Business & Economy

Vermont tops list of high-risk embezzlement states in new study

Embezzlers often think they can pay the money back.

Vermont often makes it onto national top 10 lists. But being first among the states at high risk for embezzlement isn’t the kind of publicity any place wants.

Nevertheless, in an annual study of major U.S. embezzlement cases released on Jan. 17, Vermont topped the list, followed by Connecticut, Pennsylvania, Montana, Virginia, Iowa and Idaho.

Marquet International, a consulting firm that works with corporate clients to assess opportunities and reduce risks, examined 473 major cases active in 2011 involving more than $100,000 in losses. Other high-risk states were Oklahoma, Connecticut, Pennsylvania, Montana, Iowa, Missouri, West Virginia, South Dakota, Louisiana, and New York.

Like its previous reports, Marquet’s 2011 study of white collar fraud attempts to identify the key trends. A weak economy is not the only driver, it concludes. The data suggests instead that “there is always an ambient level of corporate fraud – often driven by individuals seeking to maintain a lifestyle grander than what they could otherwise enjoy who have rationalized their actions. “

This isn’t the first year Vermont has demonstrated a high “Embezzlement Propensity Factor,” the measurement developed by Marquet to capture the percent of gross losses due to embezzlement for a state and the percentage of its economic output to overall GDP. Along with Oklahoma and New York, Vermont has been among the top ten for three of the last four years.

“Certain states like Vermont are consistently among the highest risk for loss due to embezzlement,” explains CEO Christopher Marquet. “Anyone in that state that keeps up on the news knows that Vermont has experienced a rash of high profile embezzlements in recent years.”

On Tuesday, for instance, Joyce Bellavance, former officer manager for the Hardwick Electric Department, was sentenced to more than three years in federal prison for her role in the state’s largest public embezzlement, the theft of $1.6 million.

Prosecutors say that more than $700,000 of the utility’s funds went to pay Bellavance’s bills from Chase Card Services. The judge has ordered her to pay back more than $1.1 million to Hardwick Electric, plus $500,000 in restitution to the Vermont League of Cities and Towns, which covered the utility’s insurance claim. Upon release from jail she is supposed to hand over 10 percent of her monthly income.

In Brattleboro this week, Donald Hewitt, former treasurer of Ira, was sentenced to 27 months in prison for embezzling almost $350,000 between the 1990s and 2009. Hewitt wrote checks to himself from the equipment and cemetery funds, pocketed property tax payments and marked taxes owed by himself and others as “paid” when that was not the case. Since he was caught Hewitt has worked with the state auditor’s office to help communities protect themselves.

Another case in the news involves Susan Emilo, who embezzled almost $750,000 from Lincoln Applied Geology, an Addison County business. Although Emilo has served 33 months in prison, she returned to court this week after prosecutors charged that she hid the 2009 sale of a major asset, a home in Florida.

Why has Vermont experienced so much embezzlement over the last four years? One possible reason, according to Marquet, is that residents are just too trusting. “Maybe there is something to that theory,” Marquet says. “Vermont is a place, after all, where people don’t bother to lock their doors that often.”

Another factor may be that the state has few large businesses. Smaller operations tend to have weaker business controls, thus increasing the opportunities for theft. Although the financial services industry experienced the biggest losses last year, nonprofits and religious organizations accounted for about a sixth of the embezzlement incidents.

The number of major embezzlements dropped 2 percent last year, the study notes. The average loss was about $750,000 and the average embezzler stole around $15,000 per month. The most popular schemes were forgery and improper use of company checks.

The vast majority of embezzlers hold finance and accounting positions, and many are long-term employees. Bellavance had worked with Hardwick Electric for almost 40 years.

The Marquet report notes that 64 percent of the embezzlers in their study were woman, accounting for 59 percent of total losses. However, women tend to steal less than men. The average loss from male embezzlers was $863,713, compared with $693,970 for women.

The typical perpetrator last year was 47 years old and tended to work alone. Men were nearly twice as likely to participate in a conspiracy and use unauthorized electronic transfers, and were three times as likely to engage in vendor fraud. If the incident involved payroll fraud, however, women were more apt to be the perpetrators.

In difficult economic times, the report concludes, frauds surface more frequently since business managers and owners become more attentive. But most of the cases in the study go back years, so the embezzling began during better economic times.

“During the boom years, embezzlement often goes unnoticed since the victim organization is typically making healthy profits and the perpetrator begins by taking smaller, regular amounts,” says the report. “We have found that many embezzlers accelerate their thefts over time, leading to a higher probability of getting caught.”


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Greg Guma

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  • Doug Hoffer

    Greg

    While it’s helpful to have the data from the report, I would be cautious about assigning too much weight to the rankings.

    The ranking reflects the ratio of the percentage of total losses to each state’s gross state product (GSP) as a percentage of US gross domestic product (GDP). The assumption being that if the ratio is greater than one, the state “has a higher propensity to experience loses from major embezzlements cases than we would expect”

    It’s not a terrible measure but it just doesn’t sit well with me. I have a number of concerns but these are the most serious.

    1. Vermont’s total for 2010 was $3 million but we had one case at $1.6m, which I suspect is exceptional for us. Thus, in small states with relatively few cases (we only had seven over $100,000), one large case can make a huge difference (outliers would be less of a problem in a big state with greater incidence and larger thefts).

    2. Since the denominator is related to GSP & GDP, it is perhaps not surprising that states with comparatively small economies end up looking bad; note that six of the top ten “most likely to be bad” states have smallish economies (WV, SD, VT, NM, MS, and RI)

    This is not to say that embezzlement isn’t a problem. Only that rankings can be misleading.