2013 was a “gangbuster” year in the world of embezzlement, and a particularly rough year for credit unions in Vermont, the most likely in the nation to fall victim to internal fraud.
That’s according to the “2013 Marquet Report on Embezzlement,” which identified Vermont as having the highest propensity for embezzlement that year and affirmed financial services companies – credit unions in particular – as highly likely victims, both in terms of frequency and highest losses. Overall, the firm found a 5 percent uptick in employee theft cases during the year 2013.
Financial services companies accounted for a little more than 21 percent, or 117, of the cases Christopher Marquet studied for this most recent report. Losses in that field grossed $264.3 million and averaged $2.25 million per instance. For context, government entities followed at 12.5 percent and nonprofits clocked in at third place, accounting for almost 8 percent.
“I postulate that in the down economies, people are always pinching pennies and looking for ways to be more streamlined, so it’s sort of a natural inclination of stakeholders to be more attentive to the finances,” said Chris Marquet, CEO of Marquet International. “Whereas in boom times, everyone’s fat and happy. They’re still paying attention, but maybe stakeholders aren’t quite as worried about it.”
Based out of Wellesley and New York, Marquet has been producing the report for six years, and he gathers his data from the public record, i.e. prosecutions and civil suits.
But first, the embezzler must be found out. Over the life of the report, Marquet has found the average embezzlement scheme lasts for 4.7 years. A crook who started filching from the company till when the most recent recession began, for instance, should be nabbed any day now. And Marquet thinks that in a down economy, stakeholders could be extra-vigilant about every line item and receipt.
Some characteristics are common across the years. For instance, women tend to embezzle more frequently, but men steal more. In 2013, women committed 57 percent of the embezzlement cases Marquet studied, but the average loss for lady larcenists clocked in around $644,524, whereas men averaged $1.6 million per thievery.
A desire to support a lavish lifestyle (57.5 percent) and gambling addiction (29.1 percent) were the most common motives. True need accounted for just 2.5 percent of cases.
Embezzlement The Old-Fashioned Way
2013 saw 16 major (defined as a theft of over $100,000) embezzlements involving credit unions, consistent with 17 in 2012, and up from years past.
It’s not just Marquet’s report that’s pointed to a potential fraud problem at credit unions: Earlier this year, Rick Metsger, vice chairman of the National Credit Union Administration board, stressed internal fraud as a major industry issue and said that losses from internal fraud totaled $28.6 million out of the total $30.4 million losses to the Share Insurance Fund by Sept. 30, 2014.
Skeptics, however, have pointed out that that amounts to less than 1 percent of the $11.7 billion the Share Insurance Fund totaled at that time.
It’s not that credit union people are more likely to embezzle, Marquet says; the Achilles’ heel for many is their small size and relative fewer oversights in some cases.
“A branch manager at any large institution could still potentially circumvent the controls if they’ve got enough wherewithal and colluding parties,” he said. “Of course, a bank is where the money is.”
But for all the grand and high-tech trickery a potential thief may have at hand, good, old-fashioned forgery or unauthorized checks accounted for 35 percent of all the pilferage Marquet has studied over six years. By contrast, theft of cash receipts and bogus electronic transfers accounted for 21 and 12 percent, respectively. Vendor fraud accounted for 7 percent (and men are five times more likely to commit this type of fraud).
“It’s hard to stop somebody taking money out of petty cash or out of the till, but what you want to stop is somebody making phony loans and stealing from client accounts,” Marquet said.
But while financial institutions might not be able to stop the initial theft (or attempt at theft), they are not powerless to tamp down fraud, and trade groups like the Cooperative Credit Union Association offer their members resources ranging from training to best practices for vendor due diligence.
“I think the lesson is, making sure that the controls and oversight are robust enough and you’re proactive in the oversight in doing random audits and all the usual controls that make sense – segregating duties, switching up positions, moving people around and having double or triple oversight,” Marquet said. “But even with the best controls, once you have collusion or conspiracy case, it’s hard to catch that in the first instance.”
