As Financial Scandals Proliferate, More Colleges Offer Forensic Accounting Courses

The prevalence of massive corporate financial scandals and white-collar crimes such as embezzlement in recent years has increased demand for forensic accountants. Colleges are meeting the demand by starting up courses of study that provide students with a degree or certificate in forensic accounting.

One such institution is Middlesex County College in New Jersey, which began offering a certificate program in forensic accounting this fall.  Richard Ellison, chair of the Department of Accounting and Legal Studies at the county college, described forensic accounting as part accounting and part "detective work" that requires a combination of auditing and investigative skills.

Middlesex's program is patterned on the Forensic Accounting and Fraud Investigation program offered at West Virginia University. WVU's program is among the most highly regarded in the nation.

Utica College in central New York offers a program in Economic Crime Investigation.

Restitution Often Wanting in Embezzlement Cases

Laws were enacted 10 years ago that require white-collar criminals convicted in federal courts to pay everything back, whether they have the money or not. Despite the laws, the money is typically gone by the time authorities catch on. The situation is even more grim in cases tried in state court where restitution is typically not mandatory.

A random study of $47 million embezzled or stolen since 1996 by 100 St. Louis area white-collar defendants by the Post-Dispatch found that about $5 million has been paid back. Most of that was paid back by defendants charged in federal courts, a total of about 12 percent of what they were accused of stealing.

The disparity between federal and state collection in embezzlement cases is attributed to factor such as lighter caseloads of federal prosecutors and more effective tools for coercing payments.

See the full story here.

Gambling Addictions Can Lead To Embezzlement

The accounting firm of RosenfarbWinters has another interesting article in its monthly "It's All About Money" email newsletter (courtesy of CBS) on how gambling addictions can lead to employee embezzlement. See the full article here.

Gambling Addictions Can Lead To Embezzlement

A CBS affiliate in Minnesota recently reported on several charges or convictions involving defendants who embezzled to support gambling addictions. See the story here.

Embezzlement at Small Firms on the Rise

According to a recent article in the Jackson Hole Star Tribune, bankers, financial consultants and assistant district attorneys agree that internal employee theft or embezzlement is an increasingly frequent and costly problem facing today's small-business community.

Employees helping themselves to company funds cost U.S. businesses about $660 billion annually, according to a recent report from the Association of Certified Fraud Examiners. The report also revealed that more than 46 percent of all workplace fraud happens to small businesses with fewer than 100 employees.

The U.S. Department of Justice estimates that employee theft is growing by as much as 15 percent each year. According to an Auditors Inc. survey of 1,000 certified public accountants, as many as 40 percent of small-business owners are embezzlement victims.

One-third of all business bankruptcies are due to employee theft, according to the U.S. Chamber of Commerce.

At least 20 percent of all business failures are the direct result of employee theft, according to the American Management Association.

The average business loses 6 percent of its annual revenue to fraud and abuses by employees, according to the management association.

The reason why small businesses are so vulnerable is that many don't have adequate internal controls. As one banker relates, "some of these owners don't even look at their bank statements." A typical recent case is a busy Washington, D.C., dentist who gave his new bookkeeper control of his books. He trusted her so much that he never watched his money or looked over his financial statements. Eventually she swindled at least $130,000 from the business within two years.

See the full article on embezzlement trends in the Jackson Hole Star Tribune here.

Solutions to Reduce Embezzlement Spree in Utah

This article, which focuses on the rise of embezzlement crimes in Utah, offers some interesting thoughts on reducing the incidence of such crimes, including legislation establishing an embezzlement statute.

National White Collar Crime Center Stats

FYI, see here (PDF) for statistics from the National White Collar Crime Center on trends in arrests, sentencing, recidivism, and fines/penalties for embezzlement, fraud, forgery and other white collar crimes involving money between 1990 and 2000.

Among other things, the statistics show a sharp increase in the number of arrests for embezzlement between 1990 and 2000. Some have suggested that the greater reliance of businesses on computerized accounting systems makes embezzlement easier. Others believe that the sharper public focus on white collar crime is increasing the willingness of business owners to report embezzlers to the police.

Article Explores Embezzlement Trends and Statistics

A well-written article recently appearing in the online version of The Post and Courier of Charleston, South Carolina provides an excellent overview of embezzlement trends and statistics. The article also attempts to explain why embezzlement cases are skyrocketing and offers strategies to deter and catch embezzlers.

The article first notes that embezzlement cases have surged in recent years. For example, in 1994, 38 people were charged with embezzlement in South Carolina. By 2003, that number had climbed to 442. Nationally, embezzlement cases increased by 39 percent between 1990 and 2000, according to U.S. Department of Justice statistics.

According to the article, small businesses and nonprofits are hit the hardest. Almost half of all fraud occurs at organizations with fewer than 100 employees, according to a 2004 report by the Association of Certified Fraud Examiners.

Another interesting statistic: only a very small percentage of embezzlers are hardened criminals. In 20 years of investigating white-collar crime as a forensic accountant at Charleston-based Pratt-Thomas Gumb & Co. P.A., Ron Strickland came across only one individual who intended to steal when he took the job, and that person's theft was paying his restitution in another state.

About half of those who commit fraud earn less than $50,000 a year, and most have worked for the victim organization at least five years, according to the Association of Certified Fraud Examiners. Almost half of them are women.

The article offers these tips from experts to deter embezzlement:

  • Require two signatures on each check.
  • Make sure the employee who writes or deposits checks does not balance the bank statements.
  • Review bank statements, in particular checks issued.
  • Be familiar with the company's suppliers.
  • Require employees to take a one- week vacation every year.
  • Set a good example and stress business ethics.

Here are some red flags identified by experts that could signal embezzlement:

  • Unusual drop in profit
  • Disorganized records
  • Missing documents
  • Duplicate payments
  • An employee rewriting records for the sake of "neatness"
  • An employee refusing to take vacations and working excessive overtime
  • An employee refusing a promotion

Read the full article here (note: registration may be required).

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