Embezzlement is when a person uses funds for a purpose different from its intended use. It occurs when a trusted person misuses the assets or funds trusted upon them for their gains. Embezzlement is a violation of fiduciary responsibility imposed on a person. The characteristic of embezzlement can vary from small to big. It can be as minor as stealing few bucks from a cash register to large companies showing dummy expenses and transferring those funds into a personal account. Embezzlers steal, retain or misuse funds or assets entrusted to them by an employer or organization for unintended purposes.
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How does Embezzlement work?:
Embezzlement happens when a person takes or uses money or assets from an organization without consent. They can take small amounts of money over a time period to keep administrators from noticing. They can also take large amounts of money at once and cover up the crime. Embezzlement also occurs when funds are moved from one account to another or writing fake checks to make sure that the missing money is unnoticed. Embezzlement can be done by an individual, or it can be a collaboration between two parties or it can be done by a whole organization. For example, an embezzler may collaborate with a third party and create dummy bills and receipts of business activities. He will later transfer those funds into his and the third party’s account.
Types of Embezzlement:
- A Ponzi scheme is a type of embezzlement where the embezzler uses the asset of an investor for their gain and enhancement. To keep up with the fraud the embezzler will seek out investors to bring in more money to satisfy prior investors i.e., someone transfers another person’s asset.
- Taking small amounts of money from a large fund over longer periods, expecting the missing money goes undetected.
- Taking large amounts of money at once and hide the cash or disappear to not get caught.
- Taking money from the register before balancing it, adding more hours to an employee’s schedule are smaller forms of embezzlement.
- Cash is not the only asset an embezzler can transfer for personal use. He could transfer and use other assets like real estate, smartphones, laptops, vehicles, and other assets that belong to an organization.
- There are also personal forms of embezzlement. For example, cashing out your relative’s retirement check for personal use.
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- Forging checks: The embezzler writes company checks or he makes electronic payments to himself. He then tries to hide his theft by adding dummy entries.
- Cashing customer checks: The embezzler transfers funds by endorsing and cashing customer’s checks payable to the company.
- Faking vendor payments: It takes place when an embezzler steals company funds and tries to conceal them as payments to vendors.
- Overbilling customers: This occurs when an embezzler overbills their customers and keeps the extra money by covering it up with false accounting entries.
- Theft of customer card data: Embezzlers takes phone orders and later uses the customer’s card data to charge personal purchases online.
- Siphoning off cash deposits: The embezzler pockets some of the cash before dropping off the cash deposit bag at the bank.
- Pocketing cash from fundraisers: This takes place in businesses that raise capital for charitable costs. When the person has complete control over the process the temptation to embezzle is increased.
- Stealing products, equipment, or raw materials: It occurs when the employee takes a large number of office supplies at home for personal use. It is considered to be theft of supplies.
Embezzlement happens when an employee or trusted person steals money or assets from the business for personal use. It often implies a white-collar crime. The embezzler is usually charged with felony theft and in certain circumstances may also include jail time. The court orders the embezzler to repay the business. However, the embezzlers are rarely able to repay the business fully.
Author – Abha Shetty
About the author – Abha is a second-year BMS student and FRM level 1 candidate. She is very intrigued by the world of financial markets and hopes to master the art of investing and trading.