How White Collar Crimes Can Affect Your Company Finances
The cost of running a business has dramatically increased over the years. One primary cause is white-collar crime. Non-violent crimes that involve cheating customers and stealing from companies cost businesses billions of dollars each year. These crimes range from computer hacking and insurance fraud to embezzlement. Perpetrators of white-collar crimes, if found, are arrested on federal or state criminal charges and penalized for their offenses.
Embezzlement is among the most costly white-collar crimes in America. The largest embezzlement case in 2012 was perpetrated by Russell Wasendorf, Sr., the 64-year-old founder of the Peregrine Financial Group (PFG), a futures trading firm. Wasendorf was charged with embezzling $215.5 million from 13,000 clients over a 20-year period. The accounts of former PFG customers were transferred to another company as PFG filed for bankruptcy. In April, Wasendorf was sentenced to 50 years in prison, yet the financial impact of his actions will last well beyond those years.
According to a 2012 report released by Marquet International, a security firm in Boston, MA, major embezzlement cases of $100,000 or more were at a five-year high. The 528 major embezzlement cases analyzed by the study reported losses of $737 million, twice as much as the losses in 2011 and 55 percent higher than what was reported in 2010.
In addition to embezzlement, computer-related crimes, such as cyber attacks are on the rise. Not only do these types of crimes affect company’s finances, but its reputation with customers as well. When doing business with a company, a customer rightfully expects those companies to guard their personal information. However professional hackers are becoming more an more skilled with extracting such data as name, address, Social Security Number, or credit card numbers from private business files. Many go on to open up fraudulent credit cards and other accounts in the customers’ names sometimes causing irreparable damage to unsuspecting individual’s credit.
Cyber attacks are not discriminatory. Small businesses as well as international corporations are all susceptible. The 2013Technology Survey reported that the average small company loses about $8,700 after a cyber attack, which many cannot afford. Respondents to the survey, conducted by the National Association, indicated that the attacks came through spyware or software infecting their computer systems.
In May, Sony’s PlayStation Network was hacked and taken down for 23 days. The hacker reportedly retrieved the personal information of millions of PlayStation network subscribers. Sony admitted the cyber attack cost the company $171 million.
Damage to the Bottom Line
Calculating the total amount of money white-collar crimes costs a company is difficult because there are many factors that come into play once a company has been victimized. Exorbitant costs are incurred by companies for enhanced security measures, ever-increasing insurance premiums and potential reimbursements to customers who are considered crime victims. Furthermore, there may even be additional attorney fees required to defend against lawsuits filed by angry customers.
Reducing the risk of criminal activity is a paramount concern for any business. Security experts recommend that businesses conduct thorough criminal background checks on its employees, conduct frequent security audits, and install internal controls to detect white-collar crime. Staying alert to fraudulent activity may be expensive, but it is necessary to keep customers safe and prevent white-collar criminals from ruining a company’s financial future.
Photo Credit: http://www.flickr.com/photos/ollierb/8562412180/