Report Ranks Vermont High Risk for Embezzlement

Published 05/15 2014 05:41PM

Updated 05/19 2014 08:08AM

Report ranks Vermont at high risk for embezzlement.
Report ranks Vermont at high risk for embezzlement.

MONTPELIER - The Marquet Report on Embezzlement has a special place for the Green Mountain State.

“We found states like Vermont that seem to be in the top ten every year,” Marquet International CEO Chris Marquet said.

Marquet’s company focuses on business risk management. For five years he has ranked states on embezzlement risk. After five years of data Vermont ranks second highest for risk of loss and second highest in the Embezzlement Propensity Factor, the percentage of embezzlement losses compared to the state's GDP.

“He has not proven that to my satisfaction,” Vermont State Auditor Doug Hoffer said.

Hoffer isn't buying in to Marquet’s formula or Vermont’s ranking. But he does say certain factors make Vermont susceptible to embezzlement.

“In a small (entity) like a volunteer fire department or boy scouts or whatever it may be typically there's one person doing everything,” Hoffer said.

“So it's just ripe for that.”

Three cases come to mind recently. A hospital employee in Berlin, a fire fighter in Barre and a state worker in Montpelier are all charged with embezzling from their employer.

Hoffer and Marquet both agree the way to stop embezzlement is by putting more people in position to look over finances. But that's about their only common ground when it comes to this report and its ranking of Vermont.

“It's a highly trusting community so perhaps that's another reason why you have these kinds of thefts,” Marquet said.

“Is he a Vermonter? How does he know how trusting we are? That’s an incredible statement," Hoffer said.


For those who wish to know why I am not persuaded by Mr. Marquet’s claims, I offer the following comments (which were discussed with the reporter but not included in the story).
Mr. Marquet claims that Vermont has a very high propensity for embezzlement. To support that assertion, he relies on the Embezzlement Propensity Factor (EPF), which he created. It is a quotient of two ratios; a state’s share of US total losses over a state’s share of national GDP. This may sound reasonable, but there are some problems.
First, propensity means natural inclination or tendency. To demonstrate propensity, one must compare the frequency of embezzlements among states. But the EPF measure is based solely on dollars. Therefore, a state could have one huge fraud and score very high on the EPF, whereas another state could have numerous smaller frauds and rank much lower.
For example, Marquet reported ten cases for Vermont in the 2011 report (when Vermont ranked #1). But one case (Hardwick Electric) of $1.6 million represented over half the total amount lost for the entire year.
In 2012, Marquet reported only five cases in Vermont, half as many as the year before and the total reported lost dropped from $2.9 million to $1.7 million. But even with all that, Vermont remained in the top ten, although the EPF dropped from 4.8 to 1.4 (1.0 being neutral or the figure one would expect all other things being equal).
One reason for this may be found in the formula. Over the last four years, states with the smallest gross state product are heavily represented in the top 12 (which is all Marquet provides). That is, of the 14 states with the smallest GSP, 11 made the Marquet list in one or more years (VT, WY, MT, SD, RI, ME, ID, WV, NH, HI, and NM). The GSP for all of these states is less than one half of one percent of the national GDP. With such a small denominator, it doesn’t take a very large numerator to result in a high EPF.
Second, the EPF is based on the number of people who are caught embezzling, which is certainly not the same as the number of people who embezzle. The number caught could be due to more aggressive enforcement in the states showing high EPF’s or, as Mr. Marquet would have us believe, more embezzlement. We just don’t know.
Third, when we look past the scores of the few very high top rankings, the states that follow appear to be bunched together with only minimal differences between them. That is, the difference between #8 and #20 may be tiny. This is true of most ranking schemes.
In any case, it is not surprising that reporters are attracted to rankings such as those produced by Marquet. Having no other source of information about the incidence of embezzlement among the states, there is nowhere else to turn. And it’s true that those who create such ranking schemes market them in hopes of free media coverage. But that does not mean such reports represent a reliable standard. 
I’ve pointed out a few problems with the Embezzlement Propensity Factor in the hope that viewers take it with a grain of salt.

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