Embezzlement
Hello Investigators!
Now that we know the basics of fraud, we will be introducing to you the various types of more commonly occurring fraud over the next few weeks! If you have not read our first post on Fraud Triangle, do take a pause here and check it out, as we will be making references to some of the concepts explained there!
The first fraud that we will be introducing is Embezzlement.
What is it?
Embezzlement is when a person or entity misappropriates the assets entrusted to them. In this type of fraud, the embezzler attains the assets lawfully and has the right to possess them, but the assets are then used for unintended purposes (Hayes, 2021).
How does it occur?
There are many ways that embezzlement can occur: From collaboration with other employees & external third parties, to creating fictitious receipts or invoices that direct payment to the embezzler themselves. As the working environment continues to evolve due to the pandemic, more types of embezzlement methods might be deployed - even from a remote workplace!
A good example of embezzlement can be found in our News Flash section, where we recently covered a case that closely relates to embezzlement. Read more here: https://www.themaskedintelligence.com/news-flash/jail-for-woman-who-misappropriated-14m-from-charity-and-lost-most-of-it-to-a-scam
Can it be prevented?
Embezzlement happens more often than you think! According to the National White Collar Crime Center, it is estimated that employee theft and embezzlement cost businesses and organisations $400 billion per year (Russman, 2013). Embezzlement can affect a company’s continuity plans greatly, as they will be robbed of their assets and daily operational cash flows.
Since we have discerned that the embezzler has the legal rights to the assets, prevention should centre around the type of person that the company trusts, and ensuring the effectiveness of implemented controls. Such controls include, but are not limited to:
Appointing only a person that is highly trustworthy to access important assets.
Frequent rotation of the role (e.g., limit the tenure of the Financial Controller position to a maximum of 3 years). This could disrupt any potential embezzlement plans, or even uncover them.
Transactions should be duly approved by an independent party who is completely unrelated to the person issuing the money.
How does the Fraud Triangle apply here?
Now that we have understood what embezzlement is about, let’s have a look at how it links to the fraud triangle!
Incentive → Embezzlers might have personal reasons to misappropriate the funds / assets left in their care. These source of reasoning ranges from family, to satisfying their own desires.
Rationalisation → The company might be treating the embezzler badly, leading him/her to embezzle additional funds in order to “get what he/she deserves”. It could also be that the embezzler is someone deeply trusted by the boss, and hence thinks that his/her boss wouldn’t mind him/her taking some profits for personal keep.
Opportunity → In embezzlement cases, the embezzler often carries important roles and responsibilities, with no one supervising or checking on them. This creates an opening/opportunity for them to carry out the embezzlement as the probability of being caught is considerably lower than if the embezzler held less important positions..
Food for Thought
What do you think are other scenarios in which someone might attempt embezzlement?
References
Hayes, A. (2021, July 14). What is embezzlement? Investopedia. https://www.investopedia.com/terms/e/embezzlement.asp#:~:text=Embezzlement%20refers%20to%20a%20form,then%20used%20for%20unintended%20purposes.
Russman, R. (2013, October 28). How common is embezzlement? Russman Law. (2013, October 28). https://www.russmanlaw.com/blog/criminal-defense/embezzlement/how-common-is-embezzlement#:~:text=According%20to%20the%20National%20White,percent%20of%20all%20business%20failures.
