Profile Of An Employee Thief.

employee theft

The vast majority of annual losses that result from criminal activity in business and government entities are not caused by shoplifters or burglars in the United States. It is employee-thieves disguised in many forms who commit their crimes, which are, unfortunately, often discovered long after their various schemes begin. (We recently worked a case involving a medical clinic with 120 employees, 27% of which possessed a significant criminal history.  The average for a company this size is 2- 3 %.  In next week’s Part II of this series on employee theft, we’ll go more in depth with the details of this particular entity’s setup, causal factors and how we resolved the issue.)

Their many schemes are identified as occupational fraud by the Association of Certified Fraud Examiners, or ACFE.

Based upon the Gross World Product, the ACFE estimates that global losses from fraud may be $3.5 trillion.  No entity is exempt and just about any employee can be engaged in some form of fraudulent activity and theft, be it office supplies, time, gasoline, telephone calls, cash, assets, food, liquor, artwork hanging on the walls, bed sheets, pillows and blankets, dishes, narcotics, credit cards, checks, information, and whatever else is available for the taking. They pad time sheets and expense reports, submit false medical claims, forge mortgage documents, submit phony bills to clients and customers, and just about anything else that you can imagine.

The businesses or entities most at risk

The businesses most at risk to internal fraud and theft, in the order of losses from highest to lowest, are banking and financial services, government, and public administration, and the manufacturing sectors. Small employers (fewer than 100 workers) are more commonly victimized than larger companies because they usually cannot afford strong anti-fraud measures. They’re also often not in a financial position to absorb losses and  keep their business going as a viable entity.

Shocking statistics about losses

Businesses, globally, experience losses of about 5% a year from schemes committed by employees. The average  loss was about $400,000, and in one-fifth of businesses that were surveyed in the ACFE study, the loss was at least $1,000,000. In the least costly forms of fraud, the cost to business was about $120,000.

In about 87% of the cases the assets was the leading cause of losses. While financial statement fraud accounted for only about eight percent of all cases, it had the highest median loss of about $1,000,000 per occurrence. Finally, corruption and various phony billing schemes made up about one third of all cases but more than fifty percent of the dollar losses, for an average of $250,000.

Many cases will never be discovered in time and therefore, the actual amount of the losses may never be known . In cases that are referred to law enforcement, 55% of the offenders plead guilty, 19% of prosecutions are declined, and 16% are convicted at trial.

Profile of an employee-thief

ACFE reports analyzed a number of factors to identify the thieving employee: gender, personal credit history, education, criminal history, employment history, job duties and responsibilities, lifestyles and other influences in the employee’s life and concluded that long-term employees are the most suspect because of their knowledge of the inner workings of the entity and understanding of the controls that they must circumvent.

As a general rule, occupational fraud is carried on by men and women who fit into the following profile:

  • College educated employees are most likely to steal, those with high school degrees are second, and those with either graduate degrees or some college are least likely to commit criminal thefts;
  • Most who engage in fraud are first time offenders within the criminal justice system. The vast majority (87%) have never been charged or convicted of a fraud related offense, and almost the same percentage (84%) have never been punished or terminated by an employer for fraudulent conduct. Only five percent had prior offenses or had been charged but not convicted;
  • Two-thirds of the crimes are committed by men 31 to 60 years old. The highest concentration is between the ages of 36 and 45;
  • More than 75% of frauds occur in six departments: accounting, operations, sales, executive upper management, customer service, and purchasing;
  • The more authority an employee has, the larger the losses will be, with a median value by owner/executives of $573,000;
  • Losses caused by managers averaged $180,000 and by employees, $60,000;
  • The longevity of employment is related to the amount of losses. This is because the longer a person is employed the more he or she is trusted and is subjected to less scrutiny; and they have a better understanding of the system. Consider Bernard Madoff and the number of years he was able to defraud investors;
  • Employees who commit fraud during their first year (fewer than 6%) will cause an average of $25,000 in losses. Almost half the losses (42%) are caused by employees who have worked from one to five years. Those that worked for the company more than ten years caused a median loss of $229,000.

Now that you understand the make-up of a company thief, next week we instruct on loss prevention.

BNI Operatives: Situationally aware.

As always, stay safe.

 

Can Someone Hack Your Passport? RFID Wallets and More.

scanner
As of now, most credit cards and debit cards issued within the past decade have RFID (Radio Frequency IDentification) technology embedded in them. All US passports issued since August, 2007 and later have RFID chips that track your data and photo. RFID chips are a convenient way to store and read data – instead of having to swipe your card through a reader, you can simply wave your card in front of an RFID scanner without even taking it out of your wallet.  Such comfort!

Unfortunately, RFID technology used to track sensitive data in many of today’s portable identifiers (e.g. cards) can be easily scanned without you ever knowing.

How can RFID-hacking occur and how to protect your RFID-chipped documents when traveling:

What is RFID technology?

RFID stands for Radio-Frequency IDentification. The acronym refers to small electronic devices that consist of a small chip and an antenna. 

The RFID device serves the same purpose as a bar code or a magnetic strip on the back of a credit card or ATM card; it provides a unique identifier for that object. And, just as a bar code or magnetic strip must be scanned to get the information, the RFID device must be scanned to retrieve the identifying information.

RFID Works Better Than Barcodes

A significant advantage of RFID over barcodes is that the RFID device does not need to be positioned precisely relative to the scanner. We’re all familiar with the difficulty that store checkout clerks sometimes have in ensuring that a barcode can be read. And obviously, credit cards and ATM cards must be swiped through a special reader.

In contrast, RFID devices will work within a few feet (up to 20 feet for high-frequency devices) of the scanner. For example, you could just put all of your groceries or purchases in a bag, and set the bag on the scanner. It would be able to query all of the RFID devices and total your purchase immediately.

 

It’s a scary thought to entertain and if it bothers you, keep reading to find out what you can do about it.

How can you stay safe against hacked RFID chips?

Unfortunately, the danger is that someone could build a counterfeit reader – which wouldn’t be too difficult for anyone who is experienced in that field – and pick up your RFID information without your consent or even knowledge. Counterfeit card readers existed before RFID, but you were required to physically swipe your card through a slot; counterfeit RFID readers can pull or delete data without so much as you walking by.

On the market now are RFID-blocking sleeves, pouches, wallets and other such personal item carriers. A proper RFID blocker will utilize something called a “Faraday cage” (a grounded metal screen surrounding a piece of equipment to exclude electrostatic and electromagnetic influences) and the specification you want to look for is “electromagnetically opaque”. These RFID blockers will prevent illegitimate reading of your RFID-embedded objects.

Not all RFID-blocking wallets are made equal; some are more effective than others. In addition, even the most effective RFID-blocking wallets can fail, whether due to wear and tear or user error. These products will help keep you safe, nonetheless, exercise caution and common sense when traveling.

 

At Corporate Travel Safety, you can purchase RFID-reader blocking items such as wallets, full-sized/mini document holders, ladies’ clutches and handbags, neck holders, inside front pocket sleeves, etc.  We’ve bought and used several of their products and have for years with no negative incidents to date.

neck pouch

BNI Operatives: Situationally Aware.

As always, stay safe.

Business & Employee Background Checks – Know Your Partners, Employees & Vendors.

fingerprints

If you run a business, you have lots of worries.  Aside from the normal concerns like competition, pricing, R&D/marketing, location and customer service,  security issues  have become increasingly important.   Instinct can only take a business owner so far in assessing the work relationships in which he becomes involved.   A businessperson can run up against:

  • Employees with compromised criminal/civil litigation histories
  • Prospective partners who are less than truthful about their business (and related personal – divorce, child support, etc.) histories
  • Theft
  • Fraud
  • Embezzlement
  • Scams
  • Unscrupulous suppliers/subcontractors

In looking at the statistics of employee theft alone:

“In a recent [2014] survey of small businesses, a University of Cincinnati criminal justice researcher has found that only 16 percent of those that have experienced theft by employees actually reported that theft to the police.

That’s even though 64 percent of the small businesses surveyed reported experiencing employee theft.”

Increasingly, security tech companies pitch IT monitoring systems and control to business owners as the most effective means of controlling today’s work environment as it relates to corporate crime.  Now let’s look at the reality:

detection

The vast majority of business thefts, embezzlements and frauds are uncovered by tips, audits and by accident. Accepting these statistics as fact borne over time, what does the employer do proactively and reactively with workplace crimes?

Employee Background Checks Provide the Answer

Certainly there are many free online tools of which prospective employers can avail themselves to research their employees backgrounds, but such a search should just be a cursory check, pre-hire. Working with an experienced investigator will yield formerly-hidden information as the professional background checker knows what to look for and where to look for it  – often in databases that are not easily available to the general public and through a process of key data analysis that can only be borne of experience, inclination and talent.

Here are the types of things a business owner can and should be looking into for the protection of his business:

Criminal Background Checks

Any time your business is dealing with someone you don’t know, you should run a quick check to see if they have any history of criminal activity. It’s very simple to find out about criminal records, FBI records, prison records and sex offender status.  There is access to their entire criminal history if there is one. With violence in the workplace such a major issue, a simple criminal check can be a very effective way to avoid problems before they happen.

Background Check for Employment (Pre-Employment Screening)

If you’ve got a small business, you should be pre-screening each person you consider hiring. No matter how professional, or how harmless, they appear.

A small print shop franchise in Florida hired an especially friendly fellow as their bookkeeper after the owner got too busy to handle it himself. The new employee didn’t offer much in the way of references but he sounded like he knew what he was doing and – big plus – he agreed to work cheap. The owner figured he would save money hiring the guy. He figured wrong.

The bookkeeper drained more than a hundred thousand dollars out of the company before they found him out. Turned out he’d previously been charged with embezzlement.  This is something a criminal background check would have quickly turned up. (Tip: Your investigator should know the positions sought by would-be new hires.  If a crime is directly related to the employee’s duties, [e.g., previous theft charges/accounts payable job], that history would certainly be a direct factor in the hiring decision.)

Background Check Existing Employees – Make it a Condition of Employment

You shouldn’t check only new hires. Over time, employees can develop habits and get involved in activities you’d never suspect. So you should regularly check on existing employees. Note: this is something you should get legal advice for – but generally if it’s a condition of employment and you let them know in writing, it’s not invading privacy. You entrust employees with company funds or materials that can be stolen, or negotiating and purchasing power that can be abused. Keeping an eye on existing employees is just being prudent.

Run a Background Check on Each Company or Individual You Do Business With

You should investigate every supplier or contractor who serves your business. If the possibility of harm exists, then you need to know if someone you’re in business with is likely to harm you. You can check credit, check backgrounds of the owners and managers, check the company itself for any past criminal or questionable activity.

Run a Background Check on Each Partner With Which You Intend Do Business.

Here at BNI we’ve worked with numerous matters involving prospective and current business partners.  Our clients come to a realization during our investigations that either the partner is upstanding or s/he is seeking a working relationship that is covertly dishonest due to personal and professional issues, (i.e., expensive divorces, costly child support litigation, past debt, etc.)  Especially those who are very close to your business  – your means of support –  should be thoroughly vetted and, moreso after the partnership is active and red flags begin to appear.  Our intent and focus during partnership investigations are on collecting information that can be used in potential criminal and civil litigation.

I’m not relating anything in this post that you, as the business owner, have not already considered or experienced but I’ll add the important point that with today’s tech tools, conducting this type of business due diligence is cost-effective and results-effective and is easily set up on an as-needed scheduling basis.

Given the increasing transiency and mobility of our work relationships, it is smart to proactively protect your business, rather than the latter, often very expensive clean-up required in the aftermath of personnel failure.

BNI Operatives: Situationally aware.

As always, be safe.