How to Embezzle Money
To catch a crook, you have to think like a crook. Learn about these ways to embezzle money so you won't become a victim of embezzlement.
Embezzlers are out there, and they are more common than you might think.
(article continues below)
Look around the office. Is it possible one of your employees is an embezzler?
Every day there are newspaper stories about how an employee has managed to divert company funds to his or her own pocket.
For example, I recently read about a bank employee who set up a line of credit for a business - without ever telling the business owner.
The bank employee proceeded to draw on the line of credit and racked up a big debt for the business while spending the money at a local casino.
In another instance, a friend's father ran a consulting business with a partner. Unbeknownst to him, the partner set up a secret business account using their company name. Every so often, he would deposit business checks into his secret account, effectively stealing the money for his own purposes.
While these embezzlers were caught, many talented embezzlers never get caught. If you own a business and think you are immune to embezzlement, then you are a great target for an embezzler.
Get vigilant or get victimized. That's our advice to you.
So What Is Embezzlement Exactly?
In legal speak, embezzlement is the fraudulent appropriation of property by a person to whom it has been entrusted.
The key word here is entrusted. That's what makes this crime different from ordinary theft or larceny. The embezzler is someone in your company whom you trust.
Embezzlers usually think that they are smarter than the owner manager and cunning enough to beat the system. Before you set about to outwit them, it is a good idea to be familiar with some of their methods of operation.
Common Ways to Embezzle
Methods of embezzling are limited only by imagination. Here are a few of the more common methods:
- Stealing Cash. In the simplest situation, cash is received and the employee merely pockets it without making a record of the transaction. This is especially popular in cash businesses, such as bars or restaurants.
- Lapping. In a lapping scam, a receivables clerk might steal a $1,000 cash payment made by customer A. To avoid arousing suspicion, they steal $1,000 from a $2,000 payment made by customer B a few days later and use that to "pay" customer A's bill. The process continues and the employee makes away with increasingly larger amounts of money, involving more and more accounts.
- Check Kiting. Check kiting takes advantage of the time period between deposit of a check and collection of funds. The check kiter steals money from the company and deposits the money in an account. He then writes checks back and forth between two bank accounts, his own and that of the business, each time escalating the amount of the check. In effect, the money exists in two accounts at the same time.
- Payroll Fraud. Enterprising embezzler sometimes add relatives or fictitious individuals to the company payroll and thus enjoy several salary checks each week instead of one.
- Fake Loans. Taking out a loan for a business and not telling the owner is a common way for embezzlers to get their hands on cash quickly. When the loan eventually comes due, the embezzler is long gone.
- Undercharging. Cashiers in retail firms can undercharge relatives or friends for merchandise.
- Fictitious Bad Debt. After depositing a check from a customer in his or her personal account, the embezzler/accountant may record the receivable as bad debt, as if it had never been paid.
- Fraudulent Vendor Purchases. A dishonest employee may set up a dummy supplier and creates bogus documentation of fictitious purchase transactions. He pays the fictitious vendor, i.e. himself, and spends the money on a new car or some other indulgence.
- Fake Refunds. A fake refund involves issuing a refund to a customer that doesn't really exist and pocketing the money.
- Kickbacks. Purchasing agents can accept kickbacks from suppliers from purchasing goods at inflated prices.
- Bogus Expense Receipts. Salespeople and others can pad their expense reimbursement requests. Alternatively, personal items can be bought and charged to the company.
- Stealing Office Supplies. Employees can make personal use of company postage stamps, supplies and equipment, as well as charging personal long distance phone calls to the business.
Andy Grove, head of Intel, once wrote a popular book called Only the Paranoid Survive. Since there are so many ways to embezzle money out from under your nose, it certainly pays to be paranoid. If you think you are safe from embezzlement, you're an easy target.
Want to learn more about this topic? If so, you will enjoy these articles:
Journal Entry Procedures
We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.
It seems to me that my partner is getting kickbacks from suppliers and stealing office supplies. For some reason, he often transfers money between our business accounts and his other businesses, which makes me suspicious. So, what can I do? I already contacted the attorney but he does not help. Are there any other ways to stop it? I am planning to file a lawsuit, but how can I catch him?
Once you have a case against your business partner, you should report it to the police. Most police departments in large cities will have a Financial Crimes Specialist of some sort. As to how to catch an embezzler, you may want to meet with a forensic accountant and explain the situation. A forensic accountant may be able to prove embezzlement from your accounting records. If not, a private detective may be able to assist. Good luck.
Hire a CPA to do the investigation.
Once you have evidence, go to an attorney who has experience with this.
I suspect a co-worker has set up a bank account under the same name as our company (Example: Co name is "ABC", and coworker's bank acct is "All Babies Cry" so our company checks are being accepted & deposited into her ABC acct. Another clue, her last name is included in her company name. This company cannot be located in the phone book or on the internet. Lots of other coincidences exist. We have cancelled checks with stamped endorsements, and the bank says they legally cannot release information about the account holder. What do we do?
I recently learned my acct.was paying all his credit cards from my bank account. By coincidence we had two of the same Credit card Companies. The total so far is around 55,000. I would like your thoughts on punishment as he has admitted to the crime and is going to work out a plan to re-pay me, in lieu of prison. I have also told my atty. and he is going to meet with him. Help?
Never let the same person handle the purchasing and the paying. This is the check-and-balance. When the person paying the bill sees a purchase that looks out of line they should alert you. If your payables person is writing checks for things without purchase orders you should investigate them. Trust no one. That's the first rule of accounting. I have caught many people stealing over the years this way. Watch the money. Do not allow account transfers. Read your profit and loss statements and notice the details. It's your job to run the company and watching the money is an important part of that.
I run a fast food restaurant and am running a food cost of almost 2% higher than two nearby stores (same brand) in our company. I suspect theft by taking in funds for orders but not ringing them into our system. I've never come across this before. Do you have any ideas on how to catch this type of activity?
Stephanie, stealth video cameras on the cash registers and the order counters is one way. Trusted mystery shoppers would be another way.
I was recently accused unjustly of stealing $4,000.00 from a large company chain. They had absolutely NO EVIDENCE to accuse me. They refused to let me see the "evidence".I did not steal the money because that is not my way, however, I believe I have been set-up by a one or more people that also work there. I am 99.99% sure I was set-up and 99.99% sure of who did it. How can I prove this? (I lost my job and my crediblity is at stake. I was never arrested (gee,I wonder WHY). I want to file a lawsuit against this company and against the person(s) who set me up. Please help!
Stephanie, When I was in high school, (over ten years ago), a group of kids at school worked across the street from the school at a local Arby's and showed me how they were stealing cash, with cameras. One of the guys would block the camera and pretend to be working on something while another one "rang up" an order. They would go through the whole thing without finalizing the sale, put the money in the register and close it almost all the way, and after the customer left or moved away from the counter, they would pull out the amount of the sale and delete the sale, so that a VOID wouldn't show up in the register records and raise suspicions.
I've got another crazy story while I was in college working a restaurant job where a group of about five guys were ripping off the restaurant thousands, if not tens of thousands, of dollars a month by cheating the system.
I am the treasurer of a sports booster club and we recently set up a separate account for our concessions person and first thing she did was write a $1500.00 check to herself and deposit it in her personal account and then a week later she wrote a check to Bank of America for $400.00 and wrote in the memo: Reimbursement. Our organization does not bank with Bank of America and the concessions chair is stalling in presenting any receipts for the money spent. What should I do?
Joe Thomas, freeze the account immediately or else your employee may continue to steal money, if that's what she is doing. I would present your evidence to the board and recommend termination. In the future, you may want to require two signatures on checks to make it more difficult for people to embezzle the organization's money. Good luck.
One of my close family friends lost her business and her home due to an accountant embezzling approximately $180,000. She now owes a lot of money to the IRS and they are sending her demands for payment. She wants me to write a letter to the irs for her because she's not too skilled in the english language. Could somebody please point me in the right direction?
my employer gave me and two other employees a percentage of ownership in the company via a contract for the past few years since we made the deal the company has not made a profit, we only get profit and loss statements that were created by him and the company controller, I have found evidence that the statements are not correct and they show expenses higher than actual creating a loss in net profit. Is this a crime or just breach of contract?
Todd, I asked my friend who is a criminal defense attorney about your question. He said: "While it may be criminal, it sounds like one of those crimes that is never charged because it would be so difficult to prove. The police cannot just show up and say show us your books. They would need probable cause for a warrant. Even if you could obtain financials, most accountants or financial records keepers could set things up so that there are no profits. The best bet would be to start a civil suit and hope you find proof of intentional deception. Even then, the owner could blame the accountant and vice versa. My understanding is that this sort of thing happens all the time, and no one is prosecuted."