Embezzlement is a white-collar crime in which a person or entity commits fraud and misappropriates assets entrusted to them. Though the assets may be legally acquired, their use for unanticipated purposes qualifies as embezzlement. It violates fiduciary responsibility. It is a deliberate and meticulous crime. The most typical types of embezzlement are cash theft and the use of business credit cards for personal spending..
Did you know? The most common form of embezzlement is simple cash skimming.
Overview On Embezzlement
One or more people who were given assets to hold onto or use for specific purposes withhold them with the intent to convert them, which is considered the crime of embezzlement. Embezzlement is considered a planned and deliberate crime. Specific components must be proven before a prosecutor may prosecute someone with embezzlement. When a person is charged with embezzlement, lawyers and courts analyze specific factors, and if one or more are lacking, the charges may be altered to robbery or theft.
Features and Characteristics Of Embezzlement
Embezzlers might create bills and receipts for activities that did not occur and then use the money paid for personal expenses. The following are some of the features of embezzlement:
- A person accused of embezzlement should not believe that the money or property is truly theirs. The wrongful deprivation of a person's property constitutes the crime. For example, taking small amounts of cash from the cash register while truly believing it is there for company meals is not called embezzlement.
- The defendant must have been given money or property. For example, one of the salespeople taking cash from a grocery store checkout is more theft than embezzlement because the seller was not entrusted with the company's finances. However, if a grocery store's accountant steals money from the cash register for personal use, this is deemed embezzlement because the accountant is in charge of the company's finances.
- The defendant must recognize that he committed a crime by obtaining money or property. If the person does not recognize their improper actions, they may face another charge. For example, theft is stealing from someone else instead of embezzlement.
- The intent is another aspect of crime. To be guilty of embezzlement, a person must have purposefully taken control of money or property to deceive the firm's owner. If someone takes assets intending to return them, it is not deemed embezzlement, but it may be termed fraud or theft.
Effects of Embezzlement
The nature of embezzlement could be small or large. Embezzling funds can be as minor as a store clerk pocketing a few bucks from a cash register.
- An embezzler violates the employer's confidence. As a result, in addition to the time degradation caused by legal processes, the employer suffers monetary or asset loss. Such blunders might make employers wary of all employees. Furthermore, such offenses disturb internal administration, making a strong control mechanism within the firm important.
- Furthermore, account manipulation leads to inaccurate reporting of company performance. It has the potential to harm the brand's image as well as current consumer relationships. When embezzlement becomes public, the stock price of a publicly traded corporation may fall.
Types of Embezzlement
In case of embezzlement the property comes lawfully into the possession of the embezzler who then fraudulently or unlawfully appropriates it.
Siphoning or Skimming Cash
Most embezzlers who work at cash registers and front desks commit this crime. They retain some cash from the clients while purposefully failing to register the transaction in the computer system.
This kiting scheme involves a party other than a bank to unknowingly offer temporary funds to an account holder. Fraudsters purposefully issue a cheque for a sum larger than the account balance from a single bank. Then they draught another cheque from another bank's account, again with insufficient cash. The second cheque is used to cover the first account's insufficient funds. In this manner, the fraudsters artificially inflate the amount of a cheque account in order to avoid cheques from bouncing.
Employees might even generate money illegally by coordinating with a vendor. The employee makes high-priced purchases on behalf of the company that benefits the vendor, a co-conspirator. In this way, the embezzler extracts a margin.
Embezzlers in labor-intensive organizations' human resources departments frequently insert the names of family members or acquaintances in the employee registration. They draw money against fake paychecks in this way.
Such wrongdoing arises when businesses enable their personnel to take consumer bearer cheques or cash payments. The entrusted individual conducts fraud by redeeming the check in his or her own account rather than the company's account.
Embezzlement In Government Sector
Embezzlement may occur in the government sector as well if personnel take advantage of local, state, or national financing. Such incidents can occur when funds are given to complete contracts or support projects and a member of the staff steals some of the money that was set aside.
Transfer of Assets
Aside from money, an embezzler may transfer other assets. An embezzler may take the business real estate, company automobiles, cellphones, and other electronics such as laptop computers for personal use.
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How To Combat Embezzlement?
Theft and embezzlement account for more than 50% of business failures. However, employers can develop strategies to combat these white-collar crimes.
Embezzlement starts with the breach of trust of a person endowed with the authority to care for the property or money of another. Reasonably, one of the first steps an employer can take is to vet prospective employees carefully. In addition to conducting thorough background checks, assessing character traits via personality tests could reveal undesirable behaviours. Before recruiting full-time employees or contractors, it's a good idea to complete your research.
Incorporating extensive background checks in your recruiting process for high-level positions where individuals may have access to your finances and computer systems is a good idea. If you choose this path, you must develop a background check policy for your organization. The policy should specify what checks will be performed, how the information gathered will be utilized, and who will have access to it. This will ensure that the process is fair, safe, and transparent for all parties involved.
A security and surveillance program may help discourage corporate crime, particularly if carried out by a professional risk management team or an impartial third party. These risk managers can set up internal controls to monitor behaviours, allow for anonymous reporting of questionable activity, and perform periodic audits to uncover theft.
Early detection reduces losses and protects the company's reputation and the individuals it serves. Employers should state unequivocally that they have a zero-tolerance policy for criminal conduct such as embezzlement and disclose the ramifications of such violations. Every organization should foster an open and fair culture, encouraging employees to be watchful and report misconduct.
Classification of Roles
Separation of roles indicates that more than one individual must complete some jobs. Internal fraud becomes substantially more difficult when tasks involving money, accounts, and checks require several employees' participation.
For example, if one person has the authority to authorize payments and issue checks, they might easily abuse this authority. When these responsibilities are spread across numerous employees, it becomes more difficult for anyone in that chain of employees to carry off a hoax. It's also good to need two people to sign off on all internet transactions. Any company account information changes should be handled and authorized in person or over the phone. Managing these financial operations via email exposes your firm to risk.
Making frequent cash deposits ensures you never have too much money. It would help if you also made an effort to balance your bank statements every month. This will help you to rapidly detect any anomalies or difficulties, allowing you to halt the fraudsters and avert big losses. You should also use caution while dealing with tiny cash. This is often a modest sum of money that a company keeps on hand to make changes or for small purchases that do not necessitate checks or transfers. Because nobody pays attention to this money, it's an easy target for dishonest personnel.
The accusations and punishments levied against an embezzler vary by state. Every country has its embezzlement statute. The person has to pay ₹5 lakhs to ₹250 lakhs or three times the profit made from such practices for embezzlement in India. Punishment for embezzlement includes imprisonment for 2 years, or fine. It can be bailable and triable by a magistrate compoundable by the owner of the property misappropriated with the permission of the court.
People who are entrusted with access to an organization’s funds are expected to safeguard those assets for their intended use. It is illegal to intentionally access that money and convert it to personal use. Furthermore, some embezzlers employ technology to manipulate computer systems, allowing them to conduct fraudulent activities.
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