Part of your job as a business owner is to track and protect your company resources. This includes looking for signs of embezzlement or employee theft. To do this effectively, it helps to know the various types of embezzlement that are common in small businesses. Read on for a full list of examples of embezzlement.
What Is Embezzlement?
Embezzlement is the misuse or theft of company funds or company property. There are a variety of ways that an employee or business owner can steal or misappropriate resources, which you can see in the list below.
How Does Embezzlement Happen?
Embezzlement occurs when an employee or business owner steals or misappropriates company funds. For example, an employee may accept payment for a transaction without placing funds in the company bank account. See the list below for more embezzlement examples.
Common Examples of Embezzlement and Employee Theft
Embezzlement refers to a wide range of actions where employees or decision makers steal or misuse company resources. To protect your small business, here are several examples of embezzlement to know. And if you’ve ever wondered, “How do I handle embezzlement and employee theft?” you can also find tips under each example.
1. Voiding Transactions at the Cash Register
When an employee enters a transaction and collects money, they may then void the transaction and keep the money for themselves. This can be difficult to detect, because the system should balance out, but the customer still received their product or service, and your company doesn’t receive the funds.
Prevention: Many modern point of sale systems have settings that require a supervisor or manager’s approval to void a sale. Upgrade your system or enact this feature to avoid giving employees this opportunity.
2. Pocketing Cash Payments from Fundraisers
If your business or organization hosts fundraisers, you may collect donations that aren’t counted right away. If just one worker has access to these funds before they’re appropriated, they may collect some for themselves.
Prevention: Have more than one employee in charge of collecting and counting funds.
3. Cashing Customer Checks
An employee may set up a bank account with a name similar to the company. Then they can cash customer checks or divert electronic payments into their account instead of the company’s.
Prevention: This crime is most common where one employee is responsible for both collecting payments and keeping track of accounting records. Separate responsibilities so there are multiple people who can catch potential issues.
4. Overbilling Customers
An employee may charge customers more than your company’s rate for a certain product or service, or add on extra fees and pocket the extra money.
Prevention: Conduct periodic audits of customer billing practices, and look into customer complaints surrounding billing or extra fees.
5. Forging Payments
An employee may write checks to themselves or transfer funds from the employee bank account if they have access to your information and signature. They may then create fraudulent accounting entries to cover up these payments.
Prevention: Avoid giving access to your electronic signature, and audit expense payments to catch any oddities.
6. Faking Vendor Payments
An employee may set up fake vendor accounts or edit accounting entries to make it seem like payments are being made to vendors. But then they send that money to themselves.
Prevention: Review all payments to vendors periodically, or have more than one worker check your entries.
7. Stealing Customer Credit Card Data
Employees who collect customer credit card data to complete purchases may then record the numbers to use for their own purchases. This is stealing directly from customers and can lead to lack of trust for your business.
Prevention: Use payment software that redacts the full credit card number and avoid taking information manually unless absolutely necessary.
8. Double Dipping
Employees may collect extra money from your expense account by first charging the expense to their company credit card and then requesting reimbursement funds as if they paid for it themselves.
Prevention: Separate responsibilities so other employees can check if an expense has already been covered. Expense management software can streamline this process.
9. Misusing an Expense Account
Employees may also request reimbursement for expenses that aren’t related to company functions. For example, they may try to get a personal lunch covered, even if they weren’t meeting with a client.
Prevention: Create a clear policy of what is and isn’t covered. Then use expense management software to collect data and receipts.
10. Misusing Employee Discounts
If a store or restaurant offers discounts only to employees, some may attempt to offer those privileges to friends, family, or others.
Prevention: Create a strict policy regarding who can and cannot use these discounts. Check on excessive purchases made by any employee.
11. Stealing Cash
Employees with sole access to cash may take small amounts, hoping they won’t be noticed. However, these small increments can add up over time.
Prevention: This theft often occurs when one employee is responsible for county money or making bank deposits. There are many cash-handling best practices your business should follow to avoid this, including having more than one person complete these deposits.
12. Stealing Office Supplies
An employee may steal supplies from your storage area and bring them home or even sell them.
Prevention: Keep only small amounts of supplies accessible at one time. Or have employees request when they need more of a particular item.
13. Stealing Equipment
Equipment often includes larger items like computers or tech. Employees may take these items home or sell them for cash.
Prevention: Have employees sign out large devices, or require that they remain in the office.
More Embezzlement Examples to Know
Embezzlement refers to a huge range of actions that employees or decision makers take for personal gain. Here are even more examples of embezzlement for business owners to know.
14. Selling Trade Secrets – Corporate Espionage
This type of embezzlement occurs when an employee sells proprietary information to a competitor.
Prevention: Only give access to information that is essential for each person’s roles. Use secure storage for important data, and track who has access.
15. Using a Company Credit Card for Personal Use
If your employees have access to company credit cards, using them for personal purchases may qualify as embezzlement.
Prevention: Set clear rules for credit card usage and review purchases regularly.
16. Burglarizing Your Location
Employees who have inside knowledge about your location, like alarm codes or locations of valuables, may participate in burglaries.
Prevention: Use security cameras and alarms, and carefully track who has access to sensitive information.
17. Stealing Merchandise
Retail employees may steal physical products off the shelves or take items that have recently been returned:
Prevention: Set strong inventory and returns practices, and use security cameras to monitor activity.
18. Claiming Lost Equipment
An employee claims a laptop or other equipment was stolen. They get a new one and keep the old one or give it to a family member.
Prevention: Use software to track the location of company devices or disable them if they’re lost or stolen.
19. Creating Ghost Employees
Employees that control your payroll may set up new employees that don’t exist. They “pay” these fake employees and keep the money for themselves.
Prevention: Regularly review payroll documents and compare them to employee records. This is also a top reason why payroll is one function you should outsource to a reputable provider.
20. Stealing Tax Funds
Employees responsible for tax payments may keep that money for themselves. Not only are those funds missing, but you’ll also be on the hook for a larger tax bill.
Prevention: Audit your tax practices regularly or outsource this function to a reputable tax service.
21. Collecting Kickbacks
Kickbacks are payments from vendors to employees in exchange for your company’s business or other perks.
Prevention: There are many ways to better manage your accounts payables and accounts receivables. Start by choosing vendors yourself or create a committee to make these decisions.
22. Identity Theft
This type of embezzlement occurs when an employee uses your business name to open credit cards or take out loans to use for their own purchases.
Prevention: Regularly check your company’s accounts and credit score to note any irregularities.
23. Using Company Resources to Start a Business
If an employee uses company time, equipment, or funds to start their own business without your knowledge, that qualifies as embezzlement.
Prevention: Set clear rules about how company resources are to be used.
24. Ponzi Schemes
A ponzi scheme occurs when a company or individual promises high returns to investors or stakeholders but pays them with money from new investors instead of with the product or service the company claims to provide. This type of scheme is most common in financial management and retirement planning businesses.
Prevention: Track how money is brought in and where it goes. If working with investors, be completely transparent about the origins of funds.
25. Falsifying Business Records
Many forms of embezzlement involve falsifying business records to cover up the misappropriation of funds or to defraud investors.
Prevention: Find a reputable bookkeeping company to outsource these tasks to, and audit your records and finances periodically.
Is Embezzlement a White Collar Crime?
Yes, embezzlement is one of the most common white-collar crimes. The severity and type of charge can vary widely, but it is generally considered to be a form of theft or fraud.
What Is the Punishment for Embezzlement?
The type of criminal charges one might face for embezzlement can vary widely based on the situation and the amount of money or resources that were stolen or misused. Laws also vary by state. Minor embezzlement charges are often considered misdemeanors, which may involve fines or jail time. Felony embezzlement may include serious prison sentences of up to 15 years.
Can You Embezzle from Your Own Company?
Embezzlement occurs when funds or resources from a business are misused for personal gain. If you are the sole owner of your business, you generally cannot be charged with embezzlement, as you’re the owner of those resources. However, if your company is part of a partnership or has multiple stakeholders, your misuse of funds could be considered fraud.