Embezzlement
Embezzlement is when someone is using funds for a different purpose than they were intended to be used.
Embezzlement of money is a category of offense which is a criminal offense
Offense with embezzlement is the fact that a person misuses, to the detriment of another, the funds that have been given to him and which he has received on the condition that he returns them, represents them or uses them for certain. These funds can be in the form of social funds, personal funds, company or public funds.
Funds must be transferred voluntarily (without coercion), and remittances must be made on a contractual basis (loans, deposits, money orders, employment contracts, exchanges, etc.).
Consequences of Embezzlement
The consequences for the organization can be dramatic (financial, image), it can occur in the public sector as well as in the private sector.
Fraud detection, prevention and investigation
Prevention involves regular monitoring, analysis of the accounting and financial data of the company and of all those that make up a group, if applicable. The purpose of these recurring investigations is to highlight fraudulent transactions. The installation of dedicated tools and software is necessarily one of the keystones in the detection of hijacking attempts.
These analyzes do not dispense with setting up additional processes such as, for example, the search for public information on companies or persons and the analysis of electronic data (whistleblowing & data-mining).
Other anti-embezzlement ideas:
- Appoint an “anti fraud officer”
- Create a code of ethics & risk mapping
- Employee awareness and training
- Awareness action
Communication is a key element in preventing embezzlement. Without fear of giving ideas to employees, the people in charge must take up the issue and raise awareness among all employees of the organization. Within the company, the allies of honesty outnumber the fraudsters.
In addition, when fraud is reported, the company must react diligently, because, beyond the direct financial damage, the absence of reaction could lead to misunderstanding and a feeling of impunity.
Examples and methods of embezzlement
The easiest example of embezzlement is forging checks. In this type of embezzlement, an employee writes a company check to themselves, then cooks books to conceal the theft. For example, an employee writes a company check to themselves, then cooks books to conceal the theft. The theft is made easier if your company uses a signature stamp of a senior employee’s signature. It’s like handing your employees a blank check since they can sign checks anytime without your knowledge. To prevent this type of embezzlement is to separate responsibilities, so one employee can process checks while another employee reconciles transactions and approves documentation.
The embezzlement of funds sometimes involves the falsification of records to hide the activity. Embezzlement often disburses relatively small amounts repeatedly, systematically, or methodically, over long periods of time, although some embezzlements spend large sums at once. Some highly successful embezzlement schemes have been around for years before being detected because of the embezzler’s ability to hide the nature of the transaction or their ability to gain the trust of investors or clients, who are then reluctant to “prove” the reliability of the embezzlement by forcing withdrawals of funds.
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Embezzlement of money should not be confused with diversion of funds, which consists of declaring income less than real and pocketing the difference. For example, in 2005, several managers at service provider Aramark were found to be underreporting the benefits of a series of vending machines in the eastern United States.
Although the amount stolen from each machine is relatively small, the total amount stolen from multiple machines over a period of time is enormous. A clever technique used by many petty embezzlers can cover themselves up by falsifying records. (For example, by erasing a small amount of money and falsifying the record, the record would be technically correct, while the manager would erase the profit and leave a float, this method would effectively short the record for the next user and place the blame on them).
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Another way is to create fake vendor accounts and provide fraudulent invoices to embezzled companies so that the withheld checks appear to be legitimate. Another method is to create ghost employees, who are paid by payroll checks.
These last two methods should be uncovered by regular audits, but often not if the audit isn’t deep enough, because the paperwork looks neat. Listed companies must change their auditors and auditing firms every five years. The first method is easier to detect if all transactions are made by check or other instrument, but if many transactions are cash, it is much more difficult to identify. Entrepreneurs have developed a number of strategies to address this problem. In fact, cash registers were created for this very reason.
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Sources: PinterPandai, Nolo, Sanction Scanner, Cornell Law School