STEALING FROM WITHIN Occupational fraud is growing, and small businesses are most vulnerable

Companies in eastern Pennsylvania lose millions of dollars each year to occupational fraud. And the incidents are increasing.

From small, privately owned businesses to massive corporations to tiny nonprofits and state-funded government agencies, fraud can be found. Those in forensic accounting and certified fraud examiners say it’s a problem that can erode a company’s trust, sink it into bankruptcy and destroy the dreams of entrepreneurs. In some cases, it can shut down a business permanently or force a company to downsize with layoffs and other cutbacks.

While more reports are turning up in the media about company executives embezzling funds, these stories capture only a small fraction of the problem, as they are the only cases that get reported.

Often, companies avoid publicity by settling the dispute with fraudsters internally, rather than going after them criminally. There are many other incidents that occur but company executives do not discover them until much later, experts said.

“Fraud by its very nature is hidden,” said Allan Bachman, education manager for the Association of Certified Fraud Examiners, an organization based in Austin, Texas. “The ones we are seeing are the ones that have been exposed. A lot of cases go undiscovered.”

Over the past five years, companies in the Greater Lehigh Valley have reported about $30 million in theft, with a lot of those nonprofits, said Maureen Thomson, a Certified Public Accountant and senior manager of special services for Concannon, Miller & Co. PC in Bethlehem. Nonprofits are more susceptible because these organizations typically have fewer controls in place, she said.

Over the past five years, articles about company executives involved in fraud have been appearing more frequently in area newspapers, including The Express-Times and The Morning Call, according to Thomson, a master analyst in financial forensics.

“There has been a lot more reported, and that has only been a small fraction,” she said.

One of the red flags for fraudulent behavior is gambling, as is any type of addiction, Thomson said. Thomson sees a correlation between fraud and the opening of the Sands Casino Bethlehem Resort in 2009.

As an example, her clients have maintained that employees committing fraud all had significant gambling debt.