1. Presentation exclusively for
Vermont League of Cities and Towns
Mr. Ken Canning, CPCU,
Director, Risk Management Services
Email: kcanning@vlct.orgOffice: (802) 262-1921Mobile: (802) 373-1806
Fax: (802) 229-2211 Website: http://www.vlct.org
By Douglas Babcock, Program Director
Mark Renkert, Chair, SMARTVT
Christine Sultan, Senior Investigator
Michael J. Kipp, CPA, CEO SMARTVT

2. Business Betrayal
Understanding Embezzlement, Prevention and Detection
• 2011 Marquet Report on Embezzlement ranked
Vermont #1 in the nation for the highest Embezzlement
Propensity Factor
• U.S. Chamber of Commerce estimates $50+ billion
annual lost to Employee theft
• 2004 Report to the Nation on Occupational Fraud and
Abuse
– 6% of annual revenue to Employee theft
– Roughly $660 billion annually
• Between 60 – 75% percent of employees steal at some
point
• 1 in 3 businesses bankruptcy are related to employee
theft
4/1/2014 © Cygnus Security

3. Who We Are
• Business Management Professionals
• CPA’S
• Auditors
• Bookkeepers
• Current / Former Law Enforcement
• Trained Embezzlement Investigators
4/1/2014 (c) Cygnus Security

4. Victims
Name Victim Organization Amount
Melissa G. King Sandhogs’ Union Local 147 $42,608,232
Arnold Mullen Paul and Phyllis Fireman Foundation $25,000,000
Nancy Saldana Moreno Davis-Lynch Inc. $15,000,000
Donna White John W. Stone Oil Distributor LLC $12,700,000
Charles Antonucci, Sr. US TARP Program $11,200,000
Terry Scott Welch Wachovia Bank $11,200,000
Douglas Ross Zuber Harvard Investments, Inc. $11,000,000
Bernie D. Metz Center Valley Federal Credit Union $8,989,484
Lori Lockman Julian William C. Webb Co. $7,345,050
Chris Orsaris Major Automotive Companies $7,000,000
4/1/2014 © Cygnus Security
Marquet International, Ltd. 1 The 2010 Marquet Report On Embezzlement
www.marquetinternational.com January 11, 2011

5. Types of Perpetrators
• Women are more likely to be major embezzlers than men (62.7% vs.
36.3%). (Cygnus Consulting Note: This depends on the study.)
• Men embezzle significantly more than women, on average ($1,811,380 vs.
$845,517).
• Major embezzlers on average begin their schemes in their early 40s (42.6).
• 40 – 49 year olds caused the greatest overall losses while 50 – 59 year olds
had the highest average theft by age category ($1.52 million).
• By a significant margin, major embezzlers are most likely to be individuals
who hold bookkeeping or finance positions within organizations (63.4% of
all cases).
• Most major embezzlers appear to have been motivated by a desire to live
a relatively more lavish lifestyle, rather than driven by financial woes.
(2012)
4/1/2014 © Cygnus Security
Marquet International, Ltd. 1 The 2010 Marquet Report On Embezzlement
www.marquetinternational.com January 11, 2011

6. How do we know?
Besides the obvious, money is missing…
• Anomalies: Things that make you go, Hmmmm…
• Being at work at irregular (unattended) hours
• Offers to change the standard way of doing things to
personal time, car, resources
• Differences between words and actions, pay and
lifestyle
• Failure to follow, especially a new failure to follow,
procedure
• Defensiveness
• Follow your gut instinct
4/1/2014 © Cygnus Security

7. Importance of preserving the case
• Dollar amount lost determines felony /
misdemeanor for most crimes
–Not embezzlement
• Evidence on computer can be easily erased
– Forensic re-creation is possible but takes your
computer system out of service for a long time
• Direct evidence is always better than
circumstantial
4/1/2014 © Cygnus Security

8. How do we prevent this?
– Hiring Practices
• Learn interview techniques
– http://www.crfonline.org/orc/ca/ca-14.html
– Search “job interview” websites
– Background checks
• http://vcic.vermont.gov/record_checks
• http://vcic.vermont.gov/record_checks/vermont
• https://secure.vermont.gov/DPS/criminalrecords/
• DMV license checks
• Court houses – civil and criminal records are public
records
4/1/2014 © Cygnus Security

9. Organizational Policies
Decentralize, no one person should have control of a
closed system
• Diversify, no one person should be the lynch-pin, or
pigeon-holed
• Accounts receivable, accounts payable, and signing checks
are separate functions
• Two party checks
• Petty cash disbursements are reconciled by someone
other than those who have access to the cashbox
• Video systems, more than just your “IT person” must have
access and be able to conduct audits
4/1/2014 © Cygnus Security

10. Organizational Policies
• Education in understanding the importance of
trade secrets
– Even small bits of information can hurt if leaked
• pricing information
• wholesale cost information
• Customer lists
• Recipes
– Programs, technologies, strategies
• Mandatory vacations with job coverage
• Have an audit system, and use it more than just
when you think there is a problem
4/1/2014 © Cygnus Security

11. Stewardship
– Lead by example
– Create a positive work environment
• Develop controls that allow for trust and team spirit
• Have growth opportunities built in
– Consider total cost
• Lower paid employees are more likely to steal or be less
responsible
• Paying for related training breeds loyalty
• Intangible or side benefits
– Allowing employees to use shop after hours with their own materials
– Daycare on site or contracted with local provider to provide discount
– Hold people accountable
Prevent this from happening again
4/1/2014 © Cygnus Security