Spotlight on Employee Theft
Fraud costs the typical organization about 5 percent in revenue each year, and the median loss from employee theft overall is about $280,000. That amount is roughly equivalent to what a small company (less than 500 employees) earns in net profit.
“For these smaller employers, [employee theft] has the potential to knock them out,” said Doug Karpp, senior vice president and national underwriting leader, crime and fidelity, at Hiscox.
And smaller employers are the most likely targets, according to a report recently released by the specialty insurer, “A Snapshot of Employee Theft in the U.S.”
An analysis of federal actions involving employee theft in 2014 showed that 72 percent of cases occurred at companies with fewer than 500 employees. Within that subset, 80 percent of incidents occurred at organizations with fewer than 100 employees, and more than half of those had fewer than 25 on staff.
“Smaller companies just don’t have the resources to have robust internal controls,” Karpp said. “They run lean. Losses tend to be more devastating to them.”
Fifty-eight percent of the cases surveyed for this report recovered none of their losses.
That finding isn’t surprising, but even larger entities with more protections in place are not immune. The financial services sector, for example, constituted 21 percent of employee theft incidences. The second-most targeted industry was real estate and construction at 13 percent.
Despite reporting the largest share of employee thefts, however, the median loss for financial services institutions was less than the overall median at $271,000.
“The financial services sector has more resources to detect and deter fraud,” Karpp said.
While the retail industry suffered only 5 percent of total fraud cases, it sustained the highest median loss of $606,012. That may partially be due to “idiosyncrasies with the way the study was done,” Karpp said.
Federal Court Cases Studied
The report examined only federal court cases, and retailers may very likely encounter many smaller thefts — especially outright theft of funds — that are handled at a local level and thus would not be counted in this study. Those that do get federal attention are more likely to be very large, more complicated losses.
The most common types of theft were outright funds theft (38 percent of losses) and check fraud (34 percent) — when a fraudster alters, forges or makes checks payable to himself.
Or rather, herself. Women were the perpetrators in more than 60 percent of cases, especially outright funds theft and payroll fraud. However, the median loss from schemes carried out by women was about $243,447 — 30 percent less than their male counterparts, who typically committed vendor fraud. Hiscox’s report defines vendor fraud as “a perpetrator diverting employer funds through the creation and submission of false invoices issued by fictitious companies.”
The typical thief was also around 50 years of age and worked in a senior level position in an accounting or finance role, typically with a long tenure.
Many employers miss signs of fraud because they believe their employees to be content in their jobs and generally trustworthy. In fact, according to Karpp, upticks in fraud — or at least its discovery — tend to happen during poor economic times, which may drive employees to divert extra funds to themselves, and also motivate employers to look more closely at their accounting processes
“One goal of the report is to raise awareness of fraud prevention techniques” during good times and bad, Karpp said, explaining that even companies with tight margins can adopt simple practices to mitigate the risk of employee theft.
Best practices include keeping certain tasks separate, such as record-keeping, issuing checks and reconciling bank accounts; no individual employee should be in charge of an accounting process from start to finish. Any checks written or wire transfers should receive approval from two senior managers or executives before completed.
Small business owners can also have all statements sent to their homes to be personally reviewed before any accounts are reconciled.
Many companies also wrongfully assume that traditional business and property policies cover internal theft. Fifty-eight percent of the cases surveyed for this report recovered none of their losses.
Having a crime policy in place that includes coverage for losses caused by through cyber deception, social engineering, vendor theft, funds transfer fraud, computer fraud, telephone toll fraud and other types of theft is the best way to ensure that road to recovery exists.
Report Addresses Overlapping Injury Vulnerabilities
Hispanic immigrants accounted for about 20 percent of the construction workforce in the U.S. during 2013.
They were the “only racial/ethnic group with an increase in the number of workplace fatalities,” according to a new report by the American Association of Safety Engineers (ASSE) and the National Institute for Occupational Safety and Health (NIOSH).
As the number of immigrant workers in the construction industry grows, so does the number of occupational injuries, primarily among those under 25 years old.
Why is this group facing higher rates of injury? Why hasn’t their exposure been mitigated?
A joint presentation by ASSE and NIOSH identified a key roadblock in designing and implementing safety interventions for the particular group of at-risk workers. Namely, lack of data that explores overlap of high-risk populations.
In its report “Overlapping Vulnerabilities: the Occupational Health and Safety of Young Immigrant Workers in Small Construction Firms,” ASSE and NIOSH analyzed the risk factors that place young Hispanic workers (under age 25) employed by small construction firms at increased risk.
Each of these groups – young workers, immigrant workers, and workers in small businesses – face increased risk for work-related injury and illness, but the Bureau of Labor Statistics does not collect specific data on the number of workers that fall into multiple buckets.
ASSE and NIOSH sought to create a conceptual model for examining areas of overlap, but pointed out that there is “nothing magic” about the groups chosen as a focus in this report. They plan to conduct further research addressing other at-risk groups in different industries.
“Data is not collected on these vulnerable populations in a way we think they should be,” said Christine Branche, the principal associate director of NIOSH and director of the Office of Construction Safety and Health. “This report invites organizations to work together in ways we haven’t before.” She and ASSE president Patricia Ennis presented the report at The National Press Club in Washington, D.C. on May 6. They highlighted the need for partnerships between ASSE and NIOSH, employers (especially small businesses) and other safety organizations.
Many small business owners simply don’t know what laws apply to them, or how to comply within their limited means and resources.
Construction is inherently a high-risk industry, which claims more workplace fatalities than any other, accounting for 8.8 percent of workplace illness and injury among 16- to 24-year-olds in 2013. Young workers in particular lack experience on the job, and often hesitate to ask for help due to a desire to prove themselves. Add to that the language and cultural barriers between Hispanic workers and their English-speaking supervisors, and lack of safety training and resources chronically characteristic of small firms, and you get a perfect storm of safety risks.
The report includes some suggested interventions for reaching this subset of at-risk workers. NIOSH, for example, partnered with the Mexican government to “identify and address occupational health inequities among immigrant workers.” This includes greater outreach efforts in the U.S. to link the workers to health promotion resources and legal services.
Other efforts target small businesses through intermediary organizations like trade associations, chambers of commerce and unions. These organizations can better connect small businesses with the resources they need to become educated about OSH requirements and strategies to implement interventions. Many small business owners simply don’t know what laws apply to them, or how to comply within their limited means and resources. More importantly, they don’t know what resources are available to them to help navigate those issues.
The Labor and Occupational Health Program at the University of California, Berkeley, for example, developed a model training program that teaches small business owners how to develop and implement their own injury and illness prevention programs, according to the report. Some techniques to incorporate include more directed training like simulations and storytelling techniques, ASSE president Patricia Ennis said during the presentation. These can help to overcome language barriers and more clearly demonstrate key technical skills, which are critical in dangerous construction jobs.
Safety certification programs for vulnerable workers can also be touted as a competitive advantage, since many larger employers require a certain level of safety training as a condition of employment. If smaller employers adopt this tactic, it can be an incentive for workers to receive training before they even show up to work.
Ultimately, any development of targeted interventions depends on the collection of the appropriate data. ASSE and NIOSH conclude their report by emphasizing the need to analyze existing data to identify overlapping at-risk groups, as well as to add data fields to make sure those subsets are captured more clearly.
Both NIOSH’s Branche and ASSE’s Ennis stressed that the key to improving safety programs and culture comes down to collaboration and communication between employers and safety organizations so that data can be turned into action.
An Overlooked Risk?
The 2012 National Survey on Drug Use and Health, conducted by the Substance Abuse and Mental Health Services Administration (SAMHSA), found the rate of binge drinking among people ages 65 and older was 8.2 percent, the rate of heavy drinking was 2 percent, and the rate of current illicit drug use among adults ages 50 to 64 has increased during the past decade.
“According to SAMHSA experts the baby boomer generation contains a higher percentage of illicit drugs users than any other age group because boomers were the first generation to participate in widespread use of a variety of recreational drugs, the first generation to have prescription medications readily available to them, and the last generation to grow up with a strong stigma against seeking substance abuse treatment,” said Kevin Glennon, vice president, clinical education and quality assurance, One Call Care Management.
Baby boomers’ formative years played out during a period of broad experimentation with and acceptance of illicit drugs.
Now they’re entering a phase of life where any children they have are likely grown and independent and retirement is on the horizon, which could translate to fewer responsibilities both at home and at work.
That freedom may make it easier for boomers to pick up old habits, only this time with prescription medications.
The national drug use survey estimates that the number of adults age 50 and older who will need alcohol or drug treatment will increase from 2.8 million in 2002-2006, to 5.7 million by 2020.
Currently, 4 million older adults need substance use treatment, including 0.4 million for illicit drugs, 3.2 million for alcohol, and 0.4 million needing treatment for both.
“Today, many boomers are turning to prescription opioids as their drug of choice. Baby boomers do not view this as an issue requiring intervention, and as such are extremely guarded when treatment options are discussed,” Glennon said.
Employers and workers’ comp payers should not overlook these factors if they have an older worker on prescribed painkillers for a work-related injury or illness.
“After a certain period of time the patient will begin to develop a resistance to [the opioid] and it stops controlling the pain effectively,” said Bill Spiers, vice president of risk control services, Lockton.
“Because the healing time is slower, just by nature of the effects of aging on the body — they regenerate tissues slower — it extends that period of time. So what ends up happening is the person — and this happens typically with soft tissue injuries — will experience slower pain improvement, and so the medical professional will look for solutions.”
Pharmacy benefit management is one go-to way to keep an eye out for red flags and monitor physician prescribing patterns, but employers can take a more proactive approach by setting up a workplace support system.
One factor that can contribute to an older worker’s propensity to abuse a substance is the psychological component. Some boomers certainly look forward to retirement with excitement, but others fear losing a sense of purpose or relevance. That disconnectedness lends itself to loneliness and depression, both of which can contribute to the development of an addiction.
“Today, many boomers are turning to prescription opioids as their drug of choice. Baby boomers do not view this as an issue requiring intervention, and as such are extremely guarded when treatment options are discussed,” — Kevin Glennon, vice president, clinical education and quality assurance, One Call Care Management
“There are two reasons why injured workers have problems with their claim; when they get injured, they’re either angry or afraid. And those cause workers to shut down and not want to get treatment or cooperate,” Spiers said. Lockton trains ‘injury counselors’ to work one-on-one with patients, providing the type of support that the workers might be lacking from their own social network.
“The injury counselor tries to develop a friendship so they stay in touch. Not everyone has strong family or social ties around them, so they need someone that follows up with them and stays on top of them,” Spiers said.
“Things like depression can exacerbate that claim, one technique that employers use to keep that person motivated to work though their pain is to keep them engaged in the workplace, which they do through close communication.”
Employers can also make extra efforts to keep injured workers — especially those nearing retirement age — engaged in activities both in and outside of the workplace through wellness initiatives. Encouraging exercise can help an injured worker grown stronger both physically and mentally, Spiers said.
Providing a support network and establishing a channel of communication may in fact be the best that employers can do, since a red flag isn’t raised on every case where a medication is abused.
“Addiction or abuse, regardless of the drug of choice is often very hard to detect,” Glennon said. “There are functional alcoholics that work and function with no signs of intoxication, the same holds true with prescription drug use or abuse.”