Table of Contents (Find Your Tip!)
- What Is Embezzlement?
- The Four Characteristics That Define Embezzlement
- Typical Examples Of Embezzlement
- Forging Hours Worked And Overtime
- Lapping Schemes
- Manipulating Payroll
- Run a background check on anyone in minutes
- Check Kiting
- Famous Cases Of Embezzlement From The Past 20 Years
- What Can You Do To Prevent Fraud In Your Company?
- Warning Signs That Your Employees May Be Stealing Funds:
We all know that one coworker who stealthily (or even not so stealthily) takes office supplies when they think no one’s looking. There are all types of crimes that employees can commit, with embezzlement being the most prevalent. So, we need to ask: what is embezzlement? And does it only happen in the workplace?
What Is Embezzlement?
Generally, embezzlement refers to employer or employer theft of funds. However, spouses and governments can commit this crime as well. That’s because it’s restricted to fiduciary relationships, where one person (or organization) entrusts their property to another party. So outside of a business scenario, this person could be a family member or a subordinate. Then, this party uses the property to benefit themselves. Essentially, embezzlement is a type of fraud that must meet the following four characteristics. To learn more about the meaning of embezzlement, as well as other criminal terms, please click here to read our public records glossary.
The Four Characteristics That Define Embezzlement
- The criminal takes the property that the original owner entrusted them with.
- Illegal Conversion
- They convert the property into an asset that they personally benefit from.
- Real property cannot be embezzled, but both intangible and tangible property can.
- Lawful Possession
- The criminal is in lawful possession of the property or money.
Typical Examples Of Embezzlement
It doesn’t matter if the initial crime slowly evolved into a company-wide scheme, or if an employee simply stole twenty dollars from the cash register. These offenses are all classified as embezzlement. If you’re wondering what embezzlement is like in a real-life scenario, just refer to any of these common examples.
Directly stealing money from an employer, also known as skimming, may be the most rampant type of embezzlement, as it’s the simplest. Methods include pocketing a customer’s money during a transaction, depositing company checks into personal accounts, creating fraudulent company checks, and using company funds for non-business related expenses.
Forging Hours Worked And Overtime
This frequently happens in larger companies that rely on time clocks to record their employees’ attendance. It’s not rare for an employee to “forget” to clock out at the end of the work day, only to return to the office an hour or two later to actually clock out. When done consistently, they can easily accumulate hours of overtime.
Typically, lapping schemes are carried out when there is one sole employee in charge of all the company’s accounting tasks. They may handle everything from conducting transactions to customer billing. To carry out the scheme, they divert a customer payment to a personal account, then apply other new customer payments to older accounts receivable.
Employees can manipulate their company’s payroll by creating “ghost employees.” These are people who do not actually work for their company, or might not even exist. Whether they’re using a fake identity, the name of a family member, or even someone who used to work there, an employee could be fraudulently collecting this ghost employee’s checks.
This form of check fraud involves writing checks for a higher amount than what’s in the account’s balance. Normally, this check would bounce, but the criminal then writes another check, from a different account, to cover the first one’s insufficient funds. Instead of using checks to transfer funds, as intended, criminals uses them as a form of credit.
This term encompasses all types of theft in the retail industry, as well as damaged products, clerical errors, and other losses of inventory. Employee theft of merchandise is considered to be one of the leading causes of shrinkage.
Famous Cases Of Embezzlement From The Past 20 Years
- 2001: Once considered one of the world’s largest energy companies, Enron fell to its demise when it was revealed that a number of top executives had been embezzling funds.
- 2008: Bernie Madoff, an investment advisor, stole $65 billion from investors in a Ponzi scheme. He was convicted to 150 years in prison for 11 different counts of fraud.
- 2010: Well-known comedian Dane Cook had millions of dollars embezzled from him by his half-brother and manager, Darryl McCauley.
What Can You Do To Prevent Fraud In Your Company?
- Set up a confidential hotline that allows employees to report criminal activity in the workplace
- Regularly audit all company accounting statements
- Check any potential new employee’s criminal records
- Set up financial controls with checks and balances
Warning Signs That Your Employees May Be Stealing Funds:
- Reluctant to take vacation time because their scheme may fall apart while they’re away from the office
- Possesses new luxury items, such as watches, cars, and clothes
- Appears to be a workaholic and stays late at the office most nights
- Experiences sudden financial hardships that could drive them to steal
Most of the time, businesses don’t notice that their employees have stolen thousands, or even millions, of dollars from them until it’s too late. Don’t let that happen to you. Take precautions to protect your company’s cash flow, recognize the signs of embezzlement, and put a stop to criminal activity before it happens.
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