Embezzlement Through the Computer
by KENNETH C. COLE Partner, San Francisco Office
Presented at the Western Area Conference of the Financial Executives Institute, Seattle—June 1970
ONE OF THE MAJOR PROBLEMS of American industry today, embezzlement
by employees, is believed to cost U.S. companies at least $3 billion
a year. Theft by employees is estimated at another $1 billion. One source has estimated that about 30 per cent of smaller businesses fail because
of employee dishonesty. From all indications, known employee crime among companies of all sizes is increasing at the rate of about 15 per cent a year.
HIGH-LEVEL PERSONNEL INVOLVED
One aspect of the trend is even more disturbing than its size—the identity of the people embezzling, stealing, selling corporate secrets, and taking bribes. According to some authorities, the bulk of the loss today is caused not by the rank and file, but by the managerial class. One study indicated that of discovered company frauds in excess of $60 million,
62 per cent were committed at the supervisory level or higher.
Investigators' files are filled with records of executive disloyalty and dishonesty. In one recent case, a $300 million-a-year eastern manufacturing
company discovered that eleven department heads, each with at least twenty years of company service, had been taking kickbacks from subcontractors
for the past five years. In another recent instance, the head of the computer department of a leading credit card company, resentful of top management, erased computer tape records storing hundreds of thousands
of dollars' worth of accounts receivable.
COMPUTERS PRESENT NEW PROBLEMS
Many decades of auditing experience have provided a wealth of fraud cases involving manual accounting systems. Auditors use these case histories to familiarize themselves with the methods of defrauders. Changing technology has created new problems, and the electronic data