At times, even good employees may have a tendency to steal. But what can possibly motivate an honest person to make a bad decision?
Employee theft is wrong. It is a criminal offense. There is no valid excuse for stealing. And if you do steal from your employer, you should be terminated. With that said, in our experience we have heard many excuses. People usually steal because they have an economic need which we commonly refer to as a red flag. Knowing as much as you can about your employees is extremely valuable in corporate fraud prevention.
Over the years we have investigated hundreds of employee embezzlement cases for attorneys, on behalf of their clients, and every one of them has their unique attributes. However, there are some common threads. First, they were a trusted employee. Second, they had a rationalized reason to steal. Third, they had the opportunity. Finally, and most important, they were smart enough to exploit deficient company internal controls. But why? Below I have categorized embezzlers’ rationalizations into five unique categories: Affluenza Embezzlers, Common Man Theft Syndrome, Addicts, Greed, and Outright Thieves.
The most common employee theft rationalization is the desire to live beyond their current economic means. I call these “Affluenza Embezzlers.” The embezzler wants more than they can afford. Simply, they want to be affluent. In an extreme example, they want to experience the lifestyle of a Kardashian (pick any one). Think designer clothes and jewelry, expensive autos, lavish homes and equally expensive home furnishings, world class entertainment, and of course the need to see the world via exquisite vacations–these are common attributes. The largest dollar volume embezzlers fall into this category and are usually the stories that you will see on television or in news stories.
On the other hand, many embezzlers fall into what I’ll refer to as “Common Man Theft Syndrome”. These are good people who have a basic need that they cannot economically meet. In these cases, they may be facing an economic hardship as a result of a divorce, death of a spouse, home foreclosure, a spouse who has lost their job, mounting credit card debt, filing of bankruptcy, the costs associated with taking care of elderly parents, car repairs, unusual family medical bills, children’s braces, investment losses, a spouse’s failing business, or trying to meet the academic needs of children. While employers can be sympathetic, theft is theft regardless of the heart-tugging explanation.
Another category would be “Addicts”. These employees experience some sort of an addiction whether it is drugs, alcohol, sex, pornography, gambling, or even food or shopping. They have an impulse (requiring money) that they cannot fiscally meet.
Some people are just motivated by greed. “Greed” is a very powerful financial crime motivator. They want what others have. And in some instances, they want it all much like the Grinch in the television classic, “How the Grinch Stole Christmas.” In some rare cases of uncontrollable greed, they will attempt to take every last company morsel!
Finally, a small minority of people are “Outright Thieves” that you should never have hired in a trusted position (especially accounting or finance) in the first place. Had you performed a reasonable background check, these individuals’ past criminal convictions would have been identified. Of all of the buckets identified above, this one, if missed, is solely on the employer for not doing their personal due diligence.
Keep in mind that just because an employee demonstrates a red flag does not mean that they are an embezzlement risk. Many employees can face a multitude of financial challenges and do not steal. Many would never think of stealing no matter what the economic hardship.
Being informed about your employees may tell you that they have an economic need. And that economic need may be a motivating pressure with which they are internally struggling.
As I share with my presentation attendees, do not discount the intelligence learned about your employees. It’s valuable. Bank it in your mind and in the long run your increased awareness, fraud prevention efforts and sound internal controls will likely allow you company to retain more of your hard-earned profits.
Frank A. Suponcic, CPA, CFE, CFF is a Partner in Skoda Minotti’s Litigation Support Advisory Group where he regularly assists clients with fraud assessments, forensic investigations, economic damage claims, commercial disputes, divorce, and labor relations. In addition, he frequently represents privately held business, not-for-profit entities and individuals in an array of financial statement and income tax preparation and planning matters.
He can be reached at (440) 449-6800 or via email at firstname.lastname@example.org.