Embezzlement

Why is embezzlement different from theft?

An embezzlement is a form of theft, specifically by an employee or other trusted associate. It is considered a white-collar crime because it is a breach of fiduciary duty.

Another term for embezzlement is misappropriation. It occurs when a person responsible for the safekeeping and accurate accounting of funds for a business or organization intentionally diverts some of those funds, often for themselves. Embezzlement differs from larceny because it involves a trusted employee or volunteer who has been vetted by the organization while larceny is a theft without such a relationship.

When discovered, embezzlement is usually charged as a felony crime, punishable by more than a year in jail, due to the dollar amount stolen. It becomes a federal crime when certain methods are used to take funds, such as mail fraud, or when taxpayer money is involved.

How it works

Some of the ways a person can embezzle money is by simply skimming cash taken in by a business. More sophisticated schemes include creating fake accounts, stealing checks, inflating invoices, overpaying themselves, diverting money to their own account, creating phony subcontractor accounts, forgery, and unauthorized refunds. Others may create a computer program to add an unauthorized charge to customers’ accounts and divert those funds to his or her own account, which grows over time.

Ponzi schemes may also be a form of embezzlement, as this method dupes people into investing in accounts or moneymaking schemes that are false or inflated. Ponzi schemes are similar to pyramid schemes which require an ever-expanding base of investors in order to pay a minimum return to the initial investors. Eventually, the fakery collapses when investors demand to be paid or when it becomes impossible to find enough new investors to keep the ruse alive.

These sorts of embezzlement were active in the 1840s and are mentioned in author Charles Dickens’ stories.

Avoiding embezzlement opportunities

As the case of the business accountant shows, embezzlement is a crime of opportunity as well as one of specialized knowledge. The crime is best committed when others are unfamiliar with the accounting or billing processes for a business or organization. That allows one person unlimited opportunities to construct a system of deception.

Some of the indications that an employee or manager could be tempted into embezzling include personal financial instability, debt, troubled family members, and mental instability. Also, there are statistics that show women are more likely to siphon off funds than men.

Famous cases

Bernard Madoff was a stockbroker at the top of a massive Ponzi scheme that ensnared about 5,000 individuals with the promise of spectacular cash dividends. Many people lost their life savings because they trusted Madoff, who raked in a record $65 million over several decades before he was turned in by his own sons. When the scheme was unveiled, several charities collapsed because their false investments were worthless; likewise, many retirees found themselves penniless for trusting Madoff.

Celebrities are frequent targets of embezzlement because they are often too busy making movies or recording music to spend much time tracking their earnings and expenses. One manager, who worked for singer Alanis Morrisette and others was sentenced to several years in jail for stealing at least $4 million from her and more than $1.5 million from other accounts he was entrusted with. Other victims of similar cases include Sting, Elton John, Billy Joel, and Rhianna.

Highly-paid athletes are also at risk for unscrupulous managers. Boxer Mike Tyson, basketball star Glen Rice, and others were all defrauded by the same manager.

But the wealthy who can “afford” to lose money – or who are less likely to notice it missing – are not the only victims of embezzlement. New York Times expose shows that nonprofit youth sports programs are also frequent targets of sticky-fingered money managers. While the amounts stolen are often less than that skimmed from celebrities, these sorts of small community organizations can less afford to lose a significant amount of the fees charged to parents for children to play.