Thieves, cheats, and grifters: the Vermont Way

Oh boy, oh boy, we’re number one!!!

Vermont leads the list of highest risk states for embezzlement according to a new study of major embezzlement cases.

“We have done this report for four years now and Vermont has been on the list of highest risk three out of the last four years. This year, topping the list,” Christopher T. Marquet, chief executive officer of Marquet International told the Burlington Free Press.

Those encouraging words from the Burlington Free Press’ account of the

2011 Marquet Report on Embezzlement.
And yes, be very proud: this year Vermont shed its contender status and vaulted to the very top of the list in what Marquet calls “Embezzlement Propensity Factor,” which weights the frequency of embezzlement and the average loss per occurrence on a per-capita basis.

Expect a lot of hand-wringing and finger-pointing. Oh, Vermont, that liberal bastion! Home of soft leftist values and a permissive culture! Just look at all those town clerks and treasurers pilfering our hard-earned tax dollars! I can already imagine the stinging commentary from El Jefe General John McClaughry.

Well, there are valuable lessons to be learned from this study — about Vermont, and about the nature and culture of embezzlement. But only if you take the time to read the thing and give it some thought, instead of scanning the headline and giving voice to your inner Grover Norquist.

Let’s start with a couple of necessary definitions. The Marquet report covers embezzlements of $100,000 or more, and only those that were initially revealed to the public in 2011. This included 473 separate cases, totaling nearly $355 million in stolen funds. (Many of Vermont’s notorious small-town embezzlements, Joyce Bellavance notwithstanding, were too small for Marquet’s criteria.)

And while good ol’ liberal Vermont is number one, most of the other “top” finishers are from solidly conservative country. Connecticut is #2 and Pennsylvania is #3, but then you get Montana, Virginia, Iowa, Idaho, Nevada, and Missouri. (Maine, West Virginia, and New York round out the top ten.) Clearly, embezzlement can be found in every part of the political spectrum.

Cases of public-sector embezzlement tend to make big headlines, but in reality there’s a whole lot more embezzlement in the private sector. Embezzlement of government funds (federal, state, and local combined) accounts for 9.4% of all occurrences, and only 5.4% of total losses to employee thievery. (Government spending at all three levels accounts for almost 40% of U.S. GDP, so the public sector comes out looking relatively clean.)

More after the jump, including: the leading industry for embezzlement (you’ll be as shocked as Captain Renault), what your typical embezzler looks like, and why (IMHO) Vermont is embezzlement-prone.  

Okay, so if embezzlement is largely taking place outside of government, which sectors are most at risk? The top target is the financial-services industry. Gosh, you’d think banks and investment firms and insurance companies would know how to keep control of their assets. But noooo: the financial sector sprouted 12.4% of major embezzlement cases in 2011 — and the typical case tended to be costly. Financial-industry embezzlement accounted for almost 25% of total losses.

Embezzlement from nonprofit organizations also accounted for 12.4% of total cases, but a much lower dollar figure: only 7% of total losses to embezzlement. Other sectors high on the list: Health care, manufacturing, and real estate.

So who’s your typical offender? The Marquet report includes some striking figures on the nature of the big-stakes embezzler: A woman (two out or three perps are female) with no criminal record, working solo (only 10% of cases involve a conspiracy), middle-aged (almost 70% between 40 and 59 years old), who has access to company funds (writing bad checks, dipping into the cash drawer, fraudulent EFT’s), and who has been getting away with it for a long time (average duration slightly less than five years). In short, it’s the person you might least expect. And it’s the organization or business with stunningly lax financial controls.

Now, in castigating Vermont for its “epidemic” of embezzlement, it’s important to keep in mind that we’re talking about a very small number of cases. Ten, in fact. So a single case can really skew our ranking, much more so than a single case in California or New York. Still, it’s undisputably true that we do have significantly more major embezzlements than you’d expect. And we’ve been near the top for three of the past four years.

So what’s wrong with Vermont? A revealing quote from “Fraud Talk,” Marquet International’s corporate blog:

One small business owner based in Vermont explained to me that “people up here generally tend to be more trusting and believe that people will do what they are supposed to do and not do what they are not supposed to do. As a result, a lot of the checks and balances that might seem like common sense don’t get put in place until after someone gets caught taking advantage of the situation.”

Organizations in Vermont — large and small, public and private — tend to operate on a family dynamic instead of an organizational/business model. To illustrate, let’s say your family has a Weird Uncle Bob. He drinks too much, says inappropriate things, and occasionally cops a feel. Even so, chances are you still invite Uncle Bob to Thanksgiving dinner. Because he’s weird, but he’s family.

Now let’s imagine you’re in a company, and Uncle Bob is your chief of accounting. In a business dynamic, Uncle Bob gets fired — or, at least, transferred to an out-of-the-way post. But in a family dynamic, Uncle Bob keeps his job and you just learn to work around him. Even if it kneecaps your organization.

Even when there’s no specific Uncle Bob, it’s still a dysfunctional culture. If your family doesn’t really work, you don’t try to fix it, you live with it. If your business doesn’t function well, you don’t fix it, you live with it.

I’ve seen this very clearly in a small company I used to work for.  It was severely handicapped — its very existence threatened — by poor financial controls, unproductive salespeople, and a boss who just didn’t enjoy the business side of the business, so he let it go.

We’ve also seen it in one of Vermont’s largest organizations, the University of Vermont. Its most recent Uncle Bob was Rebecca Kahn Fogel, wife of UVM President Dan Fogel. She was causing major problems in the university’s development office — and she was allowed to go on causing problems for years, destroying morale and hamstringing the office’s work, until the story became public.

There are other stories of dysfunction at UVM, but most of them have gotten little or no publicity because the university tends to cover them up with generous severance packages and nondisclosure agreements.

Not to pick on UVM. This kind of dynamic is practically universal in Vermont, and a high embezzlement rate is only one of the consequences. I’d argue that organizational dysfunction hampers our economy much more than Act 60 or Act 250 or the Green Mountain Care Board or any other piece of legislation.

I once had the chance to interview Tom MacLeay upon his retirement as President and CEO of National Life, the Montpelier-based insurance and investment firm. He talked at length about the challenges of being a relatively small company in competition with the biggest, richest outfits on the planet. After the formal interview, I brought up the above thoughts about organzational culture in Vermont — and he emphatically agreed. He said that it had been an ongoing struggle to change National Life’s culture so it could compete at such a high level.

As far as I know, National Life has never had a serious embezzlement case (knock wood). But in order to survive, it has had to battle against Vermont’s prevailing culture — changing it from a family dynamic to an organizational one. Otherwise, National Life would have long ago fallen off the map.

That prevailing culture has nothing to do with liberalism or socialism; it’s a traditional mindset, a way of life, that crosses all political boundaries. And it’s helped make us Number One! in major embezzlements.  

2 thoughts on “Thieves, cheats, and grifters: the Vermont Way

  1. Have no fear Vermont citizens. Thomas “Hindsight” Salmon is promising to better protect all of us from harmful future embezzlers. He says today via a medium that anyone caught embezzling will be subject to 7 straight hours of the Salmonator mutilating John Cougar. Should be enough.  

  2. opined about this yet again today in the Free Press


    This is what I posted in response.

    Mr. Salmon believes that if potential embezzlers know that someone is watching they will think twice about stealing. However, one of the large embezzlements that occurred recently was the theft of $500,000 from the Dept. of Children & Families. The fraud went on for five years (including during Mr. Salmon’s tenure) and took place in a large state agency that is covered by the so-called Single Audit, which is conducted by KPMG (under contract to the Auditor) but supervised by the Auditor. The embezzler was a middle manager who must have known that the department was audited annually but that knowledge did not deter her. So while more training and a checklist can’t hurt (and might help), it is clear that embezzlement can occur even if strong internal controls are in place.

    Furthermore, when the $500,000 state fraud was discovered (not by the Auditor’s Office), Mr. Salmon noted that he had been aware of deficiencies in that department’s computer system. If so, what did he do about it, if anything? And since the fraud was missed by KPMG (for five years), did he work with them to examine their procedures? So instead of telling everyone else how to do their jobs, perhaps Mr. Salmon can tell us how he intends to do a better job. And instead of criticizing the Governor and the Speaker (always good for media coverage), he should lead by example.

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