COVID: Increased Risk Of Embezzlement And Crime Insurance

small businesses at risk of embezzlement during covid

From Fear to Fraud: How Employees Are Stealing Money During COVID

What if you were told that your employees had been embezzling money for the last 14 to 18 months? Would you believe it?

According to the head of executive risks and cyber at Hiscox Insurance, Doug Karpp, that’s the average time it takes before an embezzlement scheme is revealed. Hiscox conducted several studies on the matter. One of the studies found that almost 70% of incidents continued on for over a year before coming to light.

Embezzlement is a risk for any business, but with many employees working from home, that risk becomes even greater. It appears COVID-19 creates more accessible avenues for schemers to take advantage of a company’s finances. The Association of Certified Fraud Examiners estimates that every year embezzlement or fraud contributes to losses of up to 5% of U.S. revenue, or $730 billion. 

Who’s most affected?

While every business must be on their guard, larger organizations do not seem to be as affected as smaller businesses. Businesses with 100 employees or less currently average $150,000 in embezzlement losses, whereas larger ones only $80,000.

What’s COVID got to do with it? 

In a normal office setting, it is much easier to monitor employees. A usual warning sign for fraud is someone who takes on drastic lifestyle changes. For example, the employee suddenly comes to work in a new car or has sudden changes in spending habits. At a distance, managers lack the ability to observe changes in an employee’s behavior.

Many organizations fear that the significant increase in people working from home due to COVID-19 combined with the average delay in embezzlement discovery could lead to a challenging year in 2021.


The real culprit…fear

embezzlement from fear of healthcare costs

The workers are usually not bad people. In fact, according to Karpp, signs of an embezzling employee are one who comes in early, leaves late, and rarely, if ever, takes time off. Embezzlers take these measures to avoid arousing suspicion. They also do not want anyone touching or checking their work when they are not there.

What brings a good person to an extreme act, such as stealing thousands of dollars from their employer? Only a feeling of an imminent financial crisis. Either brought on from the fear of losing a job or having a family member become ill and facing overwhelming healthcare costs.

The pandemic does not make things any easier. In February 2020, unemployment was at just 3.8% and by May was up to 13%. This data comes from the U.S. Bureau of Labor Statistics. The Economic Policy Institute claims unemployment reached almost 16% in July, even higher than the Great Depression.

Distracted managers and working from home

work from home rises in embezzlementAnxiety or panic seems to be the driving factor, but the opportunity for embezzlement is more widespread. Lack of supervision and accountability increases the chances of an employee committing fraud, such as generating false documents. If an employee can access a company’s database or documents online without anyone to double-check, they are much more likely to engage in fraudulent activity. 

Before, managers could simply walk by and observe misconduct as it happens. Now, during quarantine, that is no longer an option. Additionally, owners and managers trying to maintain the operational side of the business are distracted by the other problems COVID presents.

Taking preventative measures

Employers need to take a stand against embezzlement and fraud, and they need to do it now. First and foremost, business owners should continue their operations as normal but add focus to thorough supervision on transactions and financial documents. Have those who resolve each transaction be a different person than those who process them.

It is easy to be relaxed in a working from home situation but be sure to remain rigid with internal controls. During these unusual times, it is imperative that managers’ control be stricter than ever.

Crime insurance never more important

Crime Insurance (AKA fidelity bond) has always been a staple of a well designed small business insurance program. But now, with telecommuting on the rise due to COVID, it has never been more important. Crime insurance is relatively inexpensive but can save a small business from bankruptcy due to an embezzlement event. Crime insurance is a modular policy, and coverage sections can be added for Employee Dishonesty, Forgery & Alteration, Money & Securities, Computer Fraud, and Electronic Funds Transfer Fraud.

We have a number of excellent articles on Crime Insurance and crime prevention risk management for your review. 

Complete our quote request form if you are interested in more information on Crime insurance or if you would like a proposal.


Source: Autumn Heisler. “Employee Embezzlement Just Got a Whole Lot Easier Now that We’re Working Remotely.” Risk & Insurance. October 12, 2020.

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