Despite 64% of small US businesses experiencing theft by employees, only 16% of them ever reported this crime to the police, according to an interesting study by the University of Cincinnati.
This is surprising when you consider the potentially serious consequences of these thefts - one third of bankruptcies amongst small businesses are apparently the result of employee theft, according to figures from the United States Chamber of Commerce.
In the study, University of Cincinnati criminal justice researcher Jay Kennedy found that cash was the item most commonly stolen by staff, with amounts ranging from $5 to $2 million, with an average amount of $20,000. Most of the thefts (61%) were committed over a period of time rather than in one incident, with an average duration of 16 months before the staff member concerned was caught.
Lack of action by employers
When Kennedy investigated why the reporting rate of these crimes was so low, he found four main reasons why businesses owners did not go to the police:
- The crime was not seen as serious enough to be worth doing any more than firing the employee.
- Being advised that the time and effort involved in securing a successful prosecution would outweigh any benefits the business owner would gain.
- Emotional obstacles – many of the guilty employees were long-serving members of staff or even family members.
- US business owners see the police/criminal justice system as ineffective.
UK companies continue to be targeted
Although interesting, the experiences reported in this study are by no means a uniquely American phenomenon.
In its latest Global Economic Crime Survey, PwC found that UK companies are continuing to be victims of economic crime, with employee theft being a particular problem. The survey defines economic crime as “the intentional use of deceit to deprive another of money, property or legal right”.
It found that there has been a rise in the number of frauds committed by employees, from 34% in 2011 to 41% in 2013.
The survey also found changes in the profile of the average employee who commits such a fraud. Staff at middle-management level used to be the most common culprits, but now economic crimes are most likely to be committed by employees at a junior level, who usually have a length of service of less than five years.
Frauds become more high-tech
According to PwC, there has been a drop in UK businesses reporting suffering economic crime - down from 51% in 2011 to 44% in 2013. However, this is still higher than the global average of 37%.
It also appears that the nature of economic crime is changing, with a move away from accounting fraud to more high-tech methods.
No matter how the frauds are committed, the financial cost to business continues to be high, with 52% of survey respondents reporting that the financial impact of economic crime had increased over the past two years, compared to just 42% globally. However, there were less high-value financial losses in the UK than were recorded globally, with only 15% suffering losses over $1 million, compared to 20% worldwide.
Impact of the Bribery Act
The survey also comments on the impact made by the Bribery Act on tackling economic crime, highlighting the fact that 87% of British organisations have now changed their policies and procedures, and 37% have conducted a major overhaul of their anti-bribery policies.
“With little or no growth in the UK in the last few years, many British companies have looked overseas, to some high-risk markets. But they need to be on the alert for the potential bribery risks they may face when operating in these markets,” commented Ian Elliott, PwC Forensic Services partner.
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This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.
