For the third time in six years, an annual report has named Vermont the state most at risk for major embezzlement cases. Perpetrators face strict penalties, including a maximum prison sentence of 10 years and fines up to $10,000 for each count of theft, according to state law — but that doesn’t seem to be much of a deterrent.
So why has Vermont become a hotbed for financial fraud and what can businesses can do it? Chris Marquet, CEO of Marquet International, the investigative security consulting firm that published the report, says that there are several factors that make Vermont one of the states with the highest embezzlement rates.
The study looks at major cases, which Marquet’s firm defines as instances where more than $100,000 was stolen from an organization. He says that their most recent report had an alarming number of new major cases. “The last report that we just published, we looked at 550 new cases since last year. That alone is staggering just to imagine the number of cases that are happening around us, throughout the United States, let alone Vermont,” says Marquet.
Their analysis comes from a complex comparison of geographic regions, looking at the “embezzlement propensity factor," or EPF. The EPF is an average of two complex ratios that his firm analyzes. “Those ratios are based on two very reasonable theories. The first theory is that the amount of fraud in a given state is going to be proportional to the economic activity in that state. The second theory is that the number of these major cases in a given population should be proportional to that population,” says Marquet. States that don’t coincide with these two reasonable theories are considered to have a high EPF.
So why has Vermont landed at the top of the list so frequently? Marquet explains that there are several factors to Vermont’s high embezzlement rates. His study showed that the types of industries most affected by embezzlement were financial institutions, government entities, non-profit organizations and small businesses.
“So when we look at Vermont, we see a state that has lots and lots of small ‘mom and pop’ shops throughout the state, family-run businesses, often relying on a single bookkeeper. The entrepreneurs enjoy creating whatever they’re creating and the selling, and networking, but they don’t particularly like the back-end bookkeeping,” Marquet says. He explains that many small businesses hire a single bookkeeper to come in to do the books, often staying for many years. “In many of these cases they start stealing and it just goes right under the radar of the business owners … because the company trusts this person and it goes on and on for years and years and builds up to large numbers,” Marquet explains.
He says that Vermont also has a “disproportionate” number of non-profit organizations. “We found that non-profits are at high risk for embezzlement, because the people who sit on the board, they’re interested in the cause of the non-profit and not necessarily trained in finance … and therefore the oversight factor in non-profits just isn’t adequate. It’s certainly not adequate relative to other businesses and the standards that they employ. So, with a high number of non-profits, you have a higher risk,” says Marquet.
Finally, Vermont has a large number of small government entities, says Marquet. “In the state of Vermont, and in many small states that have a dispersed population, you’ve got lots of small towns that have very small finance departments, sometimes even one part-time treasurer,” Marquet says. He points to the case of Ira, Vermont, where the town treasurer was given no oversight and ended up stealing over $400,000 in a 12-year period.