Pub. 7 2017-2018 Issue 5

12 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S Inside Job Internal Controls Are Key To Curtailing Employee Embezzlement BY RICHARD STRYNADKA, INSURANCE BROKER, BANKERS INSURANCE AGENCY E arly this year, a 42-year-old teller supervisor at a Texas bank entered a guilty plea to falsifying bank records in order to conceal the theft of $1.25 million in bank funds. The woman stole an average of $10,000 per month between June 2004 and June 2014. The scheme was only uncovered after another bank ac- quired the branch and regulators audited the branch’s books. How could a crime involving more than a million dollars go undetected for 10 years? Her duties included verifying the amount of U.S. currency maintained by the bank in its various “cash vaults” and then entering those amounts at the end of each day into the bank’s general ledger. According to prosecutors, she systematically falsified entries, stealing small denominations every day. Although the amounts vary and the reasons for stealing are diverse, employee embezzlement in the banking industry is not unusual. According to a recent employee embezzlement study by Hiscox, a global specialist insurer, financial services firms had the highest total losses across industries. They collectively lost more than $120 million in 2016. One case at a bank went on for 41 years and involved the theft of $2.5 million. “Every time we think we’ve found a way to prevent em- ployee embezzlement, a newmethod is found, new technology is introduced or internal controls are changed; that gives employees an opportunity,” says Craig Collins, president of OneBeacon Financial Services. The typical scenario The typical embezzlement scenario includes several com- mon attributes, notes Brien O’Connor, vice president, Bankers Insurance Agency. It is usually perpetrated by long-term em- ployees who are trustedwithmany responsibilities. Their roles seem to be in several areas of the bank. Internal controls are not what they should be. And, lastly, these employees never seem to take the necessary time off designed to prevent them from being discovered. “A lot of what impacts employee embezzlement is need or desire,” explains Barbara Ewing, vice president, chief under- writing officer for Berkley FinSecure. “The motivation can come from many areas, not just one source.” Ewing adds that claims attorneys generally see two differ - ent types of employee dishonesty cases: a long-time trusted