Montana’s businesses, nonprofits, government entities and other organizations had the fourth-highest risk in the nation for suffering major losses due to embezzlement in 2013, according to a newly released annual study.
Vermont topped the list, announced by Marquet International, an independent investigative, litigation support and security consulting firm based in Massachusetts that has compiled the study of major embezzlement cases in the United States for six years now.
Vermont and Montana – along with Florida, Missouri and Virginia – have been the five states most frequently named as being at the highest risk for major embezzlement cases during those six years.
“Vermont and Montana are similar in two respects, although they’re vastly different in geographical size,” Christopher Marquet, founder and CEO of Marquet International, said Wednesday in a telephone interview.
“Both are sparsely populated,” he explained, “and both have a preponderance of small businesses. By definition, smaller businesses are at higher risk for being embezzled from because their financial controls may not be as robust as larger businesses, and they often rely on a single person to handle the books. These people have often been with the business for years and years, and they are trusted implicitly.”
Beyond that, “it’s unclear why some states are more victimized than others,” Marquet said, “because the states at highest risk do not always have small populations.”
The 2013 study looked at the 554 active cases nationwide where monies in the $100,000 range or higher were embezzled by employees. The total amount stolen in major embezzlement cases was more than $3.5 million in Montana, and more than half a billion dollars nationally.
Included were seven cases in Montana. Marquet said they ranged from a $1.7 million case involving federal funds meant for a children’s mental health system on the Blackfeet Indian Reservation, to $90,000 stolen from the Flathead County Sheriff’s Office Employees Association by a former civilian employee of the sheriff’s office who served as the association’s treasurer.
“We look at the characteristics of the schemes, how they were perpetrated and the duration of time where money was embezzled,” Marquet said. “What position did the person hold? Was it a conspiracy, or a single individual? We look at the ages and genders of the perpetrators, and whether they had prior criminal histories. We look at motivating factors whenever possible.”
The results, said Marquet – whose annual study, available for free, is used by insurance companies, forensic accountants, government agencies, lawyers, bankers and others – are “fascinating.”
Among other things, the 2013 study found:
• More than two-thirds of the embezzlement cases – 71 percent – were committed by employees who held finance, bookkeeping and accounting positions.
• Nearly three-fifths of the major embezzlements involved women, but when men were involved, on average they stole 2 1/2 times more than did female perpetrators.
• Most embezzlers were driven by a desire to lead a more lavish lifestyle, rather than being driven by financial woes.
• The most common embezzlement scheme involved the issuance of forged or unauthorized company checks.
• The average scheme lasted 4.6 years before being discovered.
• Almost one-quarter of the cases involved people who reportedly had gambling issues.
• The average embezzler in the 2013 study stole more than $19,000 a month.
• The financial services industry suffered the greatest number of cases and the greatest losses, and credit unions continued to be a major target/victim. “It’s always No. 1,” Marquet said of financial services. “That’s where the money is.” Government entities were the second-most frequent victim.
• 81 percent of the cases involved people acting alone.
• Those in the 40-49 age-range were the most frequent culprits.
• The average loss in 2013 was approximately $1.1 million, and the median loss was $325,000.
• The average prison sentence for people convicted of major embezzlement crimes in 2013 was three years, 10 months.
Marquet said embezzlement involves what’s known as the “fraud triangle,” where the three common elements present are opportunity, pressure and rationalization.
“Opportunity is exactly what it says – it’s usually a single person with financial responsibility in a situation with a weaker control structure,” he said.
Pressure is whatever the person’s driving force is to steal from whoever signs their paychecks.
“It could be a gambling problem, it could be a financial problem, it could involve substance abuse,” Marquet explained. “It may be a desire to lead a better lifestyle, revenge could be a motive, it could involve an actual need.”
Most embezzlers see an opportunity to steal, start out taking small amounts, and may even intend to pay the money back, Marquet said.
“But they don’t,” he said. “They see it’s easy and keep doing it. After five, six, seven years they become accustomed to the lifestyle.”
Their rationalizations can be many, he added. “They’ll say, ‘Oh, I’ll pay it back,’ or, ‘Oh, I deserve it because I didn’t get a raise’ or ‘I got passed over for a promotion,’ or, ‘Oh, my kids need something.’ ”
How did Marquet determine his 2013 rankings?
He uses a formula he has trademarked called the Embezzlement Propensity Factor.
Marquet said it stands to reason that states with the most economic activity and highest populations should have more cases of embezzlement than states with fewer people and less economic activity.
His formula includes dividing the percent state share of embezzlement losses to overall U.S. losses by the percent state share of the total U.S. Gross Domestic Product, and adding the percent state share of cases to the overall number of U.S. cases divided by the percent state share of population to the total U.S. population.
If everything was equal, Marquet said, every state would come out with an Embezzlement Propensity Factor of 1.00.
But all things aren’t equal. In 2013, Vermont had an EPF of 4.25, highest in the nation. Montana’s EPF was 3.13, which put it behind the District of Columbia (3.83) and West Virginia (3.27).
States at the lowest risk for embezzlement in 2013 were Hawaii, Washington, Arizona and Iowa.