Embezzlement is a kind of theft that can occur when the property that was stolen was in the legal custody of the thief. One of the most common instances of embezzlement is between an employer and their employees. In order to successfully be charged for embezzlement there are four elements that must be met:
Property: when considering what kind of property, embezzlement can be applied to both intangible property (access to funds) or personal property (cash in hand).
Ownership: an important factor for embezzlement is that one cannot embezzle their own property. The embezzlement has to occur between two parties that have a fiduciary relationship, which is a legal or ethical relationship between two parties. Embezzlement can occur between spouses and business partners as well.
Criminal Conversion: another key element for embezzlement is that the embezzler has to have taken the property from their rightful owner so that they can no longer use it.
Fraudulent: the final element is that the thief must take the property away from the original owner through fraudulent means with an intent to deceive the owner.
There are many different types of embezzlement. Below is a list of some of the most common:
This is usually where an employee will just take cash that has come into the business and not report the full amount of the sale while keeping the remainder for themselves.
Undercharging occurs when employees sell a good that is for a lower price than it is supposed to be. This can happen when employees give discounts to friends or family.
If an employee is provided with a laptop or cellphone and they resell it for cash, then that is embezzling as well.
Kickbacks can happen as embezzlement where one of the vendors of a company may give an employee a portion of the profit of the sale that is off the books that should be really going to the company.
Fake refunds happen when a cashier processes a fake refund and then keeps the cash for themselves.
Lapping schemes are more complex; however, the person that is running them needs to be involved in the finances of a company. If employee A pays the individual committing fraud $500 and they take $100 for themselves and then employee B pays the individual committing fraud $900, they would use the original $100 to satisfy the prior theft. Lapping Schemes, if they continue, can be devastating to an organization before they are detected.
There are three types of payroll fraud that include timesheet fraud, misclassification of employees or ghost employees. Timesheet fraud occurs when the employee fills out their timesheet incorrectly on purpose in order to gain extra hours or to be eligible for overtime. Ghost employees occur when an individual creates a fake employee and then cashes their paycheck for themselves. A misclassification of employees occurs when an employee is designated as an independent contractor rather than a full-time employee to avoid payroll taxes.
Creating fake expense reports can be a form of embezzlement when an employee claims they spent $5,000 and they only spent $200. If they keep the residual money they are reimbursed from their company; then it is a form of embezzlement.
Fictitious bad debt can happen when an employee receives a check from a customer, cashes the check, and keeps the check’s balance for themselves. Afterward, the employee writes the check off as a bad debt, which is damaging to their company’s finances.
Check kiting transpires when an employee will take advantage of writing a bad check in order to inflate their wealth. An example of this would be when an employee steals $500 of the check that will bounce in order to open their own separate bank account.
A fake loan can occur when an employee creates a fake vendor and claims the company owes that vendor money in the form of an installment loan. The company then pays the money to the employee rather than the vendor to satisfy the fake loan’s obligations.
Typically, it is best to report embezzlement of under $950 to the local police station. If the amount is larger than $950, it is recommended to report the embezzlement to the FBI. Be sure to have documented proof in order to avoid being charged for defamation.
Embezzlement occurs when property is stolen when a person has lawful possession of the property of another and decides to convert or take that property for their own use while having no intention of giving that property back. Signs of embezzlement can include rewriting records or personal checks being cashed and returned for unusual reasons. Some of the top areas where embezzlement occurs are in finance or accounting roles within organizations.