money they stole. Don’t let yourself feel “sorry.” Doing so only means that they will likely go on to their next job and steal from their next employer as well.
Another piece of advice is to report the stolen money, and the person who stole it, to the Internal Revenue Service on a 1099 form which is used to report income other than wages, salaries and tips. There is a high tax rate on stolen money and the IRS will relentlessly go after them until the debt is paid. Be relentless like the French police inspector Jovert in Les Misérables in chasing down Jean Valjean. After all, while it’s unlikely that the embezzler stole a loaf of bread from you, they did run off with your “dough.”
Finally, the Marquet International study mentioned earlier report that of 473 separate 2011 embezzlement cases involving sums of $100,000 or more found that the average loss per company was $750,000, and that the average embezzler swiped more than $15,000 a month from their employer for five years before being caught.
And that is a whole lot of dough!