Many do not see the difference between being charged with another white- collar crime like larceny. The difference is this: with larceny, the perpetrator never had legal possession of the property carried away. While the crime of embezzlement requires that the perpetrator had lawfully possessed the property, but then converted it into his/her own property.
The following example illustrates the difference. A person walks onto a construction site and takes a hammer and then goes home. This individual will be charged with larceny, since he took someone else’s property, with the intent of never returning it. A construction worker on that same site, who uses the hammer every day, puts it in his pocket at the end of the day takes it home. He had just committed embezzlement, because he was given the hammer to use on site, but when he took it off site, he converted it into his own property.
Depending on the amount of money or value of property involved, the government may file the case as a misdemeanor or a felony, punishable by fine/imprisonment or both. An embezzler is someone employed in a fiduciary capacity. A common mode of operation for embezzlers usually entails making false journal entries, altering documents, and manipulating expense records. This usually means making payments to “dummy” suppliers and vendors or diverting funds from legitimate accounts into “dummy” accounts.
The criminal act of embezzlement usually involves three phases: The first phase is the criminal act itself, taking money or property manually, by computer, or by telephone. Second, the embezzler conceals the act, by falsifying documents or by making misleading journal entries. Finally, the last act involves converting the stolen assets into cash and spending it.
At each stage, the embezzler is subject to detection. At the first phase, it usually requires the embezzler to be caught in the act. The second phase requires detection by auditors or accountants. Lastly, conversion of the funds can be detected by recognizing a change in the embezzler’s lifestyle. Virtually any business can be a victim of embezzlement. But the crime itself is difficult to detect. Thus, prevention is key to many businesses.
Internal controls are import aspect of a fraud prevention program. Typical controls could easily be implemented and such safeguards help to minimize opportunities for greed: (1) Do not use signature stamps for checks. They are too easy to misuse. Sign the checks yourself. (2) Minimize the number of employees who have signature authority on bank accounts. (3) Do cross training so that people have multiple functions insuring audits on each other’s work. (4) Do a background check on employees, especially those that handle the money. Clearly, there is more that could be done, but instituting a proper division of functions is a preventive measure.
For example, in the banking industry, the Office of the Controller of the Currency requires that all bank employees in the United Sates take at least seven consecutive days of vacation per year. Many cases of fraud have been discovered while employees were on vacation and unable to cover their tracks. While one can never really protect your business against all forms of theft or insure against dishonest employees or agents, internal controls should be a priority for all businesses.