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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.


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