Embezzlement is on the rise and those embezzling are often the people least expected. They're usually the outstanding citizens, the employees of the month, and those workers who received awards and gained their boss' trust.

What Is Embezzlement?

Embezzling is a growing concern for companies ranging from shops, to banks, to corporations and even charities. It can range from taking a few dollars to millions and can be a felony, punishable by jail time. The methods used to embezzle can be as simple as taking money from a cash register or using a sophisticated computer program.

Embezzling is taking property, usually money, placed in your trust but belongs to someone else. For instance, someone who works in a bank may secretly steal money entrusted to them to look after. Because this money belongs to someone else, but they have legal authority to work with it, the actions are considered embezzling.

Actions of Embezzlement

Embezzlement is a statutory offense, so its definition varies by each state's statute. It typically involves:

  1. The fraudulent - illegal
  2. Conversion - taking, transfer
  3. Of the property - usually money
  4. Of another person - employer, or someone else's
  5. By someone with lawful possession of their property - usually a worker whose job it is to monitor or manage the funds

Conversion is different from stealing because the person committing the crime actually has the right to the property in the first place. Embezzlement is a crime against ownership. This means it violates the owner's right to control the property.

The fraudulent requirement simply means the person purposely took the property for personal use - it wasn't by mistake.

If the person has lawful possession of the property, the crime is embezzlement. It's larceny if they didn't have some legal attachment to the property. Determining whether a person had lawful or unlawful possession is sometimes extremely difficult.

Warning Signs

Embezzlement has a number of warning signs. Be cautious if an employee suddenly has a jump in his or her standard of living with no extra income to explain it. Also be weary of a sudden drop in company profits, or the company's financial records are suddenly more disorganized than usual. Company heads should watch for unexplained changes in revenue, increased write-offs and other unusual changes.

Also look out for extremely loyal employees who never take vacations, work late or seem to be otherwise model workers. This is often a cover-up for their activities. If they go on vacation someone may review their work and find discrepancies leading to discovery.

Why the Increase in Embezzlement?

While some blame the bad economy for causing a spike in embezzlement, police officers don't agree. They explain it's typically driven by vices such as gambling, or the need to repay a debt. Some employees may be tempted to steal out of spite against their company as well as financial need.

John Case of www.employeetheft.com has been advising companies for 40 years on how to prevent and spot employee theft. He explains the most striking factor in embezzlement is opportunity. People who steal regardless and the economy are only a small factor. Another aspect of embezzlement is the feeling that you won't be caught.

Case explains that most thefts start out very small, but as the person's confidence grows, so does the crime. The embezzler develops a psychological dependence on this money and the embezzlement doesn't stop until the company finds out.

Prevention

To prevent embezzlement, companies should use internal controls such as separation of duties. For example, movie theaters separate the jobs of selling tickets and admitting customers into the theater. This significantly reduces the chance of fraud because the employees would need to plot together, and split the profits.

Another way to discourage embezzlement is to regularly and unexpectedly move funds around to different accounts and change people in charge to ensure checks and balances.

Tip

Most people have a tendency to pay more attention to those people or employees they don't trust. However, sometimes those you trust have the easiest time stealing.

They have all the tools, such as access to the company bank accounts, and often, because they have your trust and watched less, they're free to carry out their crime.

Remember, just because someone is a good employee, doesn't mean they're honest. You are better off using the techniques suggested above to prevent against embezzling.

Questions for Your Attorney

  • I suspect one of my employees is embezzling money from me. Can I videotape them without them knowing?
  • If an employee is embezzling, do I have to call the police, or can I handle it internally?

Tagged as: Business Law, embezzlement, white collar crime lawyer